Ontario Announces Move to Open Private Cannabis Retail Market

On December 12, 2019, the Ministry of the Attorney General announced that the government of Ontario is taking steps to open up the market for retail cannabis sales beginning in January 2020.

Current Regime

Cannabis sales in the Province of Ontario, which are currently operating under the Alcohol and Gaming Commission of Ontario’s (the “AGCO”) lottery system, have been slow to roll out. There are currently only approximately 25 legal cannabis retail stores authorized for business in Ontario. According to Statistics Canada, despite being the nation’s most populous province, Ontario has ranked fifth in the country for number of retail stores open as of July 2019, and ranks as being the province with the third longest average kilometer distance between each resident and the nearest physical cannabis retail store. The province’s announcement to move from the controversial lottery system to an open market is anticipated to alleviate the inconsistency experienced by participants in the cannabis industry in Ontario.

Announced Changes

The provincial government has announced three key changes to the Cannabis Licence Act, 2018 (the “Act”) and Ontario Regulation 468/18 (the “Regulation”) made under the Act in its move towards an open market for private cannabis retail in Ontario.

1. Restrictions on the Number of Store Authorizations

On January 6, 2020, both the cannabis retail lottery and First Nations reserve allocation processes and rules will be revoked, allowing the AGCO to begin accepting applications from any interested applicant, rather than only winners under the previous lottery system.

The AGCO will modify the application process for cannabis retail licenses to eliminate the temporary cap on the number of private cannabis stores in the province as well as the pre-qualification requirements for prospective retailers. Applicants will still be required to obtain both: (i) a Retail Operator License (“ROL”), which confirms they meet the eligibility criteria set out in the Act and Regulation; and (ii) a Retail Store Authorization (“RSA”), which confirms the proposed physical store meets the location, layout, security and other requirements set out in the Regulation.

As of March 2, 2020, the provincial government will also revoke the restrictions on the total number of private cannabis store authorizations permitted in the province and their regional distribution. Thus, as of March 2, 2020, the AGCO will begin accepting RSA applications from all interested applicants. However, until this time, the current restriction on the total number of stores (i.e., 93) and their regional distribution will be maintained, and only applicants who were already selected and notified to apply for a ROL before January 6, 2020 may apply for an RSA.

The provincial government has also announced that it will begin placing limits on the total number of authorized stores any given licence-holder may have, to ensure fair access for retailers while creating medium and long-term market certainty. Until August 31, 2020, each licensed retail operator (and its affiliates) may own up to 10 cannabis stores, increasing to 30 cannabis stores on September 1, 2020 and increasing again to 75 cannabis stores on September 1, 2021.

Store authorizations from this open application process are expected to be issued beginning in April 2020, at an initial rate of approximately 20 RSAs per month.

2. Participation of Licensed Producers in the Retail Market

In addition to the above-mentioned changes, the provincial government announced that it will be increasing the ability of licensed producers to participate in the retail market. Licensed producers may now own or control up to 25% of a corporation holding a cannabis ROL. This is an increase from the 9.9% previously allowed. In addition, licensed producers will now be permitted to open a store at one of their production facilities upon obtaining the necessary retail licenses and authorizations. These changes are anticipated to enable more capital, experience and capacity to enter the market.

3. Expanding Retail of Cannabis Accessories

The amended Regulation expands the types of items retailers may sell in their stores. AGCO-authorized stores may now begin selling items directly related to cannabis or its use, such as cannabis-related magazines and cookbooks. This expansion does not, however, extend to cannabis edibles, which may only be sold by authorized stores once approved products become available for retail in Ontario in January 2020.

If you have any questions with respect to the matters discussed above, please contact Jeff Hergott by email at [email protected], Carlye Bellavia by email at [email protected], Sarah Wahba by email at [email protected] or any other member of Wildeboer Dellelce LLP.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.