Open market for cannabis retailers and licensed producers: eliminating lottery process, reducing restrictions on licensed producers and other changes to Ontario’s retail cannabis regime

On December 12, Ontario announced significant changes to the regulations governing the province’s retail cannabis regime under the Cannabis Licence Act (Ontario) (the Amended Regulations). The changes are concrete steps towards an open market for the private retail sale of cannabis and cannabis-related products. While the Amended Regulations include a number of significant changes, here’s what you need to know:

• Licensed Producers Ability to Participate Expanded: The Amended Regulations increase the ability of federally licensed cannabis producers (LPs) to sell their products directly to consumers. LPs will be permitted to apply to open a single cannabis retail store located at one of their facilities. Further, LPs are now permitted to own or control up to 25% of the voting shares of a corporation holding a cannabis retail operator licence. Previously, a corporation was not eligible to receive a cannabis retail operator licence if more than 9.9% of the voting shares were owned or controlled, directly or indirectly, by an LP.
• Lottery Process Eliminated: As of January 6, 2020, the Alcohol and Gaming Commission of Ontario (the AGCO) will begin accepting new applications for retail operator licences. This is a significant change from the previous regime, pursuant to which only those selected in a lottery process were eligible to apply. However, until March 2, 2020, only those retail operator licence applicants who were selected and notified to apply for a retail store operation under the lottery system will be permitted to apply for a retail store authorization, following which the AGCO will begin accepting applications for retail store authorizations from all interested parties.
• Limit on Retail Stores Eliminated: As of March 2, 2020, there will no longer be a limit on the number of retail stores allowed in Ontario and the regional distribution requirements for retail stores in Ontario will similarly be revoked. After March 2, 2020, the AGCO expects it will be able to issue up to 20 retail store authorizations per month.
• Per-Operator Retail Limits: Notably, the Amended Regulations limit the number of retail store authorizations that may be issued to a holder of a retail operator licence and its affiliates. In other words, the number of stores any one person and its affiliates may operate is as follows:

• Sale of Items Other Than Cannabis and Cannabis Accessories: Licensed cannabis retailers are now permitted to sell anything “that relates in some direct way to cannabis or its use, such as an item that depicts cannabis or its use or that is wholly or partly cannabis-themed.” However, selling food and beverages that do not contain cannabis continues to be prohibited. This change does not affect the introduction of new classes of cannabis (e.g., edibles) that are expected to enter the market in the coming weeks.
• In addition to the changes in the Amended Regulations, the AGCO confirmed authorized cannabis stores can now offer click-and-collect services allowing customers to order and pay for products online for in-store pick-up. This will enhance the retail experience as customers can call ahead or go online to find out a given store’s available inventory and reserve preferred products.

While the Amended Regulations simplify the licensing process, those who intend to pursue operating a cannabis retail store in Ontario are reminded that licensing to operate a cannabis retail store involves a two-step process. First, operators must qualify for a retail operator licence by meeting the requirements set out in the Cannabis Licence Act (Ontario). Once licensed, the operator’s proposed physical store must qualify for a retail store authorization, which confirms the store meets location, layout, security and other requirements. For additional details regarding the two-step process, please see our recent publication setting forth the requirements.

These changes represent some of the most significant changes to date for selling retail cannabis and further demonstrate the Government of Ontario’s intention to combat the illegal market for cannabis in Ontario. Following the coming into effect of the Amended Regulations, the number of retail stores is expected to increase greatly creating a more competitive and established market for the legal distribution of cannabis.

The full text of the Amended Regulations can be found here. Stay tuned for further updates.