Canada: You Snooze, You Lose Control Of The Process: How Local Governments Can Maintain Control Of Non-Medical Retail Cannabis Licensing

Last Updated: August 24 2018
Article by Shea Coulson, Eric Foster and James M. Wishart

Local governments play a pivotal role in the licensing of non-medical cannabis retail stores. The provincial Cannabis Control and Licensing Act (CCLA) prohibits the Liquor and Cannabis Regulation Branch (LCRB) from granting a licence unless the relevant local government provides a recommendation that the application be approved. This provision is often referred to as a "veto" power.

Given this power, there are three possible paths for local governments: (1) full engagement with the process, including the development of comprehensive policies to assess licence applications; (2) ad hoc engagement with assessing applications without a guiding policy; and (3) complete non-engagement with the approval process. This article will explain why only the first of these three options amounts to best practice.

The so-called "veto" power in the CCLA should not give local governments false confidence that they can sit on their hands and refuse to assess applications. It is also not a reason for local governments to avoid developing a comprehensive policy to govern the assessment of non-medical cannabis retail licence applications and instead proceed on an ad hoc basis. There are three main problems that will arise if local governments fail to properly engage with assessing retail licence applications: (1) increased risk of exposing local government and LCRB decisions to judicial review; (2) frustrating the purpose of the CCLA and the federal Cannabis Act; and (3) providing disincentives for best-in-class operators to open locations within the jurisdiction.

The remainder of this article will provide an overview of the law governing local government approval of non-medical cannabis retail licences with a view to highlighting why the three risks above are likely to arise and how local governments should act to mitigate those risks.

The provincial government's authority and local government recommendations

The federal Cannabis Act provides the federal government with authority to govern the non-medical retail sale of cannabis only if provincial governments choose not to implement their own legislative regimes. In British Columbia (as in all other provinces), the provincial legislature has chosen to exercise its constitutional authority to enact the CCLA and the Cannabis Distribution Act (CDA), which combined regulate the sale, distribution, and promotion of non-medical retail cannabis in the province.

The CCLA provides that the general manager of the LCRB must not issue a cannabis retail licence unless the relevant local government has recommended that the licence be issued (s. 33(1)). This section of the CCLA gives considerable power to local governments to control cannabis retailing within their jurisdiction. This "veto" power carries with it the obligation to perform the assessment function in good faith and in compliance with certain guiding principles. The CCLA sets out these principles in s. 33(3) and (4). First, a local government is required to gather the views of residents in the impacted area pursuant to prescribed methods. Second, subsection (4) requires compliance with the CCLA regulations. While those regulations have yet to be released, comments in LCRB policy documents suggest the regulations will require local government recommendations about issuing licenses to be accompanied by written reasons.

The LCRB has also released a policy document called "Local Governments' Role in Licensing Non-Medical Cannabis Retail Stores". This document confirms the ultimate jurisdiction of the LCRB to approve or deny licenses. It also confirms that the LCRB must consider local government recommendations. Upon receipt of an application for a non-medical retail licence, the LCRB will notify the relevant local government. The local government may then choose not to make any recommendations, or choose to make comments and recommendations. If the local government chooses not to make a recommendation, the LCRB will not issue the licence. This means local government non-engagement with the provincial licensing application process will prevent any licences from being issued within that jurisdiction.

If the local government chooses to make a recommendation for or against issuing a license, the LCRB must consider the recommendation and the basis for the recommendation. Given the level of public and political scrutiny in this area, the LCRB will be concerned with local government assessments that could appear arbitrary or unfair. As such, the LCRB will need to be comfortable with the justification for any denial and the fairness of the process in doing so, lest it faces an application for judicial review.

Moreover, though local government approval is required for the LCRB to issue a licence, the CCLA does not countenance blanket denials without reasons or basic due process. The standard administrative law doctrines of reasonableness and procedural fairness will apply if a local government refuses to make a recommendation or recommends denial of the licence. Local governments without a considered policy face much greater legal risk in an application for judicial review of a decision denying a licence compared to those with public, considered policies.

The LCRB telegraphs these concerns in its local government policy guideline, which sets out requirements for local government recommendations as follows:

  1. They must be in writing (this indicates the need for transparency);
  2. They must show that the local government has considered the location of the proposed store;
  3. They must include the views of the local government on the general impact on the community if the application is approved;
  4. They must include the views of residents, if the local government has gathered residents' views, and a description of how they were gathered;
  5. They must include the local government's recommendation as to whether the application should be approved or rejected and provide the reasons upon which the recommendation is based.

Given the above, it is simply not tenable for local governments to fail to develop a comprehensive policy on assessing applications for non-medical cannabis licences within their jurisdiction.

The increased risk of judicial review

Local governments that do not develop comprehensive policies to govern the assessment of non-medical cannabis retail licences risk losing control of how those assessments will take place.

While the CCLA does create a kind of "veto" power for local governments, that power is constrained as set out above. The CCLA's comprehensive approach to community engagement makes it clear that the provincial government expects local governments to conduct this engagement comprehensively and in good faith. Failure to engage with these assessments pursuant to a considered policy exposes local governments to criticism by courts on applications for judicial review of decisions denying retail licences. A local government will likely not successfully justify refusals to recommend approval of a licence if they fail to develop and follow a policy that (1) provides applicants notice of the factors relevant to the local government's assessment; (2) engages in community consultation in good faith; and (3) provides coherent and consistent written reasons for any denial.

Local governments do not have a blank slate under the CCLA to refuse to engage in the process or fail to provide reasons. Rather, the purpose of the CCLA (and the coming regulations) is to ensure fair community engagement. The CCLA does not contemplate local government non-engagement with the application process. Failure to engage would frustrate the purpose of the CCLA to grant licences. Local government silence in the assessment process also runs the risk of being seen by courts as amounting to arbitrary denial of licence applications. Arbitrary denials without reasons are reviewable and quashable by courts.

Even if a local government does engage with assessing applications, it is exposed to increased legal risk if that assessment is ad hoc rather than pursuant to a considered policy. Coherent policies ensure consistency and fairness in the process. Ad hoc approvals run the risk that the reasons given for denial will be unreasonable and that the procedural rights afforded applicants will be inconsistent. This invites judicial review. Moreover, local governments that do not develop relevant by-laws and/or policies will cede much of their influence over developing guiding principles and best practices to engaged local governments, the LCRB, and top-down provincial policy.

Any local government that wants influence over how cannabis is sold in their jurisdiction should act swiftly to develop the relevant by-laws and policies. Waiting for months or more after legalization bears the significant risk that a slow-to-act local government will lose control of the process and invite legal challenge.

Frustrating the purpose of the CCLA and Cannabis Act

The purpose of the CCLA and the federal Cannabis Act is to create a legal ecosystem for the retail sale of non-medical cannabis. The underlying rationales are to eliminate the black market in cannabis, promote healthy use of cannabis and protect youth. Local governments that fail to engage in the community assessment process stymie these purposes. Failing to engage invites political and legal risk. Depending on political winds and public opinion, it could become politically and legally untenable for local governments to continue to fail to engage in the process.

It is possible for a business or another level of government to mount a legal argument that local governments do not have jurisdiction or authority to fail to engage in the assessment process, because doing so undermines the federal and provincial acts. While such an argument would be novel and have no guarantee of success, it makes little sense for a local government to invite such a challenge.

Disincentives for best-in-class operators

Best-in-class operators require certainty and consistency. Local governments that fail to provide this in their process for assessing non-medical cannabis retail licences will dissuade the best operators from doing business in their jurisdiction. Despite the fact that some leading operators are currently holding leases in a wide variety of jurisdictions on a speculative basis, in the long run, the lack of local government policy could invite less desirable operators to fill in the remaining gaps when the most sophisticated operators pull out.

A successful cannabis retail policy will go a long way to attracting the sort of businesses that are regulatory-compliant and work productively with local governments to solve issues.

How to mitigate risk and develop successful policy

Local governments should follow the lead of the provincial cannabis secretariat in quickly going to ground with stakeholder engagement to develop jurisdiction-wide guiding policies. Short-staffing should be remedied as necessary with outside consultation on the development of effective policies and by-laws. Liquor policies and learnings will be highly relevant, coupled with a more nuanced understanding of the unique health and safety risks associated with cannabis sale and consumption.

Local governments should also carefully develop their policies to reduce the risk of successful judicial reviews and to provide the greatest latitude for decision-making. Providing applicants with advanced notice of the factors relevant to approval will go a long way to protecting against procedural fairness challenges. It will be essential for local governments to develop protocols and training for drafting the written recommendations to the LCRB. This is a concern particularly because the CCLA permits local governments to delegate recommendations to their staff. Well-written recommendations will greatly reduce the risk that a court will find a local government's decision unreasonable.

However local governments choose to act, it is certain that the procedural and legal risks detailed above will arise. There will be judicial reviews, and courts will provide guidance to the province and local governments on how to act in compliance with administrative law principles. A local government that snoozes runs the very great risk of losing control of the process. The time to act is now.

Dentons' leading Cannabis group will continue to help industry stakeholders understand the new regulatory framework so they can leverage the numerous opportunities that have developed, and will continue to develop, in this industry.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com

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