Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | On August 21, 2019, in the second round of the cannabis retail license lottery in Ontario, the Alcohol and Gaming Commission of Ontario (AGCO) announced 50 approved companies and individuals from the 4,864 eligible interests that applied to be considered for a cannabis retail store license.
This follows the Provincial Government’s announcement on July 3, 2019 regarding plans to make 50 new cannabis retail stores available, of which 42 may be obtained through a lottery and eight that are allocated to the First Nations reserves.
The first round of approvals in January 2019 only accepted 25 companies, mainly due to the Federal Government’s concerns over serious supply constraints from licensed cannabis producers.
The first cannabis lottery had more than 50,000 companies expressing interest in a license, which resulted in stricter criteria for the second round of lottery which forced companies to show evidence of an eligible location that is operationally capable by October 2019 and C$250,000 in cash to prove that the company had working capital and intentions to actually run a cannabis store.
As seen on the graph above, the majority of companies being accepted to apply for a retail cannabis license are in the Toronto Region and the West Region.
Certain regions do not have many areas that are compliant to operate a cannabis store within the stringent Provincial guidelines (i.e. too close to schools), therefore in regions such as the East, three companies who were approved have their retail locations on the same street within the same block causing confusion from cannabis experts and lawyers on the benefit of having so many retail stores close together.
In comparison to Canada where the Federal Government closely monitors and regulates retail cannabis licenses, certain States in the U.S. allow easy access for retail cannabis licenses. Colorado, the first State to legalize recreational cannabis with over 500 cannabis stores and a population of 5.7 million, reported US$1.5 billion in retail cannabis sales in 2018, a 126% increase and 18% CAGR from 2014. As of June 2019, Colorado has recorded a total of US$6.8 billion in retail cannabis sales since January 2014.
In comparison, Canada had only C$85.6 million of sales in May, annualized would equate to C$1.0 billion, for a population of 37.1 million – 6 times the size of Colorado!
According to BDS Analytics, cannabis retailers in the U.S. including both recreational and medical companies, reached total sales of US$10.5 billion in 2018, a 22% increase year-over-year.
As Ontario slowly rolls out cannabis retail stores through a lottery system that has received mixed reactions, it is evident that the U.S. is ahead in successfully implementing retail cannabis stores, with states such as Colorado starting to become saturated with retail cannabis stores.
Only time will tell if Canada’s introduction of retail cannabis stores can catch up to the hundreds of stores in legal states in the U.S.
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