Ontario Cannabis Store Consolidation Begins

Ontario Cannabis Store Consolidation Begins
Ontario Cannabis Store Consolidation Begins

For Canada’s cannabis industry, there are two Ontario stories currently making headlines. First there was the announcement that the province was scrapping its controversial (laughable?) “lottery” system for awarding cannabis store licenses and moving to an “open allocation” system.

Once underway (in April), this is expected to generate an additional 20 new cannabis stores per month. To date, the province has only licensed a total of 25 cannabis stores.

This leads to the second piece of big news concerning Ontario’s cannabis industry. As part of its lottery system rules, lottery winners were subject to a one-year hold period. During this time, they are not allowed to sell/transfer these licenses.

For Ontario’s initial lottery winners, this one-year hold is expiring. And now the consolidation begins.

Effectively, we are now seeing what should have already happened in the Ontario cannabis industry (and will happen going forward). The biggest players (with the deepest pockets) will be acquiring many of these cannabis store licenses.

With deference to supporters of Small Business, legalizing cannabis (and displacing the massive cannabis black market) is not going to come via licensing hordes of mom-and-pop cannabis stores.

The legal cannabis industry requires all the scale and cost efficiencies it can muster. That won’t come with a market full of one-store operators.

Two of the larger cannabis retailers that are already moving in are Fire & Flower Holdings (CAN:FAF / US:FFLWF) and High Tide Inc. (CAN:HITI / US:HITIF).

The big money in Ontario cannabis will eventually be made as the province begins to rapidly(?) scale up its total number of cannabis stores into the hundreds. At the moment, however, the current 25 stores – in a province of 14.5 million people – are green gold mines.

Consequently, the availability of these licenses will attract considerable interest from the legal cannabis industry. Some of these original licensees already have deals in place to off-load their licenses onto larger players.

For those licenses (and stores) that are not already spoken for, it’s certainly possible a bidding war could commence.

For larger LP’s (like Canopy Growth) that were virtually shut out of retail cannabis in Ontario, they may not want to trust the government to deliver on its newest cannabis promise. Or they fear the likely delays that will come as the Ford government attempts to begin to license cannabis stores in a competent manner.

Things are changing in Ontario’s legal cannabis industry.

New players are taking over existing licensed stores. Lots more stores are supposed to be coming soon. As the cannabis industry prepares to move into 2020, this is a breath of fresh air for Canada’s cannabis companies.
 
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