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 ofOntario's retail cannabis market.

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

• Ford government's bill puts no limit on weed shops
• Here's how Ontario's online pot sales will work

Once crucial aspect of the retail regime that's still to be decided:how many cannabis retaillicencesany one corporation can hold. Government officials saythere 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 theWynnegovernment's plan for provincially-ownedpot shops, instead opening up the market to the private sector.

The Ford government is proposing to limitlicensed 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 JeanLepine,managing director ofBlackShireCapital,a Toronto-based private equity firm that investsin privately-held cannabis companies.

• Ontario Cannabis Store strikes supply agreements with licensed producers

"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,"Lepinetold a legislative committee looking at the bill lastweek.

He said the government should notgivelarge producers an advantagethat will allow them to dominate the retail side and shut out small businesses.

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

One of the world's largest producers of medical marijuanaand the pot retailer that it partially owns are urgingthe government to do the exact opposite of what Lepinesuggested.

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 ofAlcanna, one of North America's largest alcohol retailers, now about to becomea cannabis retailer: Alcanna owns five pot shops granted interim licencesin Alberta as legalization begins.

• Ontario willlet private sector run pot shops

Theyfear that Alcanna will be shut out of Ontario by the proposal to limitlicensed 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 vicepresident David Crappertold 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 andAlcanna,"said Andrea Paine, Aurora's national director of government relations.

Paine is urgingthe 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.

• Newly elected city councils will have until January to opt out of pot shops

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 HexoCorp. a licensed producer of medicalcannabis, 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 companyto 15 per cent of the province's retail cannabis licences.