Cannabis Retail is Coming to Ontario

[NOTE: This post references information and developments that may have changed since the time of publication. Please refer to the latest Momentum Law blog posts, or get in touch with our team to get up to date information on the cannabis industry and legal considerations.]

The Ontario Government's Announcement

The Ontario provincial government announced on August 13, 2018 that they plan to permit the sale of cannabis products in private retail stores throughout the province.

In the announcement it was revealed that “the government of Ontario will not be in the business of running physical cannabis stores,” and that the Ontario Cannabis Store (OCS), which was introduced by the previous government and promised to launch with approximately 40 physical stores open for legalization, will no longer be opening physical locations to serve the province. Instead the OCS will act as the sole source of cannabis products for consumers age 19 and older in Ontario through its online store when the federal Cannabis Act comes into effect on October 17, 2018.

Approximately 6 months after cannabis becomes legal the new private retail framework will come into effect to permit the purchase of cannabis product at physical stores. In the announcement Ontario government has committed to changing the current Ontario Cannabis Act to introduce new legislation and a new regulatory framework which would allow private physical retail locations to sell cannabis by April 1, 2019. The announcement described this regulatory regime as “a tightly regulated private retail model for cannabis,” but no further details about the regulations were provided. The government simply stated its commitment to develop the rules in consultation with municipalities, Indigenous communities, law enforcement, public health advocates, businesses and consumer groups, and representatives of the other provinces, with the goal of developing a model that is focused on safety and eliminating the illegal market. As such, potential retail businesses and owners will have to speculate about key issues like security requirements, geographical guidelines, licensing costs and timelines, and even the amount of licenses that will be available.

In addition to the timeline for private retail, several other key factors for retailers and consumers were raised. The province declared that municipalities would also retain the right to opt out of the new retail framework, meaning that even after retail outlets become available in April some cities may effectively ban these businesses within their boundaries, leaving consumers to buy from the OCS online store or the option of travelling to nearby municipalities. The announcement also affirmed that cannabis consumption will be restricted to individuals aged 19 or older, and that consumption will only be permitted in private residences which include the outdoor areas of said residences. This means that cannabis consumption will not be permitted in public spaces, workplaces, or vehicles, and will effectively extend to prohibiting consumption in restaurants or cafes as well.

Momentum Insights

The OCS Headstart

The fact that the OCS’ online store will be the only source of legal cannabis product in the first 6 months of legalization presents some interesting opportunities. Consumers who are worried about the experience should take comfort from the fact that the online store will probably be a fairly accessible and stable service, as it is being developed by Canadian experts in the online sales space Shopify Inc. Having a private sector company with a track record for developing successful and large-scale digital sales platforms suggests that the OCS rollout for October 17 is in the best hands possible. However, even with a great online shopping experience in place, the experience will still be limited to what can be packed into a browser experience.  

Researchers and news agencies have struggled to identify the portion of Canadians that already consume cannabis products, or the number that may be willing to once the products become legal. Regardless of the exact numbers, most industry analysts have agreed that there will be a range of familiarity and comfort with the products among consumers. Those who have already sampled black market products or who been able to make use of medical prescriptions for cannabis may be familiar with the features of the products and comfortable ordering online on day one. However, consumers who want an introduction to recreational cannabis or who want to explore new products may be nervous about the risks of a new experience. This creates an opportunity for physical retailers who can create welcoming retail locations that provide knowledgeable staff to guide customers. To illustrate this, just look at the incredible popularity of craft beer breweries across the world – people love going into physical locations to learn about how their beer is made, to smell and taste product samples, and to talk about the best way to enjoy these recreational products in their spare time. Cannabis will be no different.

So, while the OCS may be the first place to get cannabis when the market opens, it will not necessarily be able to provide the experience that consumers are looking for in the long term.

The Regulatory Framework

The rules and requirements for private retailers are currently completely unknown, though entrepreneurs and businesses that are keen to enter this space can try to make some educated guesses. While the provincial government has stated that it will develop the licensing framework in consultation with key stakeholder groups, it will also likely borrow heavily from the other provinces with licensed retail frameworks (see our quick summary for key provinces towards the end of this article). Further, whatever criteria are set out will likely require extensive disclosures by the applicant business, and demonstrated compliance with the requirements and even the spirit of the new legislation. This means that businesses which intend to apply for a license should try to have all of their legal and business matters organized and ready for disclosure, particularly if they hope to be an early applicant when the rules are announced and the process is opened to the public. Business that want to get ahead of the announcement by securing leases or preparing involved business plans should additionally take a pro-active approach to their preparation by trying to identify potential problems that will likely cause issues when applying for a license or permit. For example, proximity to schools, poorly ventilated buildings, insecure facilities, and even criminal histories of staff and investors may become issues for aspiring cannabis retailers in the next few months.  

Currently Operating Dispensaries and Retailers

The dispensaries and retail locations that have been selling cannabis products up until this point have said that they are operating in a “grey” area of the market. However, cannabis is in fact still an illegal substance and even after cannabis products become legal on October 17, 2018, the sale of cannabis products outside of a provincial framework will be illegal and subject to new and significant penalties. This means that any individual selling cannabis illegally after the legalization date could be subject to fines of up to $15,000 and jail time up to 18 months, and companies that engage in the same activities may be subject to even greater fines of up to $100,000.

In addition to these potential federal penalties, the provincial government addressed those currently selling cannabis directly during their announcement, saying "For those engaged in the underground [cannabis market] today, our message is simple: Stop." This warning came with a promise that anyone caught selling cannabis illegally would be unable to access the legal retail framework as a consequence.

Finally, the legal framework includes extremely broad seizure powers, which can include the right to seize the property that illegal activities operate out of. This means that landlords run the risk of having valuable commercial properties seized if illegal cannabis sales or other activities are found to be operating out of the property. This poses a significant financial risk for these landlords and owners, and it seems unlikely that any amount of rent or assurances by a business would be able to overcome this issue.

If businesses want to continue to illegally sell cannabis products they will have to be ready to accept the risk of the new federal penalties and being locked out of the legal market, but even then they may still be shut down or evicted by their landlords. It appears that the days of illegal dispensaries operating in public are numbered.

Private Cannabis Retail Rules by Province

Alberta

Fees: $400 application fee, $700 annual fee, $3000 for background checks

Zoning: Municipal zoning approval

Supplier: Alberta Gaming and Liquor Commission

Number of licenses: No cap

Other: No one person/corporation can hold more than 15 % of retail cannabis licenses in the province.

British Columbia

Fees: $7,500 application fee, $1,500 annual fee, $1,500 bi-annual security screening fee

Zoning: Municipal zoning approval

Supplier: BC Liquor Distribution Branch

Number of licenses: No cap

Manitoba

Fees: In development

Zoning: In development

Supplier: Manitoba Liquor and Lotteries Corp

Number of liceses: 4 licenses have been granted

Other: Applications are no longer being accepted however this may change in the future.

Newfoundland & Labrador

Fees: In development

Zoning: Provincial Government decides based on accessibility and safety

Supplier: Licensed producers (Newfoundland and Labrador Liquor Corporation will not be involved)

Number of licenses: Capped at 41

Other: Applications are no longer being accepted however this may change in the future.

Northwest Territories

Fees: In development

Zoning: In development

Supplier: Northwest Territories Liquor Commission

Number of licenses: 7 liquor stores

Other: Initially sold through existing liquor stores but will consider more after 6 months.

Nunavut

Fees: In development

Zoning: In development

Supplier: Nunavut Liquor Commission

Number of licenses: In development

Ontario

Fees: In development

Zoning: In development

Supplier: Ontario Cannabis Store

Number of licenses: In development

Saskatchewan

Fees: $1,000 non-refundable submission fee for the RFP process. Accepted proposals will require an application fee of $2,000 and the first annual permit fee ($3,000 for all cities; $1,500 elsewhere). 

Zoning: Determined by SLGA based on population density and geography

Supplier: Saskatchewan Liquor and Gaming Authority

Number of licensees: 60 permits in 40 communities in the first round.

Other: Initial screening process followed by a lottery for license approval.

How Momentum Can Help:

  • Momentum works with ACMPR Applicants, cannabis producers, and other businesses in the cannabis space all throughout the business lifecycle, from start up to licensing and beyond. We help your company “Grow”!

  • Momentum works with companies to help them set up strategic business partnerships, hire key personnel, and secure important financing to establish their business and achieve success.

 

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.