What’s Up in Weed

September 28, 2018

By: Andrea Hill

I am pleased to bring you this instalment of my blog, rounding up what’s currently happening in the cannabis industry in Canada and abroad.

Ontario retail dispensary bill is tabled – what you need to know!

• It’s game on for Ontario dispensaries!  Yesterday the Ontario government tabled Bill 36, containing the draft Cannabis Licence Act.  The draft Act establishes a framework for the licensing and regulation of retail cannabis dispensaries in Canada’s most populous province, making it one of the industry’s most hotly anticipated laws since the Cannabis Act itself.
• While Bill 36 is only at its first reading (three readings and various committee reviews are typical before a final vote is held and royal assent is given to enact a bill into law), it hints at the retail landscape the government has in mind. Here’s what you need to know:
  • No cap – there is no cap on the number of dispensaries in the province.
  • Two licences and an authorization – the Act provides for two types of licences – a retail operator licence and a cannabis retail manager licence – and a retail store authorization.
    • A retail store authorization authorizes its holder to operate a particular cannabis retail store. Each store requires a separate authorization.
    • The retail operator licence functions as a prerequisite for a retail store authorization.  It’s not clear, however, how many stores one licensed operator can have.
    • A cannabis retail manager licence is required for an individual to carry out specified functions in respect of a cannabis retail store, including managing employees, signing contracts, purchasing cannabis, and managing compliance.
  • LPs may not hold more than one licence – but US-style management companies could be possible – a licensed producer of cannabis, together with its “affiliates”, may only hold one retail store authorization, and that store must be located at the licensed producer’s production site – a revelation that sent share prices of many major licensed producers tumbling.
    • The word “affiliates” is to be defined in the regulations to the Cannabis Licence Act, and those regulations may not be publicized until Bill 36 is enacted into law.  Therefore, we have no way of knowing right now what the threshold will be for another company to be considered an “affiliate” of a licensed producer.
    • In provincial corporate legislation, for example, an “affiliate” is broadly defined to refer to each corporation in a relationship where one corporation holds majority voting control of the other, or where both corporations are controlled by the same person.  Two entities affiliated with the same corporation are also themselves affiliates.
    • Many US operators have found ways around restrictions on licence ownership by engaging a “management company” which pays the licenceholder an upfront fee to run their operations.  The management company acquires assets of the licenceholder (such as real estate, IP, and even its workers) and leases them back, thereby drawing the cash out of the licenceholder without actually owning a stake in it.  It will be interesting to see whether the same concept may be applied here in Ontario.
  • Minimum prices – minimum prices for cannabis sold in a store may be prescribed in the regulations (not yet available).
  • Municipalities can opt out – municipalities will be able to “opt out” of having retail cannabis stores in their turf up until January 22 (although they can later opt back in).  However, the Ontario government also said on Thursday that it will open the application process for would-be retailers in December, a month before cities can decide whether to allow legal stores within their borders.  That could lead to existing applications being undermined by municipalities that later opt out.
  • Minimum distances from schools and other prescribed land uses – these distances and other land uses will be set out in the regulations, so it’s not yet clear exactly how far away a dispensary has to be.  It’s also unclear whether they’ll have to maintain a certain distance from each other.
  • Limited mixed-use retail; no online sales – only cannabis and any other things that may be specified by regulations made under the Act may be sold in a cannabis retail store.  Cannabis may only be sold in person at the store; online sales will be handled exclusively by the Ontario Cannabis Store, a subsidiary of the LCBO.
  • Prior charges or convictions may disqualify you – if any of a corporation’s directors, officers, shareholders (direct or indirect), financiers, and other “interested parties” has been convicted, or even charged with an offence, under the Cannabis Actor certain other statutes, the company will be ineligible for a retail operator licence and a retail store authorization.
    • This rule doesn’t apply for charges or convictions under the Controlled Drugs and Substances Act, suggesting some amnesty may be available for black marketeers who cease operations by October 17 when the Cannabis Act takes effect.
    • We would expect some exemption to be provided on the “shareholder” front for public companies.
• We’ll continue to study the Bill and keep you apprised of major developments.  Let the applications begin!

What’s Up in Weed is not legal or financial advice. It is a blog by SkyLaw which is made available for informational purposes only and should not be used as a substitute for professional advice from a lawyer. This blog is subject to copyright and may not be reproduced without our permission. 

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