Cannabis took a huge step forward last year when it was legalized in the entire country of Canada. However, as it begins to roll out in the north, some problems are beginning to pop up.

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When an entire country legalizes something for recreational use, there is going to be a demand, which Canadian officials took into account. A country with over 37 million people probably doesn’t have a large supply of a drug that was previously illegal just a short time ago.

So in Ontario, the most populated province with over 14 million people and home to their nation’s capital, officials at the Alcohol and Gaming Commission of Ontario (AGCO), which is the federal body that oversees cannabis, decided to roll things out slowly.

Online sales of cannabis have been legal since the drug was legalized in the country, but in-person sales were paused to come up with regulations. Even online, many people stuck with the black market due to the easier prices and better selection. Nonetheless, officials still worried about a shortage and about rushing things.

Authorized cannabis retail stores infographic Source: AGCO

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Retail Stores In Ontario

Raymond Kahnert, Senior Advisor of Communications with the AGCO, told The Stash that on Dec. 13, 2018, the government of Ontario had decided to cap the initial limit of cannabis stores to only 25 in the province, so a supply could be built up, even though the goal was to have no limits on stores.

Only 25 stores for 14 million people were planned, but even less opened.

When the rules were decided for Canada’s cannabis plans, Kahnert said that those interested in opening a store could apply for a license and those selected would be chosen through a lottery system.

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Interested applicants had to submit the appropriate forms, get picked in the lottery and submit a $50,000 letter of credit. This letter of credit did not mean they had to pay that money up front, but that the parties interested would be subject to losing that much money if they did not meet the requirements.

All applicants were given the same set of rules so no one got the upper hand. However as time went on, not everyone’s plans went smoothly.

“All 25 applicants met that deadline – and therefore were all at the starting line evenly, so to speak. From that point, each applicant moved through the process and submitted the required information at different times,” Kahnert said. “Some applicants provided all the necessary information in a timely way. For others, the information was incomplete, changing or slow to be provided.”

Deadlines and Penalties

Ontario dispensary Toronto, Canada- March 4, 2018: Storefront of Fire & Flower Cannabis Shop at Bloor St. in downtown Toronto with the windows read “Canada’s Cannabis Shop, Coming to Ontario in 2019,”.Ontario Government announced that 25 legal dispensaries would open across the province.

All of the businesses were told to be ready for an opening on April 1, 2019. The owners were told that if they were not ready that they could be subject to money from the $50,000 line of credit be taken as a penalty.

Kahnert said that according to Rule 18 of the new regulations:

  1. On April 1, 2019, if the Expression of Interest Applicant is not selling cannabis under their Retail Store Authorization $12,500 will be drawn;
  2. On April 15, 2019, if the Expression of Interest Applicant is not selling cannabis under their Retail Store Authorization additional $12,500 will be drawn;
  3. On April 30, 2019, if the Expression of Interest Applicant is not selling cannabis under their Retail Store Authorization $25,000 will be drawn; and,
  4. For potential applicants on a Wait List who may be notified by the Registrar that they may apply for a [sic] license, the timelines for drawing on the Letter of Credit will be adjusted by the Registrar to provide equivalent duration.

When April 1 rolled around, only 10 stores were able to open.

When news of this spread, many saw it as a blowback for the cannabis industry, while others saw it as a growing pain.

Kahnert said that as of May 6, only 19 stores had been approved to sell cannabis in Ontario. Out of 25, only 17 had physically opened their stores.

Out of the ones that had not opened, Kahnert said that the final fine of $25,000 was most likely going to be given out to seven stores, while another two would face different fines due to other reasons.

A Massive Shortage Issue

Commercial cannabis facility background with field of natural medicine stylized by flat vintage filter iStock / OpenRangeStock

Canadian media outlets ran with this story after it was announced that many of the stores would not open on time. While it may seem like a serious dilemma, cannabis workers say this problem arose from the shortage of quality, legal weed that has plagued them for years and that it will take time for things to figure itself out.

Peter Aceto, chief executive officers of CannTrust Holdings Inc., a Canadian cannabis company, told Bloomberg that despite the problematic rollout, the stores are “a very significant development” for the industry.

“I think it’s a very important part of getting us out of the black market and I definitely do think it’ll have an impact on demand,” Aceto said.

Still, the rocky start to legal cannabis has had some rough ripple effects.

Aceto’s CannTrust Holdings, which started out as a medical cannabis business, saw its stock drop nearly 20 percent in the days after the mostly failed rollout.

Cronos Group Inc., a competitor and cannabis operator in Canada, also saw double-digit drops in its stock just a couple of days after April.

Still, these problems are not expected to have any long-term effects.

Many advocates see these blips as growing pains and expect the market to shake itself out. While only 25 stores can operate in Ontario at the moment, Canada as a whole has said that there will be no limit on marijuana stores in the future and that once the industry gets on its feet with proper regulations, the government will start to take a step back.