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Bulletin

New Cannabis Regulations Provide Guidance on Retail Cannabis Stores in Ontario

Fasken
Reading Time 7 minute read

Cannabis Bulletin

Background and Introduction

On November 14, 2018, the Government of Ontario released its regulation (the Regulation) under the Cannabis Licence Act, 2018 (the Act). The Act and the Regulation came into force on November 16, 2018, approximately one month after adult use cannabis (recreational cannabis) was legalized by the federal government under the Cannabis Act (Canada) (the Federal Cannabis Act).[1] 

Together, the Act and the Regulation establish the rules for the province's private retail recreational cannabis store system that will come into effect on April 1, 2019 and be overseen by the Alcohol and Gaming Commission of Ontario (the AGCO). Until that time, recreational cannabis may only be purchased in Ontario online through the Ontario Cannabis Store.

This bulletin summarizes Ontario's current legislative framework for the licensing and operation of cannabis retail stores. In particular, Part II summarizes the licences required to operate a cannabis retail store and Part III summarizes certain of the limitations and restrictions set out in the Act and Regulation that apply to the operation of cannabis retail stores.

Licensing of Cannabis Retail Stores

In order to operate a cannabis retail store in Ontario, three licences are required:

retail operator licence (an Operator Licence);

retail store authorization (an Authorization); and

cannabis retail manager licence (a Manager Licence).

Retail Operator Licence

In order to operate a cannabis retail store in Ontario, a person must hold an Operator Licence. The Act permits both individuals and corporations to apply for an Operator Licence, provided that certain age requirements are met. In particular, an individual applicant must be at least 19 years old, and, in the case of a corporate applicant, every director, officer and shareholder of the corporation must be at least 19 years old. The government has indicated that it is anticipated that the AGCO will begin accepting applications for Operator Licences on December 17, 2018. At this time, it does not appear that the form of application will be available in advance of this date.[2]

The Act and the Regulation establish various circumstances in which an applicant will be ineligible for an Operator Licence, including where an applicant has been charged with or convicted of certain cannabis-related offences. Notably, illegal cannabis retailers operating after October 17, 2018 are ineligible for a an Operator Licence, as are those persons who are in default of filing a return, or of paying any tax, penalty or interest assessed under any Ontario tax statute or are in default of filing a return under a prescribed federal tax statute (e.g. Income Tax Act (Canada)).

Licensed producers and their affiliates

The Act contains restrictions on the operation of cannabis retail stores, including a limitation on licensed producers and their "affiliates" from holding more than one retail location between them, and requiring that such retail location be located on or within the premises licensed by the Federal Cannabis Act. 

Specifically, the Regulation provides that a corporation is not eligible to be issued an Operator Licence if more than 9.9% percent of the corporation is owned or controlled, directly or indirectly, by one or more licensed producers or their affiliates. The term "affiliate" is broadly defined under the Regulation to include, among other things:

a corporation of which the licenced producer owns or controls (directly or indirectly) or has the right to acquire shares (or convertible securities) to which 9.9% or more of the voting rights attach;

a partner in the same partnership as the licensed producer; and

a member of the same joint venture, unincorporated association, unincorporated syndicate or unincorporated organization as the licensed producer. [3]  

The combined effect of the Act and the Regulation is that licensed producers and their affiliates are prohibited from opening any cannabis retail stores with the exception of one store from a location specified in the licensed producer's licence. 

Retail Store Authorization

Following the issuance of a retail operator licence, the holder must apply for an Authorization (which entitles the holder to open one cannabis retail store). In order for a proposed cannabis retail store to qualify for an Authorization, it must meet the eligibility requirements prescribed in the Act and the Regulation, such as requirements applicable to the store's layout and location (including confirmation that the store is not located in a municipality that has opted-out of having cannabis retail stores in its jurisdiction),[4] and a determination that the location of the store is in the public interest, having regard to the needs and wishes of the residents of the municipality. The AGCO's Registrar also has the right to deny an Authorization if it determines that it is in the public interest to do so, provided that in arriving at such determination, the Registrar is restricted by the Regulation from considering any factors other than public health and safety, the protection of youth and restricting their access to cannabis, and preventing illegal activities in relation to cannabis.

Importantly, the Regulation also limits the number of stores that the holder of an Operator Licence and its affiliates may operate to 75 (in the aggregate).

Cannabis Retail Manager Licence

The AGCO requires that each authorized store location have at least one manager that holds a Manager Licence.[5] The licensed manager is responsible under the Act for supervising employees of the store, overseeing the sale of cannabis at the store, and managing compliance issues with respect to the sale of cannabis, and also has signing authority to purchase cannabis, enter into contracts and make offers of employment in respect of the store.

Operation of Retail Cannabis Stores

The Act and Regulation also prescribe limitations for the operation of retail stores, including the:

permitted hours of business (between 9:00 am and 11:00 pm on any day);[6]

items that may be sold (limited to cannabis, cannabis accessories and shopping bags). Only cannabis purchased by the holder of the Authorization from the Ontario Cannabis Retail Corporation, in the packaging in which it was received, may be sold);

the persons to whom sales may be made (in particular, only individuals 19 years of age or older);

the limits on the amount of cannabis sold (the maximum amount of cannabis permitted to be sold to an individual in a single visit, whether in single or multiple transactions, is 30 grams of dried cannabis or the equivalent amount of another class of cannabis); and

location (an Authorization will not be issued where the proposed cannabis retail store would be located less than 150 metres from a school).

Future Outlook

The Act and the Regulation provide some guidance to persons considering opening cannabis retail stores in Ontario. However, much of the process is still in development. Recently, the AGCO announced that it will be publishing a guide, the "Cannabis Retail Regulation Guide", addressing, among other matters, the licensing and application process for recreational cannabis retail stores in Ontario. The AGCO has advised that this online guide will be published one chapter at a time, with new chapters being published as additional information becomes available. Parties that are interested in entering the retail cannabis industry should continue to monitor the AGCO website and cannabis-related legislation to ensure that they are informed of updates that may affect the operation of cannabis retail stores.


 

[1] Please refer to our Bulletin October 17, 2018 - An Historic Day for Canada, dated October 18, 2018.

[2] However, the AGCO indicated that it will post a summary of the application and supporting materials prior to December 17, 2018.

[3] Exactly what arrangements constitute a "joint venture" are unclear as this term is not defined.

[4] Ontario municipalities have a one time option (until January 22, 2019)  to opt out of having cannabis retail stores in their jurisdiction. A municipality that has opted out is permitted to later opt-in. However, once it has opted in, the municipality can no longer opt-out. Fasken is currently aware of numerous municipalities that have exercised their right to opt-out.

[5] Section 5 of the Act sets out eligibility criteria for the holder of a Manager Licence.

[6] No exception for holidays is included, meaning that, on the basis of the wording of the Regulation, unlike LCBO stores, the operating hours of retail cannabis stores will not be affected by holidays.