Ontario spent at least $10 million on cannabis stores that never opened

The Ontario Cannabis Retail Corporation spent at least $10.2 million on costs associated with cannabis stores that never opened, the agency’s financial statements show.

The agency spent $1.2 million on leases and lease terminations and $8.9 million on writing off equipment and renovation costs for the stores, the statements say.

It’s known that the OCRC had hired a number of store managers and was in the process of hiring front-line sales staff for the stores.

Ontario’s shift to a private-sector system came in the leadup to legalization, in mid-August of 2018. The previous Liberal government had planned a network of government-owned stores similar to the province’s liquor stores.

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At the time of the announcement, four stores had been leased and renovation work was going on. Randstad, a Montreal-based HR agency, was interviewing applicants to work in a store network beyond the original four stores, people applying for the positions told Global News at the time.

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The OCRC, which now operates as a wholesaler and monopoly online retailer, lost $42 million in the 2018-19 fiscal year.

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The first four stores were slated for Toronto, Guelph, Kingston and Thunder Bay.

“They are basically writing off all the renovation expenses that they had incurred, and the equipment that they’d purchased for the stores,” says Brock University business professor Michael Armstrong, who has read the financial statements.

In July, the Guelph Mercury Tribune reported that the OCRC had spent $1.2 million on contracts related to the planned cannabis store in Guelph, mostly on construction costs.

“That’s $2 million per location, but there may be some other things in there in terms of stuff that they had in the headquarters, or stuff they had in the warehouse that was going to support the retail stores and now they don’t need that,” Armstrong says.

Armstrong questions the decision to totally write off all equipment bought for the stores.

“Desktop computers shouldn’t be that bad to resell. Generic point of sale equipment shouldn’t be too bad. They could probably sell it to one of the private pot stores.”

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The OCS says it may try to sell the equipment.

“The costs to the OCRC related to transition between mandates included $8,694,289 for store fixtures required to stand up a full network of retail stores,” spokesperson Daffyd Roderick wrote in an e-mail.

“The OCS is looking at its options to recover value for these assets.”

Another issue is whether the stores could have been repurposed as private-sector cannabis stores to avoid wasting the money invested.

“That could represent maybe a hasty decision,” Armstrong says. “The OCS is a pretty new organization. It’s a little over a year old, so maybe it’s lack of experience, but it’s also not necessarily a priority.

“They’re busy trying to get their online sales working properly, they’re busy trying to get ready for the new government’s private-sector retailing, so ‘Let’s not waste time, let’s get rid of this stuff quickly rather than haggle over some pennies.’”

The OCS did not respond to questions about this issue.

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As well, he points out, private-sector stores wouldn’t open until April of this year.

Neither Randstad nor the OCS would say how many people had been hired to work in the public-sector stores, or how much the agency was paid to screen applicants.

Randstad did not respond to questions.

Armstrong expects the OCRC’s financial position to improve. More stores will open, the costs to wind down the government stores are a one-off expense, and part of the last fiscal year was from before legalization.

“I think it will look better a year from now. We won’t have that termination cost, $13 million or whatever. You’ll have a full year of sales. Some of those costs from the last year were for 12 months of owning the business but only six months of being able to sell anything.”

However, he argues that Ontario has much to learn from Quebec.

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“Quebec is running a much leaner, much more efficient cannabis agency,” he says. “They don’t have a warehouse — they ship directly to the store from the producers. They had their quarterly report come out on Friday, and they’re already making a profit.”