Canada: Legal Cannabis: Now That It's Here, Where Will It Grow?

Last Updated: October 19 2018
Article by Katarzyna Sliwa, Eric Foster and James M. Wishart

On September 27, 2018, Bill 36, the Cannabis Statute Law Amendment Act (Bill 36), which enacts the Cannabis Licence Act (CLA) and makes amendments to various other pieces of legislation, received its first reading. Bill 36 was referred to the Standing Committee on Social Policy on October 4, 2018. The Bill received royal assent on October 17, 2018 and, subject to certain provisions which will come into force later, is now law in Ontario.

Bill 36 follows the new provincial government's August announcement to shelve the government-run 'brick-and-mortar' retail model for cannabis proposed by its predecessor, and establishes the regulatory regime for private cannabis retail in Ontario. Private retail, which will be permitted at a later date, will be supplemented by a government-run online store operated by the Ontario Cannabis Retail Corporation (OCRC). The online store is up and running as of October 17, 2018, with the private regime expected to follow at some point before April 1, 2019.

While Bill 36 provides a degree of much-needed clarity for industry stakeholders, the regulatory framework for the production, distribution, and use of cannabis remains rife with uncertainty, particularly at the municipal level. Below, we provide a brief overview of the legal framework governing the regulation of cannabis in Ontario before delving into the developing municipal landscape as it relates to cannabis production and sale, highlighting key issues that stakeholders should consider going forward.

Legal framework

Federal legislation

Bill C-45, which enacted the federal Cannabis Act and made accompanying amendments to the Controlled Drug and Substances Act, the Criminal Code, and other legislation, received Royal Assent on June 21, 2018, and came into force on October 17, 2018. The federal Cannabis Act sets the groundwork for the legalization of cannabis, and outlines the federal government's role as overseer of licensing, regulation, and compliance for recreational cannabis producers. The medical cannabis regime will continue separately, in a substantially similar form as it did prior to legalization.

Provincial legislation

The Cannabis Control Act (CCA) and the Ontario Cannabis Retail Corporation Act (OCRCA), the latter of which establishes the OCRC, received Royal Assent on December 12, 2017. These two acts, together with the forthcoming CLA, regulate the consumption and distribution of cannabis in Ontario.

The CCA prohibits the sale of cannabis except by an Authorized Cannabis Retailer, which is defined as the OCRC or the holder of an authorization issued under the CLA. Licencing and authorization under the CLA is a two-step process, by which an individual or corporation is first required to obtain a Retail Operator Licence before a site-specific Retail Store Authorization may be granted. A further licence is required for the individual acting as the retail manager at the store. Notably, the CLA restricts producers licensed under the federal Cannabis Act and their affiliates to a single Retail Store Authorization between them. Further, that store is required to be located onsite at the production facility set out in the production license. Retail Operator Licensees that are not licensed producers under the federal Cannabis Act are subject to no such restriction on the number of Retail Store Authorizations they may apply for or be granted.

Bill 36 also revises the previous provincial government's prohibitions on consumption. While the former CCA prohibited consumption in any public place, Bill 36 relaxes these restrictions, subjecting recreational cannabis use to similar restrictions as are placed on tobacco and medical cannabis.

The developing municipal landscape

Production

The medical cannabis regime provided municipalities with experience and an opportunity to ease into the cannabis space prior to the legalization of recreational use. While the recreational regime will be separate from its medical counterpart, one by-product of the existing medical regime is that several municipalities, including the cities of Toronto, Hamilton, and Barrie, already have existing zoning by-laws that define and permit Medical Marihuana Production Facilities (MMPF), or similarly defined uses. Other municipalities have brought forward zoning by-law amendments to define MMPFs, choose appropriate zones, and ensure minimum distances from sensitive uses.

Not all municipalities, however, have gone this route. Several municipalities have no specific policies for cannabis production, and simply fit these uses within existing categories. The Town of Ajax, for example, considers MMPFs as agriculture operations, and permits them in any zones where such uses are permitted. The City of Brampton, on the other hand, has treated MMPFs as a manufacturing, production and testing activity, like other pharmaceutical production facilities, and permitted the use in industrial zones.

What remains to be seen is how the experience with medical cannabis will inform municipalities as they zone for recreational production. Whether zoning will be via modification to an existing medical definition, on an ad hoc basis, or something else entirely, we expect municipalities will continue to grapple with this challenge. Indeed, the City of Hamilton is facing a heated appeal to the Local Planning Appeal Tribunal resulting from a cannabis manufacturer's appeal of the City Council's refusal of official plan and zoning by-law amendment applications for a proposed 123,000 square foot cannabis greenhouse on the agricultural outskirts of the City. The proposed facility would have exceeded the roughly 20,000 square foot cap for new marijuana greenhouses in agricultural areas, permitted under the City's zoning by-laws. The manufacturer applied for a zoning by-law amendment, which was supported by City Staff but was not approved by Hamilton Council. The concerns noted by Council included odour, traffic and water use, as well as protection of prime agricultural lands.

Retail

In addition to establishing the licencing regime described above, the CLA also restricts the by-law making power of municipalities as it relates to cannabis. Specifically, it precludes municipalities from passing a business licencing by-law relating to cannabis sale, and prohibits the passing of a zoning by-law, interim control by-law, or site plan control by-law under the Planning Act, which distinguishes between land uses that relate to the sale of cannabis and those that do not.

The CLA allows municipalities a one-time opportunity to prohibit retail cannabis stores within their respective boundaries by passing a resolution to that effect on or before January 22, 2019. Municipalities may, by resolution, lift the prohibition, however, once lifted, the municipality cannot opt to prohibit cannabis retail again. Time will tell how municipalities will respond to the province's announcement that private cannabis retail will be permitted shortly. Prior to the introduction of Bill 36, zoning for cannabis retail was a live issue for many municipalities. Indeed, the City of Ottawa had indicated its intention to consider limiting the concentration of cannabis retail outlets through zoning. While Bill 36 extinguishes this possibility, local municipalities now find themselves empowered to reject cannabis retail within their boundaries altogether. As municipalities debate whether to exercise this opt-out power, industry stakeholders would be well served to keep a close eye and remain engaged at the municipal level in the months to come. Many municipalities, including the Town of East Gwillimbury, City of Markham, Town of Oakville, and Town of Richmond Hill, have already indicated an intention to opt-out. The City of Markham has taken the further step of passing a by-law prohibiting consumption in public spaces such as parks, trails, roads, sidewalks, and public and private parking lots. The outcome of the upcoming municipal elections may add or remove names from the list of municipalities choosing to opt-out.

Dentons' analysis

While Bill 36 provides some clarity, the regulatory landscape for recreational cannabis remains rife with uncertainty and chaos, especially at the local level. To some degree, this uncertainty is to be expected. It is the inevitable result of regulating a long-outlawed substance. For this reason, the legalization of alcohol, post-prohibition, is frequently compared to cannabis. The decades following the legalization of alcohol required frequent tweaks and modifications to its regulatory framework. We anticipate that cannabis will follow a somewhat similar path.

Dentons' leading Cannabis group will continue to work closely with industry stakeholders and provide frequent insights on important developments. Our team regularly advises on all matters related to the Cannabis Act and Regulations to enable clients to take advantage of the numerous opportunities that have developed, and will continue to develop, in this industry. If you wish to discuss the Cannabis Act and its possible implications for your business, please contact Eric Foster or James Wishart. If you would like to engage Dentons' Municipal, Land Use Planning and Development group, please contact Katarzyna (Kat) Sliwa.

*This article was co-authored by Katarzyna (Kat) Sliwa, Aaron Kurts and Kiana Simmons.

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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

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