In case you somehow missed the discussions in every newspaper, website, and social media platform, the purchase and recreational use of cannabis becomes legal across the country as of October 17, 2018. This is a big day for Canada as it becomes a world leader in legalization and recreational markets, and it will also be a big day for consumers and businesses as an entire ecosystem of products and a new industry swings into full operation overnight. In order to help you get oriented about what this means for you, we have put together this short guide to understanding the new rules on cannabis from a consumer and a business standpoint:

For Recreational Consumers:

Growing and Possessing

Under the new laws that legalize cannabis, individuals in Canada age 18 or over will be able to consume cannabis, may possess up to 30 grams of dried cannabis or its equivalents, and will be permitted to grow up to 4 plants per household for personal use, though these matters may be subject to further regulations by each province. Also note that the permitted quantities for possession are calculated differently depending on the form of the product, so for example 0.25 grams of cannabis oil is the equivalent of 1g of dried cannabis. Please see the conversion chart for more info, included here for your convenience:

Finally, the actual purchase of cannabis products will be legal for individuals who meet the minimum age requirement, but the means of cannabis sale and distribution will be also be handled on a province by province basis.

New Penalties For Illegal Activities

While the consumption and purchase of cannabis becomes legal, new and more significant penalties will apply to the few remaining illegal activities involving cannabis. Specifically, the illegal production of cannabis for non-personal use, the illegal sale or distribution of cannabis products, and the transport of cannabis products across the border are all subject to substantial fines and up to 14 years in prison. The government has also stated its commitment to enforcing harsher penalties for any of these crimes where they involve minors under the age of 18.

Possession of cannabis products beyond the stated legal limits is also subject to up to fines and up to 5 years in prison, so while these penalties are lesser than the other illegal activities, consumers should still be mindful of the amount of product in their possession.

Finally, the new federal laws also provide sweeping search and seizure powers to police and other law enforcement agencies dealing with criminal activities involving cannabis, and individuals and business or other legal entities involved in illegal activities may have their property seized as a result.

Specifics for Ontario

In Ontario individuals must be at least 19 years of age in order to purchase, possess, or consume cannabis products. Pending the passage of new legislation that is currently proposed and being debated, the smoking of cannabis in any form will be subject to the same rules and regulations as tobacco products. As such, anywhere that you currently cannot smoke, such as in businesses, restaurants, patios, daycares, and hospitals, you will also not be permitted to smoke cannabis. There is also the issue of acquiring cannabis. As of October 17 the only way to legally acquire cannabis in Ontario will be to order it online from the “Ontario Cannabis Store”. However, pending the passage of the proposed legislation, the Ontario Cannabis Store will become the “Ontario Cannabis Retail Corporation” which will continue to sell recreational cannabis online, and the Ontario government has promised that a new retail licensing system will go into effect which will permit physical brick and mortar cannabis retail operations to sell to consumers as early as April 1, 2019.

For Budding Business Opportunities:

Producing Cannabis

The production of cannabis for medical purposes has been legal in Canada for years under the Access to Cannabis for Medical Purposes Regulations (ACMPR). Under the old rules business could apply for permits with Health Canada and subsequently obtain licenses and approvals to set up a production facility, and then grow and sell cannabis to individuals with medical prescriptions across the country. As of October 17 new producers will still be able to apply for a license to produce with Health Canada, but they will be able to apply through a new streamlined process online and their products may also be sold on the recreational market subject to the necessary approvals.

This new system promises to streamline the application process for new entrepreneurs and pre-existing businesses looking to expand, and will also introduce some new licensing models with exciting potential. Where previously producers simply applied for the same broad license to produce cannabis, now there will be several sub-classes of licenses. Producers will be able to apply for micro-cultivation licenses which will permit growth of cannabis in a smaller area or facility, as well as a nursery licenses which will permit growth of cannabis plants, development of plant strains, and the sale of plants and seeds for growing purposes. Standard cultivation licenses and the new sub-classes will also permit growth of cannabis plants indoors as well as outdoors, which will create opportunities for new growing models and procedures.

There are already some significant businesses in the industry producing cannabis, but this shouldn’t deter potential applicants and small businesses. Current reports suggest that there will be shortage of supply in the recreational market for at least its first year, and this is based on conservative estimates of demand and market appetite.

Selling Recreational Cannabis

The sale of recreational cannabis will be regulated by each province, which means that rules for the establishment of cannabis retail businesses will vary substantially and this has already caused confusion for prospective business owners and entrepreneurs.

In Ontario specifically, the provincial government originally announced that cannabis would only be sold through a singular publicly owned business, similar to the current Liquor Control Board of Ontario. However, since then the newly elected provincial government has introduced The Cannabis Licence Act, 2018, and announced that it will no longer be limiting recreational cannabis sales to one centralized and publicly-owned “Ontario Cannabis Store”.

The public will be able to purchase cannabis online from the newly branded “Ontario Cannabis Retail Corporation” (OCRC) as of October 17. The government has also promised that the newly introduced Cannabis License Act will permit privately owned and operated cannabis retail store locations to open and start selling to the public by April 1, 2019.

The law setting out the licensing framework and process is currently being debated in the legislative assembly, and additional regulations are pending at this time. However, based on the information available so far, we know that there will be an unlimited number of licenses available and that the process will be overseen by the Alcohol and Gaming Commission of Ontario (AGCO). As a starting point, there will also be 3 licenses or permissions required for a business to sell retail cannabis, as follows:

1. Retail Operator License: The business will have to disclose significant information about its makeup, financing, and structure in order to acquire this starting approval to obtain a retail permit.

2. Cannabis Retailer Manager License: Every employee of the business who sells or handles cannabis products will be required to obtain this license, which will require background checks, disclosures, and certain training (this will likely be the equivalent to a Smart Serve Certification required to serve alcohol).

3. Retail Store Authorization: The specific location for the retail sale of cannabis will be assessed, and the public will have 15 days to provide feedback before the regulator will approve or deny the retail location.

Each of the licenses or authorizations will require extensive disclosures and will be subject to rejection by the AGCO for any omissions, lies, or suspicious discoveries. There will also likely be more regulatory requirements set out by the AGCO once the law is passed, such as security specifications for retail locations, potentially a minimum distance requirement from other retailers, and generally more detail on the application fees and the specifics of the disclosures. Right now, we also know about these specific restrictions which will be a barrier for retail applicants:

A. Zero tolerance for illegal dispensaries or sale: No person connected to the business may have a previous conviction under the federal Cannabis Act, including employees, investors, shareholders, and any person interested in the business.

B. Minimum distance from schools: There will be a minimum required distance from the nearest schools, and we expect that the exact measurements will be announced soon.

Finally, it is very exciting to note that the retail market in Ontario will highly favour small businesses, as the currently proposed rules set a maximum of 1 retail store authorization and license for licensed producers of cannabis. This means that the big cannabis production companies such as Tweed and Aurora will only be permitted to have 1 retail location at a production facility of their choosing, and that they will not able to rapidly open up chains of retail locations across the province as market analysts originally predicted. Even subsidiary businesses and strategic partnerships will likely be subject to this restriction. The new retail regulations promise to ensure that small businesses will have a chance to set up across the province, and will the primary means for recreational consumers to purchase cannabis in their communities.

How Momentum Can Help:

Applications for retail licenses and authorizations are currently not being accepted by the Alcohol and Gaming Commission of Ontario. However, the team at Momentum Law is closely following updates and developments in the law and cannabis industry, and we intend to offer a flat-rate legal package to help aspiring cannabis retailers set up their companies and apply for the required licenses and authorizations. Here are some key pieces that we can help retailers set up:

1. Incorporation of a company to apply for the Retail Operator License – Momentum can handle a range of different incorporation types and set up an organized and legally compliant minute book that will make applying and information disclosure as easy as possible

2. Employment Agreements for all employees and Cannabis Retail Manager License holders – Employees who fail to acquire their license, or who subsequently endanger or lose their licenses, could pose a risk to the license of the business itself. Momentum can prepare strong employment agreements that focus on the specific regulatory requirements of the industry to protect the company and provide for protections to the business.

3. Careful review of retail locations, and a full legal review of any leases – The actual location of a retail site can make or break the business plan if it doesn’t comply with the regulations. Even in a viable location, certain clauses in the lease could limit operational capacity or prevent the business from complying with certain requirements for authorization. Momentum can assist in considering locations, review the legal documents that make up the lease, and help negotiate the terms needed for the business to be successful.

4. Financing and investment in the company should be handled by experts – Starting a new business and fitting up a retail location to government specs can be expensive. It is tempting to make money from friends, family, and enticing investors, but these sorts of investment should be properly reviewed and put on paper by the professional, to ensure that they do not breach any of the regulations or threaten an application. The team at Momentum has experience with a range of different financing models, and uses a range of technology and techniques to help clients complete investment quickly so that they can get to building.

We also have years of experience working with applicants and licensed producers through the various stages of their business development and growth, and are excited to work with entrepreneurs looking to grow cannabis products for the new Canadian market. If you want to be added to our cannabis retail mailing list, or have questions about getting started right now, please email us at cannabis@momentum.law

Disclaimer:

The material and information in this article are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this article or its links, or the application of the information to your situation. No person should act or refrain from acting in reliance on any information found in this article. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or Momentum Business Law.