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Legal Update on Private Cannabis Retail Regulations

On November 16, 2018, Ontario’s Cannabis Licence Act, 2018 and associated Regulations came into force. With sales of recreational cannabis by private retailers slated for April 1, 2019, the Regulations provide much-anticipated clarity on Ontario’s retail framework.

What you need to know

Highlights from the Act and Regulations, which will be overseen by the Alcohol and Gaming Commission of Ontario (the “AGCO”), include:

  1. Licences and Authorizations

To become a cannabis retailer, you or your organization must apply to the AGCO for a licence. An applicant must obtain three licences to operate a legal retail cannabis store:

  • Retail Operator License (“ROL”): Authorizes the sale of cannabis at a designated location (similar to a liquor licence).
  • Retail Store Authorization (“RSA”): Authorizes the operation of one or more retail stores, and is issued to the holder or applicant of an ROL. An applicant may apply for an ROL and RSA at the same time.
  • Cannabis Retail Manager License (“RML”): Authorizes a store manager to supervise employees, oversee the sale of cannabis, and manage compliance issues, among other things.

The AGCO expects to accept applications for licences as of December 17, 2018.

An applicant is not eligible for an ROL or RSA if the applicant has been charged or convicted of an offence in contravention of cannabis laws,[1] or if there are reasonable grounds to believe that the applicant was not compliant with cannabis laws, which would prohibit applicants who were operating a cannabis retail store without authorization after October 17, 2018 from participating in the new licensing regime. An applicant will also be ineligible if the applicant is or has been part of a criminal organization or has contributed to such an organization, or is in default of filing tax returns.

  1. Restrictions on Licensed Producers

The Regulations limit the retail role of Licensed Producers (“LPs”) in Ontario. Corporate applicants cannot obtain an ROL if more than 9.9% of the corporation is owned or controlled, directly or indirectly, by an LP or its affiliates. This restriction is unsurprising, as LPs and their affiliates were already restricted from operating more than one retail store under the Act, which mandates that the retail store must be located at the LP’s production facility.

  1. RSA Restrictions

  • Maximum Number of Stores: An applicant, together with any affiliates, may not hold more than 75 RSAs across Ontario. However, Ontario has not placed an upper limit on the total number of RSAs that the AGCO may issue.
  • Location:
    • Retail cannabis stores must be “standalone” or separated from other retail stores by physical walls, and cannot share a common space. This prohibits the use of a store-within-a-store model. Retail stores may operate from 9:00 a.m. until 11:00 p.m.
    • Cannabis retail stores must be at least 150 metres (approximately 500 feet) away from schools or “private schools” as defined in the Education Act, which is relatively liberal compared with other provinces. For example, Quebec requires a buffer zone of 250 metres. Notably, “school” is limited to elementary and secondary schools, excluding universities.
  • Products: Retail stores may only sell cannabis, shopping bags and “cannabis accessories” as outlined in the federal Cannabis Act. These include rolling papers, pipes, bongs and vaporizers, or other things represented to be used for the consumption of cannabis as defined. This restriction is consistent with the recommendation contained in The Final Report of the Task Force on Cannabis Legalization and Regulation published December 13, 2016.
  • Distribution: Retail licence holders, other than the Ontario Cannabis Retail Corporation, cannot enter into contracts with any other person or entity for the provision of distribution services. The Ontario Cannabis Retail Corporation (better known as the Ontario Cannabis Store) is the exclusive cannabis wholesaler in Ontario.

As the retail market for cannabis develops, there will undoubtedly be changes in guidance from the AGCO. If you or your organization plan to apply for a retail licence, you should ensure that you are following current best practices. The McCarthy Tétrault Cannabis Law Group is always up to date on changes to the legislation and the retail cannabis market, with significant experience in assisting cannabis retailers in Ontario and other provinces. We would be pleased to discuss your or your organization’s next steps with you.

[1] These cannabis laws refer to the Cannabis Licence Act, 2018, the Cannabis Control Act, 2017, the federal Cannabis Act, or the regulations made under any of them.