Canada: Ontario Re-Lays Foundation For Brick And Mortar Sales Of Recreational Cannabis

Timelines:

Following legalization on October 17, 2018, recreational cannabis will only be sold in Ontario through online, government run distribution channels. Brick-and-mortar sales will begin on April 1, 2019 and these locations will be privately owned and operated.

Duties of the OCRC:

The Ontario Cannabis Retail Corporation (the "OCRC") will be the only authorized online retailer of recreational cannabis in the province. The OCRC will also be the province's only wholesaler and distributor of recreational cannabis to private retail sales locations.

Licensing:

The Alcohol and Gaming Commission of Ontario ("AGCO") will oversee the licensing of retail sales locations. As with applications for production licences under the federal Cannabis Act (the "Federal Cannabis Act"), applicants should expect the process to involve a thorough review of the personal information of directors, officers, and shareholders. There are also a number of location based factors, described in greater detail below, that will determine if particular retail sales locations can be approved.

The AGCO's website states that it will "move quickly to define the licensing process" in an attempt to support the goal of having private stores open for business by April 1, 2019. However, no further details have been provided and the AGCO has stated that it is not accepting applications at this time.

Dual Certification:

Private retailers will be required to obtain multiple authorizations before being permitted to sell recreational cannabis. The first, a "Retail Operator Licence" grants individuals and corporations the ability to operate retail sales locations.⁴

Another authorization, the "Retail Store Authorization", must be obtained for each private retail sales location.⁵ Location specific factors, such as the distance from a school (or other prescribed circumstances), may result in an unsuccessful application.

Restrictions on Licensed Producers:

Producers licensed under the Federal Cannabis Act will be subject to additional restrictions under s. 4(4) of the Licence Act. First, the licensee's store must be located "on or within the site" set out in their licence. Additionally, the person and its affiliates, as defined by the regulations, "may not between themselves hold more than one retail store authorization". Finally, section 4(4) states that additional restrictions may be prescribed by subsequent regulations.

It is unclear if the concept of "affiliates", as defined for the purposes of the Licence Act, will mirror the definition provided in subsection 1(4) of the Business Corporations Act (Ontario) (the "OBCA").⁶ The OBCA definition of "Affiliate" deems one corporation to be another's affiliate if (i) one of them is the subsidiary of the other, (ii) both are subsidiaries of the same corporation, or (iii) each of them are "controlled" by the same person.

The concept of "control" is also defined in the OBCA and arises where (i) "more than 50 per cent of the votes for the election of directors are held...by or for the benefit" of another person or corporation and (ii) the votes carried are sufficient, if exercised, to elect a majority of a corporation's board of directors.

Unless another definition is specified in the regulations or, perhaps, in the licensing process set out by the AGCO, this will significantly circumscribe the ability of licensees under the Federal Cannabis Act to own and operate multiple retail sales locations through distinct, but affiliated, corporate entities.

Autonomy Regarding Retail Sales on Reserves:

Bill 36 will grant First Nations broad powers to exercise control over retail sales operations. Councils will effectively have a veto over the construction of retail locations on their territory. Furthermore, the new regime introduces the possibility for the provincial government and First Nations to vary the recreational cannabis regime in accordance with section 44(1) of the Licence Act:

44 (1) Subject to subsection (2) and to the approval of the Lieutenant Governor in Council, the Minister may, on behalf of the Crown, enter into arrangements and agreements with a council of the band with respect to the regulation of cannabis retail stores on a reserve, the licensing or authorization of persons to operate cannabis retail stores on a reserve or the enforcement of this Act and the regulations on a reserve.

Given the restrictions imposed on federally licensed producers, this autonomy creates a substantial opportunity for cooperation between industry and First Nations in Ontario.

Criminal Activity:

Mirroring the Federal Cannabis Act, the Ontario system will seek to keep cannabis away from young people and the proceeds of its sale out of the hands of criminals. Therefore, those operating illegal dispensaries after October 17, 2018 will be prohibited from the legitimate licensing process.

Oversight:

Most notably, section 41 of the Licence Act provides municipalities with the ability to exercise an "opt-out" before January 22, 2019. This will allow a municipality to completely prohibit the creation of recreational cannabis locations within their jurisdiction. In all other cases, public consultation, including a 15-day notice period, will also play a role in where private stores may be located.

Consumption:

By amending the current Smoke-Free Ontario Act, 2017, the province will now generally allow the consumption of recreational cannabis where tobacco and e-cigarettes are currently allowed. In addition, recreational cannabis can also be consumed in hospices, long term care homes, and tourist lodgings such as hotels and motels. Previously, consumption was limited largely to private dwellings. However, consumption will not be uninhibited and there will be restrictions motivated by obvious policy concerns, such as prohibiting consumption within certain distances of schools or in vehicles, such as cars or boats.