Monopoly on Cannabis: Ontario's Plan for Retail Sales

As part of the federal government's July 2018 goal to roll out legalized recreational cannabis, provinces and territories are taking on their mandate of creating their own retail and consumer environments. First out of the gate is the Province of Ontario, unveiling its ambitious plan to build 150 brick-and-mortar stores dedicated exclusively to the sale of dried cannabis and cannabis accessories.¹ Many of the federal government's stated objectives including protecting youth and minimizing the risk of harm are reflected in Ontario's framework. Official legislation will be published later this year after the conclusion of public consultations.

The proposed approach is based on the province's experience managing tobacco and alcohol: the recommended framework will closely follow the distribution and retail model of alcohol sales by the Liquor Control Board of Ontario (LCBO), and a new LCBO-run subsidiary will be created to oversee cannabis retail sales. Approximately 40 locations will be opened as of the date of legalization, with 80 more scheduled for July 2019 and the remaining stores will be fully operational by 2020. An online order service will also be available by July 2018 with province-wide shipment. Given the limited number of cannabis stores contemplated in the plan, it is expected that online sales will form a significant portion of cannabis sales.

What You Need To Know

• Minimum age. In Ontario, the minimum age to use, purchase and possess cannabis will be 19, as it is for tobacco and alcohol.
• Retail outlets. The province will collaborate with municipalities to determine locations for retail outlets which will be physically separate from LCBO stores to discourage co-consumption of alcohol and cannabis. Self-service will be prohibited and purchases will be made in a "behind-the-counter" retail environment. Retail staff will comply with age verification requirements and receive training on individual products as well as public health information that may be requested by consumers.
• Edibles. Regulation of edibles is still unresolved and is likely to remain so until the federal government provides more guidance on what cannabis product types and formats will be permitted in addition to dried cannabis.
• Price. Taxation and pricing policies for cannabis by both branches of government remain unknown although they have indicated that the cost to the consumer will be carefully calibrated to discourage over-consumption as well as black market sales.²
• No public use. Cannabis consumption will be restricted to private residences. Recreational cannabis use will not be allowed in public places, the workplace, or inside motor vehicles. However, the Ontario government has indicated that it will engage municipalities and regulatory partners to explore the possibility of permitting designated establishments for recreational cannabis consumption in the future.
• Current dispensaries. Dispensaries will not be legal providers under the new model. Ontario has courted controversy by establishing a new Crown corporation as the only legal retail distributer in Ontario.³ The province has stated it will work with municipalities, law enforcement as well as the federal government to implement a coordinated enforcement strategy to shut down illegal sales and operations and contemplate new provincial offences for non-compliance.
• Public awareness. Public information campaigns will be launched in the lead-up to federal legalization to promote public awareness of Ontario's rules and harm prevention initiatives. Resources will also be developed to help employers and labour groups navigate safety issues with respect to impairment at work.
• Medical cannabis can only be purchased from producers federally licensed under the Access to Cannabis for Medical Purposes Regulations.⁴ This system will continue to co-exist with the proposed provincial system for recreational cannabis. Producers currently licensed under the ACMPR will have their licenses grandfathered under the new federal Cannabis Act,⁵ enabling them to supply both the medical and recreational market. These licensed producers as well as those who will be authorized under the forthcoming federal recreational licensing regime will supply product to the new cannabis control board.
• Bottom line. With the province being the sole retail outlet for cannabis, we expect there will be
  • significant downward pressure on the wholesale price of cannabis;
  • increased taxation revenues as the LCBO model ensures maximum collection of tax on sales of cannabis (assuming that the retail prices set by the province are competitive with the illegal market); and
  • assurance that retail sales are being conducted by a trusted entity. This could help provide comfort to the traditional banks who have to date not been banking the sector.

What's Next

With the largest market potential in Canada, Ontario's plan provides important insight into how cannabis legalization will unfold at the consumer level, but anticipation is mounting for both federal and provincial regulations to address other key elements of retail sales. The systems to ensure that online sales will be made and accessed only by those over 19 needs to be considered. And while current advertising provisions in the federal draft Cannabis Act largely mirror the restrictions on tobacco promotion, many currently licensed producers have urged governments to show leniency with brand and product advertising for cannabis. Once the federal regulations are released, they will provide the public and the province with further directions on the packaging, labelling and advertising strategies available to producers selling their products through Ontario's cannabis outlets.

While formal consultations continue across Canada, consultations with the public, Indigenous communities and industry stakeholders will occur later in the fall in Ontario, followed by publication of the draft regulations. We will bring you the details on these and other opportunities to participate in the dialogue as they become available.

For all our team's insights on the latest developments in cannabis, head to Torys' Emerging Trends in the Cannabis Industry here.

Read our complete summary of Canada's proposed cannabis framework here.

You can follow Torys' Food and Drug Law team on Twitter here.

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¹ For more information, see "Ontario Releases Safe and Sensible Framework To Manage Federal Legalization of Cannabis", online at news.ontario.ca.

² Ibid, note 1.

³ For more information, see "Ontario's Cannabis Retail and Distribution Model", available online at news.ontario.ca.

⁴ SOR/2016-230.

⁵ Bill C-45, An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts, 1st Sess, 45th Leg, 2017.