Allowing municipalities to opt out of pot shops helps black market: experts

Ontario government said that it will only issue 25 retail licences by April

As municipalities across Ontario weigh whether to allow cannabis retail stores in their neighbourhoods, experts and consumer choice advocates warn that having large swaths of the province opt out of brick-and-mortar pot shops could fuel the black market.

Recreational cannabis can currently only be bought online in Ontario, and municipalities have until Jan. 22 to decide if they want to host private cannabis stores, which are set to open next spring.

Under the rules laid out by the Progressive Conservative government, municipalities that opt out can change their minds down the line, but once they sign on, they can’t back out.

In recent weeks, several municipalities — both rural communities and major urban centres such as Mississauga, west of Toronto — have chosen to reject cannabis retail stores, saying they want more control over the number and location of the shops before they consider opting in. Some have also said they want more time for public consultations.

This, combined with the government’s recent announcement that it will only issue 25 retail licences by April — after initially saying it would not put a cap on the number — could embolden illegal pot sellers and allow them to thrive, experts and consumer groups said.

“Unfortunately, it’s turned out to be just a comedy of errors,” said Anindya Sen, an economics professor at the University of Waterloo who specializes in the cannabis industry. “When you take (those things) together, it’s possible that despite being legalized, Ontario might become one of the biggest black markets in the world.”

While the internet remains an option, Sen said delivery hiccups and limited selection at the province’s online cannabis store also undermine efforts to lure consumers away from illegal avenues.

That sentiment was echoed by David Clement, manager of North American affairs for the Consumer Choice Center.

“Community opt-outs and limited storefronts is a toxic combination which pretty much guarantees that the black market will thrive,” he said. “Capping retail outlets and having entire communities opt out makes the legal market in Ontario far less accessible.”

The Ontario government has said it was capping licences in response to a national cannabis supply shortage, which it said can only be tackled by the federal government.

“Ontario intends to transition to an open allocation system as soon as supply permits,” Jesse Robichaud, a spokesman for Attorney General Caroline Mulroney, said in an email.

Robichaud further said that municipalities that have not opted out will have 15 days to provide written submissions to the Alcohol and Gaming Commission of Ontario, the provincial agency overseeing retail cannabis stores, on any proposed storefront location. He would not say whether the province was open to giving municipalities more control over the site selection.

READ MORE: Cities face tight timelines for ‘opting out’ of hosting legal cannabis shops

The province has pledged $40 million over two years to help local governments with the costs of legalization, with each municipality receiving at least $10,000. A first payment will be issued this year on a per household basis, but a second payment doled out after the January deadline will go only to those that opt in, Robichaud said.

As of Wednesday, roughly 30 of Ontario’s 444 municipalities had formally notified the AGCO of their decision, with at least 10 opting out, according to the agency’s website.

In the Town of Erin, south of Orangeville, councillors voted on Dec. 5 to keep cannabis stores out of their community, largely over the site selection issue, said Mayor Al Alls.

“Basically, we feel there’s just too many unanswered questions at this stage of the game and that we weren’t comfortable with proceeding with allowing it to be retailed in our community,” Alls said.

Alls said he would reconsider if the municipality was given more control over the locations, but stressed council has not discussed that possibility and would need to be on board.

The mayor also suggested a pot shop might not be successful in a small community anyway, noting people might be reluctant to be seen going in and out of a store. “It’s going to take civilization a while to accept the fact that my Joe Blow minister down the street goes in to get a joint every day,” he said.

People are more likely to choose to grow it themselves, “especially in the country,” he said.

Mississauga Mayor Bonnie Crombie wrote a letter to Premier Doug Ford outlining the city’s concerns earlier this month, a day after councillors voted to hold off on hosting pot shops for the time being, but hasn’t heard back.

She said that while the city isn’t opposed in principle, officials felt they did not have enough time to prepare for the shift to an open market model from the government-run system proposed by the previous Liberals regime.

Municipalities should be allowed to increase the setback beyond the 150-metre minimum laid out by the province, and should receive funding even if they opt out because they still bear the costs of public education and enforcement, she said.

Asked whether she feared the black market would flourish in the absence of pot shops, Crombie said every municipality has to do what’s right for its residents.

“Cannabis is available online…so there is availability to residents,” she said. “And certainly there’s always the option of purchasing cannabis at a retail store outside of your own municipality, taking a trip into the city of Toronto.”

At least one other municipality on the outskirts of Toronto has also opted out, prompting Toronto’s mayor to raise concerns about the pressure that will put on the city’s cannabis market.

John Tory has also asked the province to give the city more control over where the stores are placed, saying he doesn’t want to see a cluster of them near the highway just to accommodate consumers from neighbouring communities without pot shops.

“I think it is reasonable for us, given that there may be more pressure on the Toronto market, for us to say that we should have a hand in determining that there aren’t clusters of pot shops all together in one place or that they aren’t located near schools or community centres,” he said this week.

“I’m more concerned with that at the moment than the absolute number but there’s no question that the number of pot shops will affect the continued existence or not of a black market we’re trying to eradicate.”

Though she acknowledges there are many outstanding questions on how the retail model will roll out, Pauline Rochefort, the mayor of East Ferris in northeastern Ontario, said councillors wanted to get in on the ground floor.

The community near North Bay chose to opt in, in part to ensure its own residents — which have a high rate of entrepreneurship — have the chance to participate in the cannabis market, she said.

Rochefort said there has been no public outcry over the prospect of retail cannabis stores, but it’s unclear whether the community of roughly 5,000 can keep an outlet in business.

“While we did not have…all the information, we felt comfortable that things were in good hands,” she said.

Paola Loriggio, The Canadian Press

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