Ontario Opens up the Cannabis Retail Market

The Government of Ontario introduced Bill 36 on September 27 to enact a new cannabis retail framework.¹ Bill 36 introduces two significant changes to Ontario’s cannabis framework, specifically (a) the creation of a private retail model for cannabis, and (b) permitting cannabis smoking in places where tobacco smoking is permitted. If passed, the bill will change the cannabis retail regime in Ontario to a private model. Ontario’s original plan was a public model where physical and online cannabis stores would be operated by Ontario’s official cannabis retailer, the Ontario Cannabis Retail Corporation (OCRC).² With the introduction of Bill 36, the physical cannabis stores in Ontario will be operated by private licensed retailers, but OCRC will continue to be the sole authorized online retailer in the province.

What You Need To Know

• To operate a cannabis retail store in Ontario, both a retail operator license and a retail store authorization will be required. A licensed retail operator can potentially hold multiple retail store authorizations for multiple stores.
• The character, financial history and competence of the landlord, mortgagee, or any person with an interest in an applicant’s asset could be investigated as part of the licensing process.
• Federally licensed cannabis producers (and affiliates) will only be permitted to open one store.
• There will likely be first-mover advantages in occupying good real estate for the establishment of cannabis retail stores.
• Cannabis retail operators will only be able to purchase cannabis for sale from the OCRC.
• Licensed producers of cannabis will be prohibited from promoting their products by providing Ontario cannabis retailers with material inducements. The regulations may prescribe additional prohibited promotional practices. These types of prohibitions are seen in other regulated supply chains in Ontario.
• The penalty for being convicted under the Act can be as high as $250,000 for corporations and $100,000 or one year of imprisonment for individuals.
• Whistleblowers will be protected from retaliation, even if disclosure was in bad faith.

Licensing and Authorization

Bill 36 will create the new Cannabis Licence Act, 2018, amend Ontario’s Cannabis Act, 2017, Ontario Cannabis Retail Corporation Act, 2017 and the Liquor Control Act, as well as make changes to the Smoke-Free Ontario Act, 2017 and consequential amendment to the Highway Traffic Act.

Retail Operator Licence

To be a cannabis retailer in Ontario, a retail operator license will be needed. To be eligible, every director, officer and shareholder of an applicant company must be 19 or older. The applicant must demonstrate it is financially responsible, law abiding, and will exercise sufficient control over the retail business.

Retail Store Authorization

To operate a cannabis store in Ontario, a further retail store authorization will be needed, which authorizes its holder to operate a particular retail store. In order to obtain retail store authorization, one must hold a retail operator license. A separate authorization will be required for each cannabis store. Therefore, a licensed retail operator can technically have multiple retail store authorizations. In considering an application for a retail store authorization, the public must be given an opportunity to make written submissions or band council must approve in the case of reserve lands.

Cannabis Retail Manager Licence

An individual will require a cannabis retail manager license in order to carry out the following functions in respect of a cannabis retail store: supervising employees, overseeing cannabis sales, managing compliance, and having signing authority.

In the process of obtaining a license or authorization, in addition to the applicant, the character, financial history and competence of the directors, officers, shareholders, interested parties of the applicant (include landlord, mortgagee, or any person with an interest in the applicant’s asset), as well as employees of the cannabis store could be investigated.

Competition

Licensed Producers Verses Dispensary Operators

The proposed legislation will limit the number of retail stores a federally licensed cannabis producer and affiliates can operate to one, and the retail store must be located at the site listed on the federal license. It is unclear what level of connection between a cannabis producer and an affiliate will be required under this proposed Act. This will be clarified in the regulations. Depending on how broadly affiliates are defined, this could substantially limit the opportunity for federally licensed producers in the consumer retail space in Ontario. At the same time, the proposed Act will provide an exemption to the law abiding requirement for cannabis related convictions under the old Controlled Drugs and Substances Act regime. This will effectively provide opportunities for current operators of illegal cannabis dispensaries to participate in Ontario’s legal cannabis retail market.

Rush to Real Estate

There will likely be first-mover advantages in acquiring good real estate for setting up cannabis retail stores. While the government did not indicate an intent to cap the number of granted licenses/authorizations, practically speaking, the number of cannabis stores in Ontario could be limited by (1) the available real estate in the finite number of locations that satisfy the minimum distance requirement (to be prescribed by regulations) from schools, and (2) public opinion of whether there is an unnecessary/unpleasant number of cannabis stores in a neighborhood.

Other Points

Penalties

It will be an offence to contravene certain sections of the Act, such as the prohibition on providing inducements to authorized retailers. For corporations, directors or officers who cause, authorize, permit or participate in the offence can be found guilty as well. The penalty imposed by the proposed legislation is a maximum fine of $250,000 for corporations and $100,000 or one year of imprisonment for individuals.

Municipality Opt-Out

Municipalities will be able to prohibit cannabis retail stores from being located in the municipality if they pass a resolution to this effect by January 22, 2019. This prohibition may be lifted by a later resolution passed by the municipality, but that decision to lift the prohibition will be final and non-reversible (i.e., municipalities cannot later re-implement a prohibition to ban cannabis stores from that municipality again). A list of municipalities that have decided to ban cannabis retail stores will be posted online. Applicants for a retail store authorization should confirm that their proposed store is not located in one of the listed municipalities.

What's Next

Bill 36 is not yet law. It is currently under review by the Standing Committee on Social Policy. Many aspects of Ontario’s cannabis retail framework still need to be clarified by regulations, including minimum pricing of cannabis. Further, the proposed legislation contemplates establishing standards and requirements in the future with respect to matters such as store premises, promotional activities, and recordkeeping. We will follow the legalization process closely and provide you with updates as they become available.

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¹ See https://www.ola.org/sites/default/files/node-files/bill/document/pdf/2018/2018-09/b036_e.pdf.

² We have written extensively on cannabis, which you can view by visiting the practice page. 

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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