TORONTO — Ontario has selected 42 operators who can apply to run the next wave of cannabis shops in the province. But some analysts say the new pot stores still won’t be enough to combat pot sold on the black market.

AGCO regulates the stores

The Alcohol and Gaming Commission of Ontario — which regulates the sector — held the province’s second cannabis store lottery Tuesday. And the results were announced on Wednesday. The new pot stores, when approved, will more than double the number of marijuana outlets in the province.

“The AGCO will only licence applicants and authorize pot stores that meet all legal and regulatory requirements,” the agency said in a statement, noting that the aim was to have new stores open in October.

Unlike the first lottery for 25 stores, applicants in the latest draw had to show they had secured retail space. And the retail space could be used as a pot store if they were selected. Also, the applicants had enough capital — $250,000 on-hand — to open it.

Those selected now have until Aug. 28 to pay licensing fees, and provide a letter of credit for an additional $50,000 to the regulator.

Another eight pot stores will be located on First Nations reserves. They are being approved through a separate process. Applicants for those licences were selected last month and are currently being greenlit, the AGCO said.

The latest lottery and the on-reserve stores mean the number of pot shops in Ontario will eventually rise to 75. But some observers said that still it wasn’t enough.

Omar Khan, a vice president at strategy firm Hill+Knowlton who advises cannabis sector clients said:

“Fifty more licences is a good step, but it’s nowhere near what they need to do to actually deal with the illicit market.” Omar further said,”What that means is that the small business person whose taken out a line of credit and put money down for the lease is facing some stiff competition from those who aren’t necessarily following the legal framework. To me, that’s quite unfair.”

David a principal at consulting firm Navigator who is a former executive at the Ontario Cannabis Retail Corporation, also said the black market continued to be an issue.

“Every additional store in Ontario will help towards eliminating the illicit market, but the province still has a long way to go,” he said.

The latest lottery winners appear to be a mix of sole proprietors and numbered companies. The companies could turn out to be part of larger entities, Phillips noted. Small business owners who were selected will likely have to partner with companies who have experience in the field, he said.

“That suggests we’re likely setting ourselves up for another feeding frenzy. Where these lottery winners will be out seeking partnerships with well-known commercial enterprises. And essentially auctioning off their golden ticket to the highest bidder,” he said.

AGCO rules prevent a lottery winner from actually selling their store outright. But it do not prevent limited ownership stakes and consulting contracts with larger companies, Khan said.

Ontario’s new stores:

The 42 new stores will be distributed regionally, with:

  • Thirteen in the city of Toronto
  • Six going to the Greater Toronto Area
  • Eleven in the west region
  • Seven going to the east region
  •  One each in Kenora, North Bay, Sault Ste. Marie, Thunder Bay and Timmins, in the north.

Phillips said the random nature of the lottery may create problems for communities when it comes to the location of their pot shops. For example, three applicants won licences to apply to locate stores on the same street in Innisfil, Ont.

In Toronto, five of the lottery winners have leased shop space on Queen Street, where two pot shops already operate, he said.

“That suggests that Queen Street in Toronto is going to quickly turn into cannabis row,” he said. “That’s a consequence of them setting up a system where essentially the applicants could decide where the store location was going to be and then because its subject to a draw you’re essentially leaving it to chance.”

Shawn Jeffords, The Canadian Press