In January, the Alcohol and Gaming Commission of Ontario, the regulator for private cannabis retail, announced the winners of its lottery for 25 cannabis retail store licences. The lottery is part of the Ford government’s strategy to privatize the sale of non-medical cannabis.

Since the announcement of the lottery winners, the process has been marred in controversy as there were no pre-qualifications for lottery applicants, only 25 licences were provided for the entire province that has approximately two million cannabis users, and the overwhelming majority of licence winners had no prior experience in cannabis retail.

What has received far less attention is that the government sold the licences for well below their market value, leaving more than $200 million on the table at a time when it is making significant cuts to essential social services.

The winners of the lottery paid $10,075 for their licence, which included a $75 application fee and $10,000 in authorization fees. With 17,320 lottery applicants and 25 winners, the government raised $1.5 million.

This amount is absurdly low. At the time of the lottery, several publicly traded companies, which own and operate cannabis retail dispensaries, were valued in excess of $8 million per retail location. Furthermore, two Vancouver-based cannabis retail stores were recently sold for $45 million. It is clear that the government grossly undervalued these retail licences.

What also makes the licence price far too low is the fact the licence provides lottery winners with a substantial head start to build brand loyalty in the emerging cannabis market, as well as a large potential consumer base, both of which greatly increases their value. According to the Cannabis licence Act, only 11 stores are allowed to operate within the Toronto and GTA region, equating to one store per 77,000 cannabis users. By comparison, San Francisco has 23 stores, or one store per 5,800 cannabis users.

The government might argue that the low licence price was put in place to ensure that small businesses would benefit from the legalization of marijuana rather than Big Cannabis. This argument is unpersuasive. The AGCO’s regulations prohibit licence winners from selling their licence, signing a franchise agreement or entering into any other agreement that would cede control to another party.

However, they do not prevent creative partnerships from being formed. On the contrary, the AGCO has already approved million-dollar transactions between a number of licence winners and major cannabis corporations.

In March it was disclosed that High-Tide Inc., backed by billion dollar company Aurora Cannabis Inc., had partnered with three different licence winners, in one case paying $1.6-million for a commercial agreement.

In another case, Inner Spirit, which has financial backing from Newstrike Brands Ltd., paid $1 million to a licence winner for a brand licensing arrangement. An industry insider has disclosed that another major cannabis corporation valued a Toronto licence at $16 million. And this just scratches the surface. At least 10 licence winners have already partnered with major cannabis corporations. Millions of dollars that should have gone to the public purse were instead transferred to the private sector.

The government might also argue that low licence prices help keep cannabis prices down for consumers. But if low product prices were the objective, then it is unclear why the government did not require licence winners to have previous experience in the cannabis industry.

In fact, most winners had no such experience, which can lead to operational inefficiencies that ultimately drive up prices. Inexperience also makes many of the licence winners dependent on partnerships with major cannabis corporations, which is in clear conflict with the government’s stated goal of promoting small business participation in the market.

Rather than a lottery, the government should have held an auction to sell its 25 licences to the highest bidder, generating more value for all Ontarians. This is especially important in light of the government’s recent decision to dismiss 3,475 teachers and to cut $1-billion from the Ministry of Children, Community and Social Services.

Instead, the government sold a highly valued asset for a trivial amount.

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Whether the Conservatives or Liberals are in power, all too often we have seen how privatization can result in significant transfers of wealth from the public to the private sector. This needs to be kept in mind as the government contemplates the privatization of other vital assets, such as the LCBO, Ontario Power Generation and e-Health.

These sales have real consequences, especially for the most vulnerable in our society who depend upon social services and it erodes the public’s trust in the ability of our elected leaders to make sound policy decisions. Without greater oversight and public scrutiny, such transfers of wealth are likely to continue in the future.

David Zarnett has a PhD in Political Science from the University of Toronto.

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