[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 provincial government announced in August 2018 that they will be changing the law to permit private retail stores to sell cannabis and that six months after legalization the new private retail framework will come into effect to permit private companies with the proper permits to operate. With a proposed start date of April 1, 2019, countless cannabis entrepreneurs have been waiting for any further details on how this framework will be set up, the requirements, and the possible restrictions that will be put in place.
Finally, we have received some more information. On September 26th the government has provided an update on the incoming retail regulations and some very important pieces have been revealed for the entrepreneurs and businesses that are hoping to enter this space:
New Information on Retail Cannabis In Ontario
There will be no cap on the number of licenses – this means that entrepreneurs and businesses hoping to get into cannabis retail will not have to worry about being declined a license based on the number of other applicants or businesses in the space. This means that businesses will be able to take their time to get set up and apply, and that down the road new businesses will still be able to enter the market.
The Alcohol and Gaming Commission of Ontario will be handling the licensing process – All we know so far is that the Alcohol and Gaming Commission (AGCO) will be overseeing a 2 step retail licensing process where applicants will (1) apply for and get a licence, and (2) apply for retail store authorization. Details are still pending with regards to the requirements for the license or for the store authorization, or for the forms and information which will need to be submitted. We also expect to see some sort of specifications or restrictions on retail store locations, security, and exterior appearances.
Licensed producers are capped at one license at a production facility, and there will be limits on the number of licences a single corporation can be issued – licensed producers (or “LPs”) are the larger companies that have obtained permits from Health Canada to produce and sell cannabis, and have usually built out substantial facilities and have access to significant financial capital. By limiting their ability to acquire permits on their production sites it will be more difficult for the larger LPs to take over the market early on, and this is a clear signal by the Ontario government that it wants the retail market to be made up of small businesses and new industry participants. The exact limits of this restriction are not clear, and inevitably LPs will try to create subsidiary retail companies and spinoffs, but this is a good indicator that the rules will not simply favour the companies that have been in the industry for a while.
The Ontario Cannabis Store is changing, and will be a wholesaler to retail businesses – The Ontario Cannabis Store which was announced as the sole retailer of cannabis under the old Ontario government and legislation will undergo a name change to become the “Ontario Cannabis Retail Corporation.” It will also no longer be a subsidiary of the LCBO, and will instead be under jurisdiction of the Ministry of Finance. Further, once the retail market opens the new Ontario Cannabis Retail Corporation will act as a wholesale source of cannabis to licensed retailers.
There will be a zero tolerance policy for illegal dispensaries – The government has stated that any business that continues to sell cannabis illegally after legalization on October 17 will never be permitted to obtain a retail license under the new regulations. It is not clear whether the government and the AGCO intend to track the corporations or businesses operating the dispensaries, or the individual involved in their operations, but this should give serious pause to anyone currently selling cannabis in the perceived “grey zone” before legalization. (For clarity: the sale of cannabis out of ‘dispensary’ locations is still very much illegal at this time).
Anyone who sells cannabis illegally after October 17 should also know that when the Cannabis Act goes into effect all cannabis products will become legal for consumers, but all illegal retail operations will also be subject to new penalties. This means that any illegal seller of cannabis will be subject to fines of up to $100,000 and up to 14 years in prison. Furthermore the legal framework includes extremely broad seizure powers, which can include the right to seize the property of illegal operations, including the physical property they are operating on. This means that landlords will also bear the risk of having their commercial property seized if they continue to allow dispensaries to operate. Given these penalties it seems unlikely that the current illegal dispensaries will want to continue.
People in Ontario will be able to consume cannabis in more places – The previous government’s legislation heavily restricted where people would be able to smoke cannabis, and effectively only permitted smoking in private residences. The government has announced that it intends to modify the legislation so that Ontario residents will be able to smoke recreational cannabis wherever the smoking of tobacco is permitted. This means that where applicable individuals may be able to smoke in residences, and outdoors within certain restrictions. However, per the rules that apply to tobacco, individuals will also be prohibited from smoking in vehicles or boats that re being operated, and breaking these rules could lead to fines ranging from $1,000 to $5,000 upon conviction. Unfortunately this change still means that smoking cannabis in restaurants or cafes will be prohibited, and there does not appear to be any exception yet for dedicated smoking lounges or other business models. It is also still unclear whether edibles or other cannabis products will be able to be sold and consumed in alternative types of stores.
More Info is On the Way
Thankfully, with this announcement the Ontario government noted that it intends to introduce a bill which would set out the details of the new regulatory framework. [Update: This bill has since been introduced and passed as the Cannabis Licence Act, 2018.] As such, the industry and the entrepreneurs who are waiting on additional details on some of these topics will hopefully not have to wait much longer.
Momentum Law is excited to be following these developments in the cannabis retail market, and we are getting ready to help our clients launch their cannabis retail locations. If you are planning to participate in this emerging industry we can assist you by helping you to setup your corporation, negotiate your lease for a retail location, secure employees, paper financing, and by providing any other legal business needs that you may encounter as you get ready to grow. Please get in touch with us for a complimentary meeting!
How Momentum Can Help:
Momentum works with start ups, small businesses, and ACMPR and Cannabis Act 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.
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