Last week, Ontario issued its first 25 private cannabis retail licences through an independent lottery system.
While the licences have been divided regionally, it is expected that these 25 stores will have to service Ontario’s entire population of 14 million (to put that in perspective, there are currently 24 retail locations in Newfoundland and Labrador, which has a population of 526,702).
Back in August, Ontario’s Progressive Conservative government announced its intention to adopt a private retail system for selling cannabis, abandoning its plans for a public mode.
In response to this news, several cannabis entrepreneurs began investing in new ventures that they hoped would be included in this initial roll-out. Unfortunately, rampant supply shortages have caused the province to become exceedingly stingy with their licences, and slow to reform, leaving several businesses leaders high and dry, losing money as they wait for their name to come up.
"I think the people applying and complying are feeling stressed," cannabis entrepreneur Abi Roach, who heads the Cannabis Friendly Business Association, told Civilized. "The people operating in the gray market are conducting swift business these days."
These "gray-market" shops—storefronts illegally selling medical marijuana—continue to operate in Ontario, to little opposition. Considering these locations aren't, strictly speaking, legal, they don't face the same regulatory concerns that those attempting to legitimize might face.
Additionally, with so few retail licences being issued in this initial round, Roach adds that there is some concern that the stores that are allowed to open first have the opportunity to corner the market, creating a monopoly that would make it difficult for new businesses to stake their claim.
With these issues in mind, what incentive do gray-market stores have to close shop and try and place their bid for a piece of the legal cannabis pie?
According to Brian Gray, a spokesperson for Ontario’s Ministry of the Attorney General, the pressure will soon be on for illegal dispensaries that have chosen to remain open, as doing so could net them some serious fines and jail time.
"The province will contribute $40 million to municipalities over two years to help with enforcement costs related to keeping their communities safe," Gray told Civilized.
The penalty, he said, for corporations that allow illegal cannabis to be bought or sold on their property is a maximum fine of $1 million dollars and/or two years in prison for a first conviction.
He added that prior convictions would also prevent these business owners from entering into the legal industry at a later date, as they could become ineligible for any number of transgressions under the new Cannabis Licence Act.
Some of the offences cited by Grey that would render a person ineligible for a licence include a previous association with organized crime, the sale of cannabis, including selling unapproved cannabis products and accessories; purchasing product from a person other than Ontario’s authorized wholesaler and non-compliance with certain tax statutes.
Gray asserted that that the current lottery model "will only be temporary," until supply is sufficient enough to meet demand, and that if these gray-market sellers want to have any chance at all to legitimize, they will have to shut down immediately.
These scare-tactics do appear to be working—at least so far. According to government statistics, there has been an 89 percent reduction in illegal storefronts in Toronto, Ottawa, Peel and York, as well as a 44 percent reduction province-wide since October 16, 2018.
But, considering how the current cannabis shortage and customer dissatisfaction with Ontario's online store has led to a continuing demand for alternatives, it’s doubtful the gray-market industry will disappear any time soon.