Budding this Fall: Details on the Regulations under the Cannabis License Act

Further to our last update, the Ontario Government has introduced regulations (the Regulations) under the Cannabis License Act, 2018 (the Act) that provide further clarity about Ontario’s bricks-and-mortar retail regime for adult-use cannabis.

The Act governs the province’s cannabis retail framework and provides for the issuance of licenses and authorizations, the sale of cannabis and the operation of cannabis retail stores and the enforcement of the legislation, including offences and penalties. As discussed in our last update, the Act requires a person to have a retail operator license in order to be able to open and operate one or more cannabis retail stores and have a retail store authorization for each such store.

As discussed below, the Regulations impose significant restrictions on federally licensed producers under the Cannabis Act (Canada) (Licensed Producers). As a result, the Regulations may come as disappointing news to many Licensed Producers who may now be forced to change course in their efforts to participate in the retail distribution of cannabis in Ontario.

A Maximum of 75 Stores

The Regulations stipulate that each retailer, together with its affiliates, will be restricted to operating a maximum of 75 retail store locations in Ontario.

Licensed Producers – Ownership

The Regulations stipulate a corporation is not eligible to be issued a retail operator license if more than 9.9% of the corporation is owned or controlled, directly or indirectly, by one or more Licensed Producers or their affiliates.

Licensed Producers – Affiliates

The Regulations define the term “affiliate” for the purposes of the Regulations and Section 4(4) of the Act (which stipulates that Licensed Producers and their affiliates may not hold between them more than one retail store authorization).

The Regulations cast a wide net in defining “affiliate” and capture a number of relationships including the following:

• Parents, subsidiaries and sister corporations of a Licensed Producer will be considered “affiliates” of that Licensed Producer.
• A corporation that is affiliated with an affiliate of a Licensed Producer will be considered an affiliate of that Licensed Producer.
• A corporation will be considered an affiliate of a Licensed Producer if the Licensed Producer controls more than 9.9% of the voting rights of that corporation.
• A partner in a partnership with a Licensed Producer will be considered an affiliate of that Licensed Producer.
• A trust will be considered an affiliate of a Licensed Producer if the Licensed Producer has a substantial beneficial interest in the trust or the Licensed Producer acts as a trustee of the trust.
• A member of a joint venture or an association will be considered an affiliate of a Licensed Producer if the Licensed Producer is also a member of the joint venture or association.
• A corporation will be considered an affiliate of a Licensed Producer if the Licensed Producer, or group of persons or entities acting jointly or in concert with the Licensed Producer, controls 50% of the votes entitled to elect directors of the corporation or owns 50% of the fair market value of the corporation.
• A person will be considered an affiliate of a Licensed Producer if the Licensed Producer, or group of persons or entities acting jointly or in concert with the Licensed Producer, has any direct or indirect control of the person.

Other Restrictions

The Regulations provide for additional restrictions on applicants, which include the following:

• Retail cannabis stores will not be allowed within 150 metres of any schools.
• Retailers will only be permitted to sell cannabis and cannabis accessories.

The Alcohol and Gaming Commission of Ontario will begin accepting license applications on December 17, 2018. We eagerly await further developments and will keep you all posted as they emerge. Stay tuned for further updates.