Canada: Coming To A Store Near You: Ontario Unveils Its Retail Cannabis Licensing Regulations

The Government of Ontario (Government) has released its much-anticipated cannabis retail licensing regulations (Regulations) that set out several of the requirements for parties seeking to enter the retail market. It is expected that the Alcohol and Gaming Commission of Ontario will begin accepting applications on December 17, 2018, with stores to open by April 1, 2019.

OPERATIONS

Stores will need to be a minimum distance of 150 metres from certain schools, including private and federally funded First Nation schools located off reserve, with specific measurements being determined by, among other things, the location and nature of the school. Each store location must be standalone, meaning it must have restricted access and store-exclusive storage areas and shipping bays. 

Retailers may operate between 9 a.m. and 11 p.m. and may only sell cannabis, cannabis accessories and shopping bags at this time. Retailers are prohibited from permitting anyone under the age of 19 to enter their stores, which may permit certain promotions pursuant to the Cannabis Act (Canada) on premises.

Retailers are also required to prominently display the prescribed cannabis retail seal set out in the Regulations.

Private distribution agreements are prohibited. Specifically, it is a condition of each retail store authorization that the holder not enter into contracts or agreements with any person or entity for the provision of cannabis distribution services other than the Ontario Cannabis Retail Corporation or its own employees.

INELIGIBILITY

The Regulations create several classes of individuals who are ineligible to hold, or be associated with, retail licences. Specific circumstances in which applicants may be denied a licence include associations with, among other things, persons with certain cannabis-related criminal offences or links to organized crime, or who are not in good standing with provincial or federal tax authorities.

LICENSING RESTRICTIONS

Each applicant and its affiliates shall be limited to collectively applying for 75 store authorizations. The Government has created this cap to prevent market consolidation, promote opportunities for small businesses and promote investment in the cannabis retail sector.

Further, under the Cannabis Licence Act, 2018 (Ontario), a person who is authorized under the Cannabis Act (Canada) to produce cannabis for commercial purposes may only have a cannabis retail store on or within the site set out in its licence. However, that person and his or her "affiliates" may not collectively hold more than one retail store authorization.

The Regulations define "affiliate" broadly to include, among other things:

  • A corporation that is affiliated with the person for the purposes of the Business Corporations Act (Ontario)
  • A corporation that is affiliated with another corporation in the manner referred to above, if that other corporation is at the same time affiliated with the person
  • A corporation of which the person beneficially owns or controls, directly or indirectly, shares or securities currently convertible into shares carrying more than 9.9 per cent of the voting rights under all circumstances, or by reason of the occurrence of an event that has occurred and is continuing, or a currently exercisable option or right to purchase such shares or such convertible securities
  • A partner in the same partnership as the person
  • A trust in which the person has a substantial beneficial interest, whether vested or contingent, or with respect to which the person acts as a trustee
  • A member of the same joint venture, unincorporated association, syndicate or organization as the person
  • A person who is deemed under the Regulations to be an affiliate of the person or an affiliate of an affiliate of the person

When will a person be deemed an affiliate of another person? Under the Regulations, Person A is deemed an affiliate of person B if person A is a corporation and person B, or a group of persons or entities acting jointly or in concert with person B, owns a beneficial interest in shares of person A:

  • Carrying at least 50 per cent of the votes for the election of directors of person A and the votes carried by the shares are sufficient, if exercised, to elect a director of person A; or
  • Having a fair market value (including a premium for control if applicable) of at least 50 per cent of the fair market value of all the issued and outstanding shares of person A.

Person A may also be deemed to be an affiliate of person B if person B, or a group of persons or entities acting jointly or in concert with the person B, has any direct or indirect influence that, if exercised, would result in control in fact of person A.

This definition of "affiliate" is extensive and may capture a number of existing arrangements between licensed producers and potential applicants that are unrelated to retail, including formal research or advocacy partnerships or joint ventures as well as various associations.

Of additional importance to licensed producers is that a corporation will be ineligible for a retail operator licence if more than 9.9 per cent is owned or controlled, directly or indirectly, by one or more licensed producers or their affiliates.

There does not appear to be any exception for public companies at this time, which may expose retailers who are currently, or intend to become, public to regulatory obstacles where licensed producer(s) have or obtain a collective interest of 10 per cent or more in the proposed applicant.

While the Regulations define a licenced producer as one who "produces" cannabis for commercial purposes, it is unclear whether this is meant to capture all holders of federal licences or only a subsect of licence classes. In either case, this may significantly complicate the ability of existing licensed producers to engage in the retail industry in Ontario going forward.

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

© 2018 Blake, Cassels & Graydon LLP.

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.

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