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Bulletin

Changes to Ontario’s Cannabis Licensing Rules Limit Number of Stores

Fasken
Reading Time 6 minute read

Cannabis Bulletin

Background

On December 13, 2018, the Government of Ontario published a news release (News Release), announcing that it would be taking a phased approach to recreational cannabis retail licensing, beginning with the issuance of twenty-five retail licences that will permit licensed operators to open retail cannabis stores (Licences) in Ontario on April 1, 2019. The government also released an amending regulation (Regulation) to enact these changes to the licensing process.

This approach marks a significant departure from the cannabis retail licensing system introduced by the government in November of this year under Ontario's Cannabis Licence Act (the Act) and its accompanying regulation.[1] The News Release cited the insufficient supply of recreational cannabis to meet consumer demand as the motivation behind the new licensing regime, and referred to such shortage of supply as a "national issue" demanding an immediate response from the federal government and Prime Minister Justin Trudeau. In response, the prime minister has stated that there will be relief within the coming months and that resolving the supply shortage completely may take up to a year.

New Approach to Licensing

The News Release confirmed that the Alcohol and Gaming Commission of Ontario (AGCO) will be utilizing a lottery system (which will be overseen by a third-party fairness monitor) to determine who can apply for the initial round of twenty-five Licences. According to the Regulation, no applicant shall be granted more than one store during this initial phase. Persons wishing to participate in the lottery are required to submit an online expression of interest between January 7-9, 2019. Following that process, the expressions of interest that are received will be placed into the lottery pool for a draw which will be conducted on January 11, 2019. The News Release indicates that the results of the lottery will be published on the AGCO's website within twenty-four hours of the draw.

 

Initial Approach  

New Phased Approach 

Number of Licences 

Unlimited/no cap.[2]

25 during initial phase.

Deadline for Application for Licence 

December 17, 2018

(Application)

January 7-9, 2019

(Expression of Interest)

Results of Application Process 

The AGCO did not announce a timeline for determining whether the applicant was successful.

Between January 11 and 12, 2019.[3]

Location of Stores Operating under Licence  

No restrictions on the distribution of retail cannabis stores across the province.

Distributed across the province, with each region allowed a set number of cannabis stores as follows:[4]  City of Toronto - 5 stores

Greater Toronto Area (Durham, Peel, Halton, and York Regions) - 6 stores

Western Ontario (including Hamilton, London, Niagara, Waterloo) - 7 stores

Eastern Ontario (including Ottawa, Kingston, Prince Edward County) - 5 stores

Northern Ontario - 2 stores                

Date of Opening of Stores Operating under Licence[5]

Stores operating under Licence permitted to open beginning on April 1, 2019.

25 stores operating under Licence will be permitted to open beginning on April 1, 2019.

The Regulation sets out a number of restrictions regarding the initial twenty-five Licences:

A person may submit an expression of interest with respect to more than one region, but can only be selected to apply for one region.

Two or more persons who are affiliates of one another may submit expressions of interest, but only one will be selected to apply. Additionally, affiliates are not permitted to submit an expression of interest for the same region.

None of the initial twenty-five Licences will be issued to a federally licensed cannabis producer or their affiliate.

None of the initial twenty-five Licences will be allocated to municipalities that have a population of less than 50,000.

Moving Forward - FAQs

What rules will apply to the lottery for Licences?

The AGCO has given little indication as to what these rules will look like or how successful applicants will be chosen. However, the AGCO has announced that it will publish the lottery rules to its website during the first week of January 2019.

What information will be required to be submitted as part of the expression of interest?

The AGCO has not announced what information will be required to be submitted as part of the expression of interest. However, based on: (i) the requirements of Ontario's Cannabis Licence Act (and the regulation thereto); (ii) information released by the AGCO in respect of the initial licensing approach; and (iii) the information required to be submitted in certain of the other provinces as part of their respective retail cannabis licensing application process, it is expected that persons submitting expressions of interest will likely be required to submit the following:

Constituting documents of the business (e.g. Articles of Incorporation).

A schematic diagram outlining the ownership structure of the business and the individuals and entities involved.

Documents evidencing the financial history of the business, including financial statements, tax returns and tax assessments.

Details of shareholders, including names, addresses and shareholdings.

Personal disclosure documents for shareholders, officers, and directors.

When will the Government of Ontario allow more cannabis stores to open beyond the initial twenty-five stores?

It is unclear at this time. It is expected that the answer to this question will depend, at least in part, on whether supply of recreational cannabis is increased to meet consumer demand.

Are municipalities still able to opt out of having retail cannabis stores?

Yes, municipalities still have until January 22, 2019, to opt out of having retail cannabis stores in their community. As of December 20, 2018, a number of municipalities have already exercised this option, namely Markham, Mississauga, Milton, and Pickering, and the matter is under active consideration in several other jurisdictions. The AGCO maintains an ongoing list of municipalities that have opted out of retail cannabis stores.

It is clear that many questions remain regarding the Government of Ontario's new approach to recreational cannabis retail licensing. Interested persons may monitor the AGCO's website for current information over the coming weeks. Fasken is closely watching developments and will continue to provide updates on retail cannabis licensing and the application process in the lead-up to the opening of cannabis retail stores on April 1, 2019.


[1] Refer to our Bulletin New Cannabis Regulations Provide Guidance on Retail Cannabis Stores in Ontario.

[2] The initial approach did not include a cap on the number of licences to be issued. This approach appeared to better align with section 3(7) of the Cannabis Licence Act which provides that the "Register shall consider every application for a retail operator licence, and shall (a) issue the retail operator licence, if the applicant has met the application requirements, is not ineligible to be issued a retail operator licence and has paid the required fee […]" [emphasis added].  

[3] As noted above, the AGCO will publish the results of the lottery within 24 hours of the draw on January 11, 2019.

[4] Refer to the Regulation for further examples of the municipalities located in each region.

[5] Assuming all applicable requirements have been met by the licensee.