Cannabis companies jockey for share of Ontario's pot shops

A battle is brewing over how Premier Doug Ford's government will divvy up the private sector's share of Ontario's retail cannabis market.

Doug Ford's government has yet to decide how many weed retail licences any one company can hold

Seedlings are shown at an Aurora Cannabis grow facility. The company owns 25 per cent of retailer Alcanna and fears it could be shut out of the Ontario retail pot market by the terms of legislation currently being considered at Queen's Park. (Ryan Remiorz/Canadian Press)

A battle is brewing over how Premier Doug Ford's government will divvy up the private sector's share of Ontario's retail cannabis market.

Legislation that would allow companies to operate pot shops in Canada's largest province is now under scrutiny at Queen's Park and businesses are trying to influence key details of the bill. 

Once crucial aspect of the retail regime that's still to be decided: how many cannabis retail licences any one corporation can hold. Government officials say there will be a limit, but that limit has not yet been set. 

This coming Wednesday, when the prohibition on recreational pot ends across Canada, the only legal way to buy it in Ontario will be through the government-run online retailer.

Pot producers limited to only 1 retail outlet

Storefronts selling pot will not open until April 1. That's because the Ford government this summer scrapped the Wynne government's plan for provincially-owned pot shops, instead opening up the market to the private sector. 

Jean Lepine, managing director of BlackShire Capital, a Toronto-based private equity firm, told a legislative committee at Queen's Park that the government should not allow large cannabis producers to dominate the retail side of the market. (Ontario Legislative Assembly)

The Ford government is proposing to limit licensed marijuana producers and their affiliates to just one retail outlet, and that clause is drawing attention. 

Licensed producers should not be allowed to own any interest in cannabis retailers, says Jean Lepine, managing director of BlackShire Capital, a Toronto-based private equity firm that invests in privately-held cannabis companies. 

"Some of Canada's biggest licensed cannabis producers ... are stealthily working behind the scenes to ensure they have a position of power in cannabis retail in Ontario," Lepine told a legislative committee looking at the bill last week.

He said the government should not give large producers an advantage that will allow them to dominate the retail side and shut out small businesses. 

Lepine cautioned the government against allowing what he called "a Beer Store model" — giving the big breweries control of retail and limiting craft breweries' ability to reach customers — to take shape in the cannabis industry. 

When the prohibition on recreational pot ends across Canada on Wednesday, the only legal way to buy cannabis in Ontario will be through the government-run online retailer. Storefronts will not open until April 1. (Robert F. Bukaty/Associated Press)

One of the world's largest producers of medical marijuana and the pot retailer that it partially owns are urging the government to do the exact opposite of what Lepine suggested. 

Aurora Cannabis has three pot production facilities in Ontario and will provide recreational supply to the Ontario Cannabis Store. The company also owns 25 per cent of Alcanna, one of North America's largest alcohol retailers, now about to become a cannabis retailer: Alcanna owns five pot shops granted interim licences in Alberta as legalization begins. 

They fear that Alcanna will be shut out of Ontario by the proposal to limit licensed marijuana producers and their affiliates to just one pot shop at the producer's facility. 

"Creating a retail system designed exclusively for small independent operators risks being a recipe for failure in the face of what we expect to be fierce competition from organized crime in the black market," Alcanna's senior vice president David Crapper told the committee hearing this week. 

"We are concerned that an overly narrow definition of 'affiliate' will eliminate several innovative and forward-looking retail partnerships from the Ontario market, including the one that exists between Aurora and Alcanna," said Andrea Paine, Aurora's national director of government relations. 

Bret Mitchell, president and CEO of the Nova Scotia Liquor Corp., gives a preview of the cannabis section of one of its stores in Halifax. (Aly Thomson/THE CANADIAN PRESS)

Paine is urging the government to allow producers who have multiple facilities to have multiple retail licences. She is also raising a red flag about municipalities' powers to opt out of pot shops. 

"If the city of Markham opts out, we may not be able to operate our store at our Markham facility," said Paine.

More than two dozen witnesses made presentations to the committee considering the bill during two days of hearings. 

Convenience store owners are concerned the government will design regulations that will stop them from moving into the retail pot market. 

"Please do not set a minimum size limit on a cannabis store," said Steve Tennant, chief operating officer of Gateway Convenience Stores, at the committee hearing. "We do not want to be excluded from the option of selling cannabis simply because of the size of our store."

"I don't think you need to fear licensed producers taking over the industry," said Terry Lake, vice president of corporate social responsibility for Hexo Corp. — a licensed producer of medical cannabis, currently operating in Quebec, poised to open a warehouse in Belleville.

"You can put restrictions on ownership, as Alberta has," said Lake. Alberta is limiting each company to 15 per cent of the province's retail cannabis licences. 

About the Author

Mike Crawley

Provincial Affairs Reporter

Mike Crawley is provincial affairs reporter in Ontario for CBC News. He has won awards for his reporting on the eHealth spending scandal and flaws in Ontario's welfare-payment computer system. Before joining the CBC in 2005, Mike filed stories from 19 countries in Africa as a freelance journalist and worked as a newspaper reporter in B.C. Follow him on Twitter @CBCQueensPark