Further Details of Ontario’s Private Retail Market for Cannabis Unveiled

The Government of Ontario released regulations on November 15 to support Ontario’s private retail model for cannabis.¹ These regulations along with the enabling legislation, Ontario’s Cannabis Licence Act, 2018,² came into force on November 16. The regulations set out and clarify a number of restrictions and conditions for retail licence eligibility.

What You Need To Know

• The government plans to start accepting applications for private retail licences on December 17, 2018, with the private retail market set to launch on April 1, 2019. Until that time, the only legal avenue to obtain cannabis in Ontario is through the online Ontario Cannabis Store.
• The regulations restrict how much interest licensed producers (LPs) may hold in corporations that operate cannabis retail stores.
• The regulations impose a market cap to prevent a single entity and affiliates from controlling the retail market in the province.
• Applicants must be tax compliant as a precondition to the issuance of a cannabis retail operator licence.
• Individuals who have committed specified cannabis offences are ineligible for cannabis retail licences. Licences will be denied to retailers who continued to sell cannabis in the province past October 17, 2018.
• Further specifications regarding the restrictions for permissible locations and operations are also included. Nolicences will be issued for premises within 150 metres of a school, and no co-location and limited co-sales are permitted.

Corporate Licence Restrictions

Constraints for Licensed Producers

If an LP, a number of LPs and/or their affiliates, own or control greater than a 9.9% interest (directly or indirectly) in a corporation, that corporation is not  eligible for a retail operator licence. A broad definition of affiliate is included in the regulations. An affiliate relationship exists if a corporation beneficially owns or controls voting shares, or securities that may be converted to voting shares, constituting more than 9.9% of voting rights. If a person, or group acting together, holds 50% voting control for the election of directors or market share of the corporation, they are considered affiliates. Additionally, an affiliate relationship may be established through involvement in a trust, partnership or joint venture, among others. This limitation adds to the cap of one store an LP is permitted to operate directly, at its production site.

Substantial corporate restructuring and reorganization may be necessary for LPs to participate in the Ontario retail market. These requirements are more restrictive than the conditions established in other provinces where private retail stores are permitted. As such, LPs that wish to participate in the Ontario retail sector may consider franchise or other non-ownership models for Ontario.

Market Cap Set

A person who is noncompliant with federal or provincial tax requirements is ineligible for a retail operator licence.
Instances of noncompliance leading to ineligibility include the existence of any outstanding tax return, or an amount owing to tax authorities as a tax, penalty or interest.

Ineligibility for Prior Activities

Tax Compliance Required

Reprisals against an employee in response to actual or anticipated whistleblowing activity is prohibited by amendments to the Securities Act. The ASC has the power to investigate potential reprisals and take appropriate action against employers who commit a reprisal. Further, amendments to the Securities Act create a statutory right of action for a whistleblower to claim monetary damages for a reprisal by their employer.

Illegal Sales and Prior Convictions

Individuals who have committed an offence under the Cannabis Licence Act, 2018, or an offence under specified prohibition provisions of the Cannabis Control Act, 2017 or the Cannabis Act, are ineligible to receive a retail operator licence, a retail store authorization and/or a cannabis retail manager license. This means anyone who operated a cannabis store in the province past October 17, 2018 is ineligible to receive a cannabis sales licence in Ontario.

An exception is carved out for some cannabis-related convictions prior to legalization. A cannabis-related conviction for possessing, trafficking or producing contrary to the Controlled Drugs and Substances Act, will not in itself mean an individual is ineligible to receive a licence.

Any person who has been involved with a criminal organization in Canada is ineligible for all private retail licences in Ontario.

Location and Operation Limitations

The regulations include strict limitations regarding the locations of private retail stores. In Ontario, cannabis retail stores must be at least 150 metres away from all schools, inclusive of private school locations. In comparison, there is no provincially legislated restriction regarding the proximity between liquor stores and schools (although municipalities may impose related restrictions). Premises must be enclosed to be licensed, which means the premises cannot be entered through another commercial establishment.

The hours of operation for cannabis retail stores are set as 9 a.m. to 11 p.m. Additionally, cannabis stores can only sell cannabis, cannabis accessories and shopping bags. So, for example, a cannabis store owner may not offer coffee or food to customers. The regulations also require that all licensees operating or managing a store, and cannabis retail store employees, complete provincially approved training programs.

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¹ See O Reg 468.18: General.

² See See the Cannabis Licence Act, 2018, SO 2018 c 12 Sched 2.

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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