Provincial

Ontario Retail: Challenges for the Second Lottery

By Whitney Abrams | August 6, 2019

We are now less than 12 hours away from the second allocation lottery for Ontario retail opening by the AGCO.  Once the AGCO released its rules for the second lottery round in early July, potential applicants began preparing what they needed to be ready to go.  Unfortunately, many have been met with unforeseen or unexpected challenges in getting the necessary components of their applications organized. 

 

The Retail Location  

 

On this round, the AGCO requires evidence from an applicant of confirmation that the applicant has secured a suitable retail space, including its address, which will be available to them to operate a store by no later than October, 2019.  The proposed retail store must be (1) more than 150 metres from a school or private school, and (2) in a municipality that permits cannabis retail stores.

 

Practically, once potential applicants find spaces that fit the bill, they are left with the challenge of negotiating with landlords who may have multiple offers in play.  It is not unusual that tenants will be left with a location where they are not confirmed to be first in line of potential tenants and/or without a binding offer to lease for the space.  If they win, and another potential tenant wins as well, that tenant will run afoul of Rule 2(c) of the Allocation Lottery Rules, which requires that a selected applicant must operate their store at the address provided on their application.  If they cannot provide a formally executed legal instrument for the address contained in their application within five days of being a selected applicant, that applicant will have to have secured the registrar’s agreement to a different address.  In order to obtain that agreement there must be extenuating circumstances.  The Registrar will decide on a case-by-case basis. 

 

Practically, however, it would be difficult to obtain a new alternative address, including an executed instrument and Registrar approval for that address all within five days.  So, although a binding agreement is not required for the purpose of entering the lottery (simply must indicate the start date of a rental, lease or sub-lease agreement), it is in tenants best interests to have that going into the lottery.  The challenge is that they are left at the mercy of landlords and simply may not have that be an option.  Any negotiations left to take place after winning the lottery, when a winner must proceed with that address, is unlikely to lead to favourable terms for the retailer. 

 

There is a second issue where many potential landlords who have agreed to lease to potential applicants are unaware of their potential obligations to the AGCO.  Landlords information must be given to the AGCO and the AGCO is likely to contact them for the purpose of due diligence on the applications.  To deal with this, tenants have not only advised the landlord of their obligations to respond to the AGCO but have actually inserted language to formalize this obligation (often with time limits) into offers to lease. 

 

Banking and Letters of Confirmation

 

What has been the largest point of frustration for potential applicants is the requirement by the AGCO to obtain a confirmation from a bank that the applicant is in good standing and has the financial capacity necessary to obtain $250,000 in cash or cash equivalents.  There is also a requirement to submit a confirmation that an applicant can obtain a standby letter of credit for $50,000 within five days of being selected as a successful applicant. 

 

If applying to the lottery as a corporation, the letters need to be in the corporation’s name.  Letters issued in the name of a principal of an applicant are not acceptable.  This is a hurdle for new entities that have been established for the purpose of the lottery.  It might be a challenge for those new entities to obtain the necessary confirmation given that they may have no history at a specific bank or credit union.   

 

This issue is compounded by the fact that very few of the traditional big banks would accept applications for AGCO allocations.  BMO accepted some applications but cut off that opportunity in late July.  TD and RBC in Ontario refused to accept applications altogether.  Many applicants turned to Alterna Savings, a credit union, who was willing to accept applications.  Because they were really the only option they had a significant number of applicants.  By the end of July, Alterna Savings indicated that they had exceeded the limit of applications that they could process and stopped accepting new applications for this AGCO lottery at that time. This has left many hopeful retailers unable to satisfy the AGCO’s requirements for entry and left out of this lottery allocation. 

 

For those who were able to obtain letters from the bank, the AGCO required the letter to be on a specific form.  When you download that form it contained the AGCO letterhead.  However, the AGCO requires that the form be on the bank’s letterhead, failing which the applicant would risk disqualification.   

Many have found the process to be prohibitive, especially in comparison to the first round which really only required a name and $75.  It will be interesting to see how many applicants this process draws, and how that will compare to the 59,069 lottery entries (for all regions) that came from the first round.   Our inclination is that this round will elicit a very small fraction of that number.


Whitney Abrams

Whitney Abrams

Whitney’s work focuses on providing regulatory advice and advocating on behalf of cannabis businesses in the North American market. She is a frequent contributor to Canada Cannabis Legal.
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Comments (3)

  1. Jules:
    Dec 29, 2018 at 12:53 AM

    Fascinating article. Very in depth. My one question is: from where would Canada import cannabis? Are there countries currently exporting cannabis legally? Uraguay seems like the most economical source, although shipping costs could be an issue.

  2. miss lena:
    Feb 24, 2019 at 01:52 PM


    All labels will need to be plain, not appealing to children, and make no health claims. For edibles, there may be no dietary claims, and for topicals, there may be no cosmetic claims. For all of the new product classes, packaging and labelling must not contain any elements that associate the product with an alcoholic beverage, alcohol, or an alcohol brand.

  3. miss lena:
    Feb 24, 2019 at 01:52 PM

    All labels will need to be plain, not appealing to children, and make no health claims. For edibles, there may be no dietary claims, and for topicals, there may be no cosmetic claims. For all of the new product classes, packaging and labelling must not contain any elements that associate the product with an alcoholic beverage, alcohol, or an alcohol brand.






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