Why are all of Toronto’s retail cannabis stores in the downtown core?

It’s a question many suburban pot users are asking after the announcement of a fifth retail location at 453 Yonge St., meaning the first five stores poised to open in the city are within walking distance or a very quick transit ride from each other. That leaves no retailers slated for east of Yonge St., west of Bathurst St. or north of the Yorkville neighbourhood.

“This absolutely doesn’t make sense for people living in the suburbs, the industry, or social policy if you want to eliminate the black market dealers,” said Mitchell Osak, managing director of business consulting and technology services at Grant Thornton LLP, which advises players in the emerging cannabis industry. “Complying with the federal and provincial laws is predicated on comprehensive and fair access to the product across the province.”

But Osak said while it doesn’t make sense from a retail strategy in terms of coverage, it will “only be a matter of time before the suburbs get stores.”

From a regulatory point of view, the government is making sure the industry can “walk before they run,” Osak said. “At this point there is only a certain amount of product supply and regulating the first 25 (retail outlets) will have its own learning curve.”

The newly announced store at Yonge and College Sts. is part of the Alberta-based Canna Cabana chain that already has 10 locations. The company was one of the 25 winners that were awarded licences to sell pot at retail locations in Ontario. Five of those licences were allocated to Toronto and six to the surrounding 905 regions.

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But not all those winners will be ready to open stores by April 1, according to the Alcohol and Gaming Commission of Ontario (AGCO), which regulates the product. Canna Cabana cannot open until the window for public input closes April 9. The store will have to address any public concerns within five days before it can be granted an operator license.

Allan Rewak, the executive director of the Cannabis Council of Ontario, which represents producers, said the fact that most of the first stores are clustered downtown is “the luck of the draw. It’s the beginning of the process. I wouldn’t worry if I were in Etobicoke or Scarborough. This is only day one.”

Rewak said it makes sense that the initial round of retailers are concentrated in the core.

“This is the beginning of a process. The retailers are looking for the greatest foot traffic and the best opportunity for growth,” and densely populated areas make sense, he said.

Retailers also talk about a “clustering” effect where you can have enough population density to support, say, several coffee shops in the same area and consumers will go out of their way to try different brands, creating even more traffic and choice.

Osak said another reason that the first shops ended up downtown could be because they are partnered with well-funded firms that are experienced in the business and are looking for the most sought-after locations.

“I think companies would focus on downtown Toronto, the richest, most lucrative market. So you attract the most capital-intensive providers who are doing retail in other places,” Osak said. “You’ve got density, exposure and market size downtown.”

The consultant estimates that Ontario could eventually handle about 1,500 retailers, 60 times more than the number currently approved.

“Over time this situation will work itself out,” Osak said. “You will end up with good operators as well as bad ones. And they won’t just be in downtown Toronto, they’ll be all over Ontario.”

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Raymond Kahnert, a spokesperson for the AGCO, said the regulator had “no authority to say where” the lottery winners could set up a retail location in Toronto.

“People entered expressions of interest. They had to select a store in Toronto. They chose the address,” Kahnert said. “The applicant chose based on their research and knowing that the location would have to go through a public notice and would need to hopefully be in a location that would be supported and not objected to.”

Other GTA municipalities such as Mississauga and Markham, for example, have taken a pass on allowing cannabis retailers to operate in their jurisdictions.

“Those suburbs have already decided that it’s not happening,” Osak said. “But for the people in the suburbs feeling left out, the government would argue that you should just get on the subway. It won’t kill you. Or buy it online. That’s available to every Ontario resident. It’s limited access. But for now, better than nothing.”