Ontario: First Province to Introduce Regulatory Proposals on Cannabis

As the target date for legalization of recreational cannabis approaches, Canadian provinces and territories continue to develop their own legal framework to regulate provincial retail and distribution. It is expected that the retail sale of recreational cannabis will not begin until at least August 2018. The Senate has agreed to hold a final vote on the federal draft cannabis legislation by June 7, 2018. Assuming the draft legislation is passed into law, various government officials have indicated that the provincial and territorial governments will need 8–12 weeks to prepare for retail sale following the passing of the federal legislation.

On January 18, 2018, Ontario became the first province to release its regulatory proposal.¹ It enacted its cannabis legislation in December 2017. Ontario has been a leader in the development of a legal and regulatory framework for the cannabis industry at the provincial level and we expect its proposals on cannabis regulations will set a tone other provinces and territories may choose to follow.

What You Need To Know

Although the regulatory proposals are not yet law, companies involved or considering becoming involved in the cannabis industry will want to consider the following impacts the proposals may have on their businesses.

• Ontario Cannabis Retail Corporation (OCRC) will be the only official cannabis retailer in Ontario.
• Authorized retailers in other provinces/territories will be prohibited from selling cannabis in Ontario.
• Market competition between provinces/territories will be possible.
• Federally licensed companies will be treated as cannabis wholesalers, as well as retailers in jurisdictions with direct-mail retail system.
• Service providers will be able to service the cannabis industry.
• Recreational cannabis use in hotels, as well as workplaces in private residences, would be permitted.
• Cannabis lounge and designated outdoor areas of multi-unit dwellings are being considered by Ontario.
• Ontario does not intend to regulate the industrial hemp industry through its provincial cannabis legislation.

Analysis

OCRC as the official cannabis retailer in Ontario. Ontario's cannabis legislation, Cannabis Act, 2017, states that the only authorized retailer of cannabis in the province is the OCRC, established under the Ontario Cannabis Retail Corporation Act, 2017. The proposal would exempt OCRC activities from Ontario's Cannabis Act, 2017 to allow the OCRC to conduct its business, including purchasing cannabis products from licensed producers.

Authorized retailers in other provinces and territories cannot sell cannabis in Ontario. The proposal would provide exemptions from the Ontario cannabis legislation to authorized retailers in other jurisdictions to enable them to conduct business in Ontario, but only to the extent that such activities support their cannabis distribution in other jurisdictions. An example of permitted activities would be the transport of cannabis. This means authorized retailers in other provinces and territories would not be able to distribute cannabis in Ontario, leaving the OCRC as Ontario's only official retailer.

Possibility of market competition between provinces and territories. Although Ontario's current cannabis retail framework gives OCRC a monopoly, inter-province/territory competition is possible in the following ways:

• The regulatory proposal under the Ontario Cannabis Retail Corporation Act, 2017 would provide for OCRC to set uniform pricing for cannabis products and accessories across all OCRC stores and online channels. Should other provinces and territories have more attractive pricing/products, an individual over 19 could use the personal cannabis importation exemption provided by the proposal to bring lawfully acquired cannabis from another Canadian province and territory into Ontario. Although this exemption is subject to the possession limit of 30 grams set by the federal Cannabis Act, it is unclear how exceeding this exemption will be enforced as there are no inter-provincial/territorial border controls.
• The Supreme Court of Canada is considering an inter-provincial/territorial trade issue on liquor control in R v. Comeau. Mr. Comeau, the New Brunswick resident, challenged the provincial liquor monopoly and argued that prohibition on inter-provincial/territorial trade is unconstitutional. Depending on the outcome of the case, Ontario’s proposed regulatory framework for cannabis may be reassessed in favour of inter-provincial/territorial trade, which could lead to market competition.

Federally licensed companies as cannabis wholesalers, as well as retailers in jurisdictions with direct-mail retail system. Federally authorized entities in Ontario, such as companies with a cultivation or processing license under the federal Cannabis Act, would be exempted from the provincial cannabis legislation with respect to the following activities:

• sale and distribution of cannabis to other federally authorized entities, the OCRC, and authorized retailers in other jurisdictions;
• activities required to conduct their business; and
• supplying provinces and territories where direct-mail retail system is federally authorized.

Service providers to the cannabis industry. The proposal would provide exemptions from Ontario's cannabis legislation to ensure service providers, such as transportation companies, can act on behalf of the OCRC, federally and provincially/territorially authorized entities. This exemption suggests that companies that handle cannabis as service providers do not need to have a federally issued license. However, the federal cannabis regulatory proposal includes requirements for license holders to put in measures to safeguard cannabis in transit. Without more guidance from a draft of the proposed regulations, it is unclear whether additional security or approval requirements for service providers, such as transportation companies, will be prescribed by the Ontario regulations.

Recreational cannabis use in hotels and workplaces in private residences would be permitted. Relevant business owners should note the proposal would permit the smoking or vaping of recreational cannabis in designated smoking rooms in hotels and other forms of recreational cannabis use in hotel rooms. Furthermore, the proposal would exempt most private residences that are also workplaces from the prohibition on consuming cannabis in workplaces, with certain exceptions and conditions for long-term care or retirement homes and places where home child care is provided.

Cannabis lounge/venue. Although not yet a proposed regulation, Ontario is considering and seeking feedback on post-legalization approaches to allowing licensed cannabis consumption lounges/venues and for owners of multi-unit dwellings to designate outdoor areas for recreational cannabis consumption.

Industrial hemp exclusion. The federal draft Cannabis Act and its regulatory proposal include a regulatory framework for industrial hemp, but Ontario does not intend to regulate industrial hemp through the provincial legal framework for cannabis. The regulatory proposal would exclude the industrial hemp industry from the application of Ontario's Cannabis Act, 2017.

What's Next

With the release of Ontario's consultation documents on cannabis-related regulatory proposals, stakeholders have a more fulsome view of the provincial cannabis legal framework. In comparison to Manitoba and Québec, Ontario does not seek to ban home cultivation of cannabis. The Ontario government sought public feedback on its cannabis-related regulatory proposals. The comment period for the proposals on places of cannabis use is still open. Interested stakeholders are encouraged to submit their feedback by March 5. We will provide you with updates to the cannabis legalization process in Canada as they become available.²

We have written extensively about emerging trends in the cannabis industry. You can read all of the team's insights by visiting our dedicated cannabis page.³

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¹ See http://www.ontariocanada.com/registry/view.do?postingId=26486&language=en; http://www.ontariocanada.com/registry/view.do?postingId=26449&language=en; and http://www.ontariocanada.com/registry/view.do?postingId=26470&language=en.

² In a news release on February 5, British Columbia (BC) released its policy decisions on cannabis retail, possession limit, place of use, personal cultivation, and drug-impaired driving. The cannabis retail framework in BC will be different from that in Ontario. Both BC and Ontario align with federal possession and personal cultivation limit. BC has not introduced any detailed plans with respect to places of cannabis use.

³ See https://www.torys.com/insights/topics/emerging-trends-in-the-cannabis-industry.