Cannabis store chains court winners of the great Ontario pot store lottery
January 16, 2019

One of the five lucky Eastern Ontario winners of the great pot-shop lottery may open a store on Wellington Street West.

It all depends on how negotiations go with the Calgary company that operates the Spiritleaf cannabis store chain.

On the other hand, lottery winners might prefer a deal with High Tide Inc., another company with cannabis stores in Western Canada that plans to bring its Canna Cabana chain to Ontario. It has already rented a storefront in Westboro that’s available.

Those are just two of the companies courting the lottery winners who have the right to apply for a licence to open Ontario’s first 25 cannabis stores this spring.

Most of the winners in the draw held last weeks are individuals, not corporations. Some in the industry joke that companies have hired private investigators to track them down and make them offers.

The winners are widely considered to hold a golden ticket. The 25 shops will have a temporary monopoly in a province that officials predict may eventually have 1,000 privately-run cannabis stores.

Little is known about the five lottery winners in Eastern Ontario: Daniel Telio, Brandon Long, Patterson and Lavoie, Pure Alpha Holdings and Karan Someshwar.

Inner Spirit Holdings Ltd., the company that operates Spiritleaf, has been negotiating with one of them for a franchise deal, said company president and chief executive Darren Bondar.

This empty storefront on Wellington Street West, between Parkdale And Holland, has been rented by a company that plans a Spiritleaf cannabis shop there. The company is negotiating with winners of the Ontario pot-shop lottery to set up a Spiritleaf franchise. Jacquie Miller photo OTTWP

Lottery winners can choose to apply for a licence in any city with a population of more than 50,000 that has not opted out of having cannabis shops. In the eastern region, that includes Ottawa, Kingston, Belleville, Barrie and Peterborough and Kawartha Lakes.

Four storefronts have already been leased in Ottawa for Spiritleaf franchises, said Bondar. A prime location is available at 1200 B Wellington St. W., between Parkdale and Holland, he said. (It’s nestled between a cupcake store and a fitness club.)

Darren Bondar is founder and chief executive of Spiritleaf. JIM WELLS / JIM WELLS/POSTMEDIA

Usually franchisees pay for the right to open a branded store. Not in this cannabis-crazy market. Inner Spirit is offering lottery winners cash and/or stocks to open a franchise. The company is making a standard offer to all the lottery winners, although Bondar won’t reveal details. Competitors are nipping at his heels.

“Most of the winners we talk to have no experience in the industry, no experience in operating a business,” said Bondar. “It’s overwhelming.”

“We have a great offer, a great location, we’ll make it easy for them.”

High Tide is negotiating with winners in all five regions, said Nick Kuzyk, the company’s chief strategy officer.

The company is open to various arrangements with the winners, depending on what they want, he said. But all would involve paying the lottery winners for the privilege of a franchise or some other arrangement.

“Everything is on the table,” said Kuzyk. High Tide has rented 19 storefronts in Ontario, including one in Westboro whose location is not being made public.

The lottery rules are meant to prevent winners from simply selling their good fortune to the highest bidder.

Winners must apply for a licence under the same name and applicant type (sole proprietor, corporation or partnership). They can’t sell or transfer the licence, or change ownership control before Dec. 13, 2019, when the lottery is over.

However, that still leaves room for deals with partners who may provide financing, services or franchise arrangements, said Ottawa lawyer Mark Asfar, who helps clients setting up cannabis shops.

“There is room for collaboration. The rules were not set up to bar entrepreneurs from working with other entrepreneurs and hiring consultants for licensing, branding and things like that. They don’t contemplate an entrepreneur having to set up a store from scratch with their bare hands, obviously.”

Franchisees would have to make sure they are actually running the business, he said.

“The value for a franchise is just immeasurable. The first 25 stores to open in Ontario will be a huge, leading advantage for a franchise from a public recognition and brand recognition standpoint.”

Asfar said he would be “incredibly surprised” if any of winners who entered the lottery as individuals set up independent, “mom and pop” operations without help.

Winners are supposed to have stores open by April 1, or face escalating fines of up to $50,000. That’s a tight timeline even if they already have a storefront rented and plans under way, he said.

“But there are a lot of people that want to be involved and make this possible. If they are smart, the lottery winners will team up to make it happen.”

The deal-making frenzy continues this week as winners have until Friday to submit the first of two licence applications to the Alcohol and Gaming Commission of Ontario.

There has been speculation on Twitter that lottery winners were asking companies for as much as $7 million to partner with them.

The chief executive of Fire and Flower, a cannabis-store chain with plans to expand into Ontario, said he’s been contacted by lottery winners to find out what his company will offer them.

Fire and Flower chief executive Trevor Fencott said his company Fire and Flower won’t be swept up in the ‘canna-mania, lottery-mania.’ Jacquie Miller photo OTTWP

“Three so far today,” said Fencott in an interview.

The winners didn’t name a specific price, but said they had been negotiating with other companies, he said.

Fire and Flower won’t be swept up in the “canna-mania, lottery-mania,” he laughed.

It’s not worth spending exorbitant sums to lottery winners to open stores a few months ahead of competitors, he said.

“Everyone loves a lottery,” said Fencott. “I urged all my friends to apply, too. It’s an opportunity. It’s 75 bucks (to enter) and all you needed was an email and a phone number. You could be from anywhere on the planet.”

Nearly 17,000 applicants took part in the lottery, including Fire and Flower.

“We put in our lottery ticket, now we are going to move on,” said Fencott. “We’re in this for the long haul.”

The company is busy opening stores in Western Canada, he said.

Fire and Flower has leased about 20 storefronts in Ontario. It may open a few stores to offer education and sell accessories and apparel while waiting for licences to become available, he said.

An executive at another company that plans to open a chain of stores in Ontario called mīhī says he has no plans to pursue lottery winners with big offers, either.

The lottery is a “short term blip for us,” said Tom Dyck, mīhī’s CEO. “It’s sort of a fun distraction, but it doesn’t change a thing for us in terms of our long-term commitment.”

Artist conception of mihi cannabis shops being developed for Ontario. OTTWP

The company has 43 storefronts secured in Ontario, including eight in the greater Ottawa area. Store designs and technology are ready to go, he said.

Dyck suspects the rules may be changed to make licences available sooner than December. His company forecasts the cannabis supply may meet demand as early as this summer or fall. Ontario’s Conservative government has stressed that the restriction on store licences is only temporary.

“The lottery has clearly captured the imagination and the entrepreneurial spirit of folks in Ontario,” said Dyck. “You have to offer your congratulations to the 25, but at the same time I would hope they feel an awesome sense of responsibility to the industry because they will be first out of the gate.

“How the regulators, how our community and ultimately how the consumers feel about the industry, at least initially, will be shaped by how these 25 go to market. So I think it goes well beyond your responsibility to simply profit from your good luck to actually thinking through what the implications are for our industry.”

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Written by: Jacquie Miller
Source: Ottawa Citizen