Canada: Ontario Government Announces Cannabis Retail Rules

Ontario has now passed Bill 36: Cannabis Statute Law Amendment Act, 2018 (Bill 36), which sets out the government's updated approach to the regulation of recreational cannabis. Bill 36 introduces the Cannabis Licence Act, 2018 (Licence Act), which governs the regulation and licensure of private cannabis retailers and amends the legislation making up the previous regime, including the Cannabis Control Act, 2017, the Ontario Cannabis Retail Corporation Act, 2017, and the Smoke-Free Ontario Act, 2017. The new framework opens the door for private operators to capitalize on cannabis retail opportunities in Ontario, which are expected to be up and running by April 2019.

LICENSING

The Licence Act sets out the licensing scheme for private cannabis retail stores in Ontario and will be administered by the Alcohol and Gaming Commission of Ontario (Commission). The Commission is expected to begin accepting licensing applications in December 2018.

Retailers will be required to hold a general retail operator licence, as well as a retail store authorization for each premises. There will also be requirements for certain individuals to hold cannabis retail manager licences. Similar to other provinces, these licences and authorizations require significant investigation and will therefore not be transferable. While there will be no arbitrary cap placed on the number of licences and authorizations available, the province may impose a limit in the future.

Licensees under the Cannabis Act (Canada) who are authorized to produce cannabis for commercial purposes may only hold one retail store authorization that must be at the site set out on their federal licence. It is unclear whether this will only apply to holders of cultivation licences or whether it will also apply to holders of other federal licence classes as well. Furthermore, the Licence Act prohibits the licensee and its "affiliates" from collectively holding more than one retail store authorization.

The defining regulations have not yet been issued; however, it is possible that the province may adopt a more restrictive interpretation than that set out in corporate statutes. Current licensees, and especially those that have sought to vertically integrate, should be aware of this issue when looking to structure their proposed retail opportunities or restructure their current arrangements.

DISTRIBUTION

The amendments to the Ontario Cannabis Retail Corporation Act, 2017 confirm that the province has the exclusive right to sell cannabis in Ontario online and by any other means other than by retail storefront. The Ontario Cannabis Retail Corporation (Corporation) also has the exclusive right to sell cannabis inventory to private retailers for the purpose of distribution to consumers. The Corporation is prohibited from operating retail stores, leaving brick and mortar retail opportunities for private operators.

RETAIL RULES

As of October 17, 2018, adults may buy cannabis online from the Ontario Cannabis Store (OCS). This will be the case until April 2019 when private retail stores begin to open. However, online sales of cannabis will continue to only be permitted through the OCS.

Private cannabis retail stores are restricted to selling cannabis and certain other things specified in the regulations. Additionally, all aspects of the sale of cannabis must be conducted in-person at a store (i.e., not online or other methods).

MUNICIPALITIES

Municipalities have a one-time opportunity to pass a resolution prohibiting cannabis retail stores from operating in their jurisdiction. This must occur by January 22, 2019 in order to be effective. While a prohibition may be lifted by a municipality, any subsequent decision to lift it cannot be reversed. Further, the Licence Act exempts the application of certain licensing, planning and land use requirements imposed by municipalities.

FIRST NATIONS

The Licence Act proposes to regulate First Nations cannabis retail stores on reserve. For example, applications for a retail store authorization for stores on reserves will not be issued unless the band council has approved the location of the proposed store. Additionally, a band council may request that retail store authorizations for cannabis retail stores not be issued for locations on its reserve, among other things. However, a number of First Nations communities have decided to institute their own regulatory regimes for distribution and retail. There is significant uncertainty as to how these regulatory arrangements will interact going forward.

The Licence Act does permit the province to enter into arrangements with band councils with respect to the regulation of cannabis retail stores, the licensing or authorization of persons to operate cannabis retail stores or the enforcement of the Licence Act on reserves. Where such an agreement can be made, this may provide one way for First Nations communities to operate independently without an immediate need for litigation.

BROKERS

Unlike Alberta and British Columbia, the Licence Act is silent on registration or licensing requirements for third-party representatives (e.g., agents or brokers). However, it does establish a prohibition on, both directly and indirectly, providing material inducements to the holder of a provincial licence or authorization (or to their agent or employees) to increase the sale of a particular type of cannabis. There is also contemplation of additional practices being prohibited by regulation in the future.

As a result, federal licensees and their brokers should be cognizant of entering into display or promotion agreements with retailers or offering benefits for the stocking of specific types of cannabis. While "material" inducements are not currently quantified, the other provinces have banned the provision of advertising funding, extravagant training sessions and providing displays or signage, among other things.

Additionally, no person shall pay or offer to pay any amount, or make any gift, to the Registrar of the Commission, a member or employee of the Commission, or a member or employee of the tribunal in relation to a licence or authorization.

For permission to reprint articles, please contact the Blakes Marketing Department.

© 2018 Blake, Cassels & Graydon LLP.

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