Ontario doubles cannabis store cap, sparks global industry shift
Ontario ushered in a transformative change by doubling the regulatory cap on recreational cannabis stores from 75 to 150, effective January 1.
This decision not only provides larger corporate chains with an extended runway for expansion within Canada’s flourishing adult-use cannabis market but also introduces potential ramifications for the global cannabis industry. The industry’s reaction to this regulatory shift is anticipated to reverberate beyond the borders of Ontario, shaping strategies for major players and smaller retailers alike as they navigate a landscape undergoing significant evolution.
As major corporations strategize their moves within the expanded limit, the global cannabis community watches closely, expecting this decision to set precedents and influence industry dynamics far beyond Ontario’s boundaries.
Consolidation catalyst
The revised ownership cap stands as a turning point for Ontario’s cannabis industry, offering a unique opportunity for major retail chains to assert dominance. The revised ownership cap in Ontario is a game-changer for the cannabis industry, offering major retail chains, like High Tide (Nasdaq: HITI) (TSXV: HITI) (FSE: 2LYA) with 54 stores, a unique opportunity for dominance. Large corporate chains, especially High Tide, stand to benefit significantly.
Eric Chittim, VP of Supply Chain at True North Cannabis Co., agrees the cap change primarily benefits a small number of large retail operators. Omar Yar Khan, Chief Communications and Public Affairs Officer with High Tide, however, said the cap increase levels the playing field against major cannabis retail franchises.
Previously, the ownership-cap regulation restricted retail applicants and their “affiliates” from having more than 150 licenses. However, the definition of affiliates doesn’t include stores owned by franchisees. This allows for greater expansion opportunities without amending the definition. High Tide’s CEO, Raj Gover, plans to add 100 more locations, reaching the 150-store cap. Khan emphasizes a responsible and gradual approach to expansion, combining organic store openings with potential acquisitions.
Read more: Struggling cannabis operator MedMen sells Nevada and Arizona assets
Impact on smaller retailers
The expanded cannabis store ownership cap in Ontario presents a critical juncture for smaller independent retailers. While acquisitions are on the horizon, caution prevails as offers may not meet sellers’ expectations in the evolved market dynamics. This regulatory shift not only impacts local cannabis retail but also introduces complexities for smaller operators navigating the global market.
The impact on illicit cannabis sales, a key policy objective, remains uncertain. Kara-Virani anticipates the larger cap will reduce illicit sales, but additional enforcement is crucial. Regional disparities highlight that provinces like Alberta outpace Ontario in capturing market share from the illicit market.
Store valuations pose challenges for independents contemplating their future. Despite potential acquisitions, sellers must navigate complex considerations, acknowledging valuations may not align with perceived worth.
The cannabis store ownership cap marks a turning point in the province’s adult-use market. The ripple effects of this regulatory change are expected to be felt throughout the industry, with larger corporate chains capitalizing on the opportunity for expansion. While the move opens doors for M&A activity, challenges loom for independent retailers navigating a landscape dominated by data-driven dynamics.
As Ontario anticipates increased consolidation in the cannabis retail sector, only time will reveal the true extent of the impact on market dynamics and the intricate interplay between major players and smaller operators in this evolving industry.
zartasha@mugglehead.com
