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Thoughts on the AGCO’s cannabis retail lottery
What was once supposed to be a fair and open process to any entrepreneur has now turned into a proverbial crapshoot. On December 13, 2018, the Ontario Government announced that retail stores will roll out in a phased approach with an initial cap of 25 Retail Store Authorizations selected through a lottery system. With this phased roll-out, prospective Ontario cannabis retailers literally watched their dreams begin to slip through their fingers like a fine sand during a hot summer beach trip. Many of these retailers began flipping back through the pages of their lease to revisit their exit clause particulars again. Many of the retailers I’ve spoken to have either entered a five-year lease agreement or have purchased property to maintain the control over their prospective stores, those disappointed prospective cannabis retailers are currently weighing their options – advice that seemed, initially anyway, to be logical and sound. According to the AGCO, the intention of the lottery is to allow for the federal cannabis supply to stabilize. To participate in the lottery, interested parties are required to submit their Expression of Interest to the Alcohol and Gaming Commission of Ontario (AGCO). Considering that Ontario cannabis retailers were already facing tight-timelines with the originally proposed December 17th, 2018 opening for applications, it honestly seems unlikely that a supply shortage would have been that much of a concern. It would be extremely difficult to adhere to those building timelines and be ready for business by the due date. Several voices have mentioned that had the Retail Operator’s Licence been at least initially granted as was originally planned that they could use this momentum to satisfy investors and keep the ball rolling on renovations, retrofits and security system installation. The truth is that a three and a half month lead time to build a retail store is already very ambitious.
Ambition is an accurate word to describe the pre-lottery build out of some retail store fronts that seem to already have everything from their office furniture to their store front sign installed. Fire & Flower at 95 Bloor Street West in Toronto’s Yorkville district (a stone’s throw from the CannDelta headquarters) has been effectively built out for months despite the upheaval of the provincial regulations for now a third time. It’s unclear to those applying if such ambition will ultimately work as an advantage to these companies that have the capital to throw around. Secondly, with the AGCO requesting nearly 10k in fees and an additional 50k direct-debit rights from your bank account, it would seem that the stage is set to disfavour your standard ‘Ma & Pa type’ operation, effectively squeezing the “little guys” out of the cannabis retail space before the legalized in-person recreational sales open up.
But alas, we are here.
How does the lottery work? AGCO has developed in-house gaming software that will fairly choose entries at random and fill them into their desired regions of operation. To supervise the roll-out of this gaming software a third-party was brought into the mix. AGCO has sworn up and down that KPMG as a fairness monitor will ensure that the process is just, transparent and above all fair to those that apply regardless of when they fill out their statement of interest, or what their corporate structure may be. Others, with potentially longer memories have concerns how a consulting firm with serious allegations of tax fraud here in Canada could be any of those things. More curious is the fact that AGCO has said that the actual lottery itself will not be streamed live but that the results of the lottery will be posted within 24 hours later.
..”the revolution will not be televised”
I understand that in a live show, many things can go wrong, as they did during the third AGCO webinar in which the demonstration of how the lottery would play out. The visual demonstration of the names being selected during the webinar did not properly populate the correct fields. AGCO has said that what they were using was not the actual software and assured us again that this would work as promised.
Though the deck might be stacked and if it is, its stacked in favour of established companies, we should consider this: apply anyway. The cost of the AGCO’s cannabis retail lottery is $75. This is an expensive power-ball ticket to throw your name in the hat and the benefits far outweigh the fees required to apply. There is such a huge support group for cannabis store retailers in Ontario. They have banded together to get their skin in the game and this strategy can be one that is set up for success. I have heard of retailers that have spaces leased that would be willing to work out an arrangement with potential winners of the lottery that still abides by the rules the AGCO has set out. These arrangements can be made in such a way to leverage the legal language used by the AGCO such that your affiliation, your personal corporate structure or decision making power would not change.
There is strength in numbers.
Interested applicants can apply through the iAGCO website following these steps after logging into their account.
Step 1. If you are a sole proprietor, you will need to provide the following information for the EOI:
- Legal Name
- Certain personal information (i.e. birth date, place of birth, driver’s licence information)
- Contact information
- Address(es) (mailing, physical and business)
- Region(s) for the Store Location Lottery
If you are a corporation, limited partnership, partnership, or trust, you will need to provide the following information for the EOI:
- Legal Name
- Legal Structure (privately held, publicly held, trust, or non-profit)
- Contact Information
- Address(es) (mailing, physical and business)
- Region(s) for the Store Location Lottery
Note: At this time no business plan or lease is required for the expression of interest.
Step 2. Select the Region(s) where you wish to operate a cannabis retail store.
Step 3. Pay $75 non-refundable fee.
Step 4. Submit.
If you have any questions about this process, feel free to reach out to a member of our team to start a conversation as to how CannDelta can help you.
