Cannabis experts, lawyers, accountants, entrepreneurs, and enthusiasts have been combing through the freshly released AGCO regulations governing private cannabis retail stores in Ontario. However, while the insights on particular provisions, the limits on licensed producers, and other minutiae can be fascinating to read, it is also leaving a lot of small business owners more confused than when they started. For the folks who just want to know what it is going to take to get a store open, here is what you need to know.
THE LICENSING PROCESS FOR PRIVATE CANNABIS RETAIL IN ONTARIO
The Ontario government has promised that stores will be able to have obtained the needed licences and open their doors to sell recreational cannabis products by April 1, 2019. In order to get to this point, prospective retailers are going to need to obtain 3 kinds of licenses and permissions from the Alcohol and Gaming Commission of Ontario (the AGCO), which will begin to accept applications for these items through an online portal as of December 17, 2018. There will be no limit on the number of applications that will be issued, and there are no restrictions on density or the number of stores that may be opened, so potential retailers will not have to worry about being locked out from the market if they apply later on. For absolute clarity, the AGCO has not released any kinds of forms or application documents yet, and there are some additional details still outstanding. However, what we do know is that you are going to need the following 3 things:
1) Retail Operator Licence
This is the general licence for the business to operate a retail location that sells recreational cannabis products. The company or person applying for the licence will have to make extensive disclosures to the AGCO, which will include revealing everyone involved in the business in any capacity. This will include disclosure of directors, shareholders, investors, and anyone else with some interest in the company, which can also mean landlords for the property, lenders, and parties to certain contracts. The applicant will also have to be in compliance with general legal obligations, and specifically show that they are up to date on filing their taxes as required.
The AGCO has stated that it will not grant this licence to applicants where parties involved in the business have certain prior convictions, particularly those related to cannabis and illegal dispensaries, or have a connection to organized crime. Additionally, no more than 9.9% of the voting control in an applicant, or similar control, may be held by a licensed producer of cannabis – this means that big producers like Canopy, Aurora, will not be able to hold significant interests in the business.
2) Retail Manager Licence
A Retail Manager License is required for every manager or supervisor working at a store, or anyone who will be (a) supervising employees, (b) overseeing sales, (c) managing compliance requirements, or (d) with the authority to purchase cannabis or sign contracts for the stores. Applicants will be required to disclose certain information about themselves, and likely have to submit to certain background checks. Additionally, they will be required to take part in certain training related to the responsible sale of cannabis, record keeping requirements, and risk mitigation strategies to protect against illicit market activity. The AGCO has not yet release the specifics of the training, but at least one person with a valid Retail Manager Licence will be required to be on site when a store is open.
Similar to the Retail Operator Licence, applicants for the Retail Manager Licence will be denied if they have certain prior convictions related to cannabis or from being involved in illegal dispensaries, or if they are connected in any way to organized crime.
3) Store Authorization Licence
This is the final licence requirement, and can only be granted after items 1 and 2 have been obtained. At this point an applicant will submit a location that they own or are leasing for permission to operate a retail store at that site. The location must be at least 150 metres from the nearest public or private school (this does not include universities), and must be a “stand-alone” location which means that the store cannot share space with another business or be separated by simple interior walls (think of Starbucks locations inside bookstores, or Wine Racks inside certain grocery stores). The AGCO will likely set out some additional requirements for security features and layout of the store, but these have not been released as of yet.
If the proposed store location meets these criteria, the AGCO will then open a public consultation process for 15 days, where members of the public will be invited to provide written submissions on whether they support the proposed retail site. The AGCO will consider these submissions, and finally has the ability to deny the application for the site if it fails to meet the required criteria, or if the public consultation process reveals concerns related to the matters of (a) Protecting public health and safety; (b) Protecting youth and restricting their access to cannabis; and (c) Preventing illicit activities in relation to cannabis. If the proposed site meets the criteria and does not pose a problem for the establish public interest criteria, then the AGCO may authorize the site, and the store may proceed to open and operate for as long as it meets it obligations and operating requirements as set out by the regulations and the AGCO.
It is worth noting that for all of the above licencing steps, the AGCO may reject an applicant at any time if it determines that information has been falsified or misleadingly withheld, or if it has any concerns about the legality or fitness of an applicant’s conduct to follow the rules. If the AGCO rejects an application for any of the licenses, the applicant will be prevented from re-applying for a period of 2 years. Because of that, our advice to our clients is to make sure that their applications are complete, truthful, and carefully reviewed before being submitted.
ADDITIONAL CONSIDERATIONS FOR PROSPECTIVE RETAILERS
While the above outlines the essential information for applying for a license, there are some particular details that have been revealed recently which we have found interesting:
Licensed Producer Ownership and Investment
Licensed Producers are permitted to own up to a 9.99% in the ownership of an otherwise independent retail store – this allows for some limited investment opportunities for retail operators seeking financing.
Stores are permitted to be open any time between 9am and 11pm on any day of the week. However, stores will only be allowed to sell cannabis, cannabis accessories, and shopping bags.
19+ Age Requirement
No one under the age of 19 is permitted to enter a cannabis retail location, and the owner and her employees will have a duty to check the ID of anyone who appears to be under the age of 25.
Distribution Agreements are Prohibited
Retail stores can only purchase cannabis from the Ontario Cannabis Retail Corporation (OCS) and cannot enter into distribution agreements with other parties – except the store’s employees. At this point it is unclear whether this language will prohibit retail stores from entering into exclusivity agreements with licensed producers to sell exclusively one brand of cannabis.
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:
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
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.
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.
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 firstname.lastname@example.org.
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.