Here’s what you need to know about how COVID-19 is affecting the cannabis industry…

By Chris Lavoie

Associate Consultant, CannDelta

April 6^th, 2020

Cannabis Retail Stores Deemed Not Essential

On Friday, April 3^rd, 2020, the Ontario government announced a revised list of essential workplaces that are permitted to stay open in response to the COVID-19 pandemic. A controversial omission from the updated list is cannabis retail stores, which had made the initial ‘cut’ in mid-March. The public outcry was swift and has only grown louder in the ensuing days. A petition to Doug Ford’s government was being circulated within hours of the announcement and has accumulated a resounding 3000+ signatures as of April 6^th, 2020.

The anger of private retail operators is compounded by the ability of the Ontario Cannabis Store (OCS) – the province’s crown-operated cannabis retail store – to continue making sales through their online delivery service. As the only retail store permitted to sell cannabis products online, the OCS has a decisive competitive advantage over private retailers. While the OCS has assured customers that they can handle increased demand, there is concern that a lack of access to legal cannabis will fuel the illicit market:

“The Ontario government’s decision to declare cannabis retailers non-essential is a boon to the black market – illicit marketplaces like Weedmaps are going to skyrocket, with unregulated illegal sellers delivering black market cannabis products to Ontario doors without any standards or safety policies.  Not only does this carry the risks we are all aware of – unsafe Cannabis products funding criminal enterprises – but now carries the additional risk of accelerating the spread of COVID-19.”

• Anonymous Retail Store Operator

The Ford Government’s decision comes at a time when retailers were enjoying some of their most profitable stretches since opening. Steven Fry, CEO and co-founder of Sessions Cannabis, was quoted in a recent Marijuana Business Daily article as saying his Toronto location was experiencing a 21% increase in sales, including 10% more transactions per day in mid-March. Not only are people stocking up out of fear for supply issues, but they also plan to consume more cannabis than usual over the next few months, according to a study by Prohibition Partners.

The Alcohol and Gaming Commission of Ontario (AGCO) for their part, has impressed many by continuing to issue Retail Operator Licences (ROLS) and advance Retail Store Authorization (RSA) applications to the Public Notice Period stage, with numerous stores being put on notice, including on weekends. Nonetheless, applicants are still fearful that the closure of provincial retail stores could serve as the death knell for their store before ever opening:

“While it was absolutely critical that licensed retailers close the doors to their physical retail stores, they could easily have adopted the same approach as restaurants offering home delivery of safe, regulated products – employing no-contact delivery protocols to also ensure safety from the spread of COVID-19.  It’s unfortunate that the Ford government bowed to pressure from former premier Wynne’s bureaucratic creation – the Ontario Cannabis Store – and granted them a monopoly on home delivery, undermining the investment of hundreds of private businesses who could be serving Ontarians safely in this time of crisis”

• Anonymous Retail Store Operator

Licensed Producers Still Open

Cannabis producers in Ontario on the other hand can stay open, owing to their designation as agriculture and food production businesses, which are listed as an essential service. This should stabilize the supply chain, although many licensed producers are issuing mass layoffs in response to a decline in revenue, which may disrupt production levels in coming months.

In an e-mail to licence holders and applicants on March 24^th, Health Canada (HC) stated that while they are prioritizing critical services to deal with the pandemic, they will continue some licensing activity at a modified pace. Based on public feedback, HC will prioritize licence amendments and security clearances, and those with licensing needs deemed critical to support their operation during the pandemic. Some of the key takeaways from HC’s statement to licence holders include:

• Licensing inspections will continue, but some will be postponed
• A small number of licensing renewal applications will be processed
• Temporary non-security-cleared individuals are permitted, based on the LP’s own risk assessment
• Monthly Cannabis Tracking System reports are still due
• The annual deadline for reporting promotional related activities has been extended

Government Funding

There is some relief for cannabis producers and retailers, as the federal and provincial government have implemented numerous funding platforms to help prevent mass layoffs and provide much needed access to cash:

• The federal government announced a 3-month 75% wage subsidy emergency funding program that will be available for businesses suffering at least a 30% decline in gross revenue during March, April, or May versus the same months in 2019. Many retail stores however won’t have the reference revenue from 2019 to be eligible, due to the slow rollout of licences.
• Farm Credit Canada (FCC) has rolled out a government-backed credit and loan payment deferral program, which licensed producers are eligible to apply for. The program offers loan payment deferrals and short-term credit products up to a maximum of $500,000 to qualified businesses, namely those that were financially viable entities prior to COVID-19.
• The Business Development Bank of Canada (BDC) announced this past weekend that they have made $40B in new credit available to all legal businesses in Canada.
• Canadians who have, or will stop work, are eligible as of Monday, April 6^th, to apply for the federally funded Canada Emergency Response Benefit (CERB), which provides a payment of $2,000 for a 4-week period for up to 16 weeks.

Bottom Line

The decision to close private retailers is a devastating blow to the nascent cannabis market in Ontario, the effects of which will be felt by current and prospective store operators for quite some time. As the only major province to force retail store closures, Ontario is exposed to the risk of supply issues and increased illicit activity. Retail operators are hopeful that the Ford government will reconsider their position and permit stores to continue sales through curbside pick-up or delivery options.

CannDelta is Here to Help

Any cannabis producer or retailer affected by COVID-19 should reach out to CannDelta for a free consultation on how best to navigate the ensuing months. CannDelta is a Toronto-based regulatory cannabis consulting company that can be reached at info@canndeltav2:8890 or 1 (877) 274-6777.