Canada’s largest marijuana market is set to adopt a phased approach to cannabis retail due to “severe supply shortages across the country,” the Ministry of Finance announced Thursday, capping the early rollout to no more than 25 stores.

The licenses will be issued by lottery, which the ministry described as a temporary model.

The Alcohol and Gaming Commission of Ontario (AGCO) had been slated to start accepting applications for privately owned adult-use cannabis retail shops Dec. 17, but that process has been set aside for now.

Instead, prospective retailers can submit an “expression of interest” online Jan. 7-9, 2019.

Submissions will be put into a lottery pool for a draw to be conducted Jan. 11, according to the ministry.

Licensed producers will be excluded from obtaining any of the first 25 licenses.

“Until such time as more than 25 retail store authorizations may be issued, none of the retail store authorizations that may be issued … may be allocated to a licensed producer or affiliate of a licensed producer,” according to the new regulations.

The Canadian cannabis industry has struggled to provide enough supply to meet demand since recreational use became legal in October, and retailers across the country have been faced with their own challenge: how to stay in business when you don’t have enough of your main product.

The shortage has forced many store owners across the country to close their doors as they await marijuana shipments.

Lottery concern

Saskatchewan, which also used a lottery system, received more than 1,500 applications for 51 licenses to sell recreational cannabis.

However, the province issued only 13 licenses as of this week.

Some say that’s partly because a lottery system does not reward the most qualified applicants out of a pool of thousands.

Rod Elliot, senior vice president for Global Public Affairs and head of the consultancy’s cannabis practice, acknowledged the supply crunch facing the Ontario government. But he pointed to the success of Manitoba’s merit-based system.

“I’m not sure a lottery is the best way to allocate those initial 25 licenses for April 1, 2019,” he said.

“If you look at what Manitoba did, they had a Phase 1, merit-based RFP process that allowed the government to ensure the Phase 1 retailers had retail experience, were well capitalized to service the market and had high compliance standards in place so they can ride out some of the challenges with the supply chain shortages before moving to a lottery.”

Elliot said a merit-based approach would be a much better way to allocate the initial 25 licenses as the province works with cities that have chosen to opt-in to cannabis retail to ensure a smoother rollout.

‘Measured and reasonable’

On the other side, Allan Rewak, executive director of the Cannabis Canada Council, said Ontario’s new phased approach is “measured and reasonable.”

The group’s membership accounts for roughly 80% of Canada’s licensed cultivation in terms of square footage.

“We need to make sure the stores are well-stocked with quality cannabis that has the consistency that consumers need and want,” he said.

Ontario will issue licenses for:

Five stores in Toronto.

Six stores in communities just outside Toronto.

Two stores in northern Ontario.

Seven stores west of Toronto.

“If it takes us a little bit longer, within a reasonable time frame, to open our retail outlets, that’s something industry can live with,” Rewak said.

Matt Lamers can be reached at [email protected]

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