Magdalena Fish

Cannabis & Drone Law

Blog

A Guide to the Licensing of Private Cannabis Retail in Ontario

Following the Ontario government’s passing of the Cannabis Licence Act, 2018, S.O. 2018, c. 12, Sched. 2 [“the Act”] last month, we now have the text of the accompanying regulations, O. Reg. 468/18: GENERAL [“the Regulations”]. If you want to legally sell marijuana in Ontario, this guide is for you.

**UPDATE (DECEMBER 14, 2018): The retail regulations were amended on December 14, 2018 to include a preliminary lottery process and to implement a phased licensing process, limiting the first phase of licensing to 25 stores. For updated information, please click here.**

Types of Licences

There are three licences/authorizations that you and/or your employee(s) will need to obtain from the provincial government if you want to become a legal retailer of cannabis:

1.    A retail operator licence (one per operator);

2.    A retail store authorization (one per store; an operator and its affiliates can collectively operate up to 75 stores); and

3.    A cannabis retail manager licence (one per manager; at least one per store).

All private cannabis retail falls under the purview of the Alcohol and Gaming Commission of Ontario [“AGCO”]. Applications for these licences/authorizations will open on December 17, 2018. The earliest a licensed cannabis dispensary will be able to open (assuming it has obtained all three licences) is April 1, 2019.

**UPDATE (NOVEMBER 27, 2018): For updated information regarding the application fees and renewal periods for the three types of licences/authorizations required, please click here.**

Municipalities have a one-time opportunity to opt out of private cannabis retail if they pass a resolution prohibiting it within their boundaries and inform the AGCO of the resolution on or before January 22, 2019 (Regulations, s. 22). Any applications received for retail store authorizations within municipalities that opt out will be rejected (Act, s. 4(2)).

Retail Operator Licence (Act, s. 3)

First, you must apply and be approved for a retail operator licence. In order to be eligible for a retail operator licence, the following must apply:

1.    The applicant must be at least 19 years old (Act, s. 3(2)).

a.    Individuals (sole proprietors) must be at least 19 years old.

b.    For corporations, every director, officer and shareholder must be at least 19 years old.

2.    There must not be reasonable grounds to believe that the applicant, it’s shareholders, officers and directors, or anyone “interested” in the applicant will not be financially responsible, having regard to their financial histories (Act, s. 3(4)1). People “interested” in the applicant are those that have a beneficial interest or direct or indirect control over the applicant, or are a direct or indirect financer of the applicant’s business (Act, s.1(2)). This means that for corporate applicants, the financial background of the corporation’s directors, officers, shareholders and creditors may be subject to scrutiny in the application process. [I will from here on out collectively refer to the applicant, those interested in the applicant, and the applicant’s directors, officers and shareholders as, “the applicant, et al”.]

3.    In the same vein, the applicant must be up-to-date on their taxes and in good standing with the CRA and province (Act, s. 3(4)7; Regulations, s. 6).

4.    There must not be reasonable grounds to believe that the applicant, et al will not carry on business in accordance with the law, or with integrity, honesty, or in the public interest, having regard to the past or present conduct of the applicant, et al (Act, s. 3(4)2). This means that the criminal record (and possibly other information in the public record) of the applicant, et al may be subject to scrutiny in the application process. Notably, previous convictions and charges for cannabis offences under sections 4 (possession of cannabis), 5 (cannabis trafficking), 7 (cannabis production), and 7.1 (possession, etc. for use in production or trafficking in cannabis) of the Controlled Drugs and Substances Act, S.C. 1996, c. 19 [“CDSA”] specifically do not preclude applicants from eligibility for a retail operator licence. For example, people who were charged or convicted with operating an illegal dispensary before legalization are not precluded from getting licensed to operate a legal retail store, as long as the dispensary closed before October 17, 2018 (Act, s. 3(6); Regulations, s. 5).

5.    The applicant, et al must not have been convicted of or charged with an offence under:

a.    the Act;

b.    Sections 6 (unlawful sale/distribution), 7 (sale to a minor), 8 (sale to an intoxicated person), 8.1 (false representation as an authorized cannabis retailer), 13 (landlord knowingly permitting unlawful sale/distribution on their premises), or 15 (possession of proceeds of an offence) of Ontario’s Cannabis Control Act, 2017, S.O. 2017, c. 26, Sched. 1 [“Cannabis Control Act”]; or

c.     Division 1 of Part 1 of the federal Cannabis Act, S.C. 2018, c. 16 [“Cannabis Act”] (which includes all the new criminal prohibitions, including possession offences) (Act, s. 3(4)3; Regulations, s. 3).

This means that if you are charged with a cannabis offence after legalization, you actually face harsher penalties with respect to your ability to legally operate a cannabis business than if you had been charged with a cannabis offence before legalization went into effect.

6.    There must not be reasonable grounds to believe that the applicant is carrying on activities that are in contravention of, or not in compliance with:

a.    Cannabis Control Act sections 6 (unlawful sale/distribution), 7 (sale to a minor), 8 (sale to an intoxicated person), 8.1 (false representation as an authorized cannabis retailer), 13 (landlord knowingly permitting unlawful sale/distribution on their premises), or 15 (possession of proceeds of an offence); or

b.    Cannabis Act sections 8 (possession), 9 (unlawful distribution), 10 (unlawful sale), 11 (unlawful importation/exportation), 12 (unlawful production), 13 (possession, etc. for use in production or distribution of illicit cannabis), or 14 (use of a young person in the commission of an offence) (Act, s. 3(4)4; Regulations, s. 4).

This means that if the AGCO suspects that you are running an illegal dispensary (or any other form of illegal cannabis business) after October 17, 2018, you will not be approved for a retail operator licence.

7.    The AGCO must be satisfied that the applicant will exercise sufficient control over the retail business (Act, s. 3(4)5). This is rather vague, but could mean that the operation and administration of the business must not be delegated to someone else without proper supervision.

8.    There must be no false statements or false information in the application (the applicant must be truthful) (Act, s. 3(4)6).

9.    A licensed producer or an affiliate of a licensed producer must not own or control any more than 9.9% of the applicant corporation (Act, s. 3(4)7; Regulations, s. 7).

10. The applicant must not be or ever have been a member of a criminal organization, or otherwise be involved in or contribute to the activities of a criminal organization (Act, s. 3(4)7; Regulations, s. 8).

11. The applicant must not have been refused a retail operator licence or had a renewal of a retail operator licence refused in the last two years (Act, s. 3(3)). (This is irrelevant for first-time applicants, as every applicant is right now.)

12. The applicant must not have had a retail licence revoked in the last two years (Act, s. 3(3)). (This is also irrelevant for current applicants.)

If all of these conditions are met, and the applicant has paid the required fee (TBD), the AGCO must issue the retail operator licence (Act, s. 3(7)(a)). The AGCO may attach conditions to the retail operator licence with the applicant’s consent (Act, s. 3(8)).

If the AGCO wishes to refuse the application, they must first issue a proposal to refuse the application, to which the applicant will have a chance to respond (Act, ss. 3(7)(b), 14-15).

Retail Store Authorization (Act, s. 4)

While the holder of a retail operator licence (in combination with its affiliates) can operate up to 75 cannabis stores, the operator must obtain a retail store authorization for each and every store (Act, s. 4(5)). Both holders of a retail operator licence and applicants for a retail operator licence who have not yet been approved can apply for a retail store authorization (Act, s. 4(1)), but it will only be awarded if the retail operator licence is also approved (Act, s. 4(6)1). The application must be for a specific location (Act, s. 4(1)), meaning that the applicant must have already secured retail space even though they do not have the certainty of knowing that they will be allowed to operate a cannabis store.

Licensed producers (those approved to cultivate cannabis under the Cannabis Act and its regulations) and their affiliates (which is broadly defined) may not operate a cannabis retail store unless it is at the facility in which they produce their cannabis (Act, s. 4(4)1) (like buying wine at a winery). Further, LPs (including their affiliates) may only operate one store within the province of Ontario (Act, s. 4(4)2). This poses problems for some retail chains owned by LPs (such as Tokyo Smoke, which is owned by Canopy) and will likely result in some corporate restructuring, but is not likely to be a concern for small businesses or “mom and pop” pot shops.

In order to be eligible for a retail store authorization, the following must apply:

1.    The applicant must be a holder (or will be a holder) of a retail operator licence that does not have a condition that prevents the applicant from obtaining a retail store authorization (Act, s. 4(6)1).

2.    The proposed store must not be within a municipality or reserve that has opted out of private cannabis retail (Act, s. 4(2)).

3.    The proposed retail store location must not be within 150 meters of a public or private primary or secondary school (Act, s. 4(12); Regulations, s. 11).

4.    The applicant, et al must not have been convicted of or charged with an offence under:

a.    the Act;

b.    Cannabis Control Act sections 6 (unlawful sale/distribution), 7 (sale to a minor), 8 (sale to an intoxicated person), 8.1 (false representation as an authorized cannabis retailer), 13 (landlord knowingly permitting unlawful sale/distribution on their premises) or 15 (possession of proceeds of an offence); or

c.     Division 1 of Part 1 of the Cannabis Act (which covers all the new criminal prohibitions, including possession offences) (Act, s. 4(6)2; Regulations, s. 3).

5.    There must not be reasonable grounds to believe that the applicant is carrying on activities that are in contravention of or not in compliance with:

a.    Cannabis Control Act sections 6 (unlawful sale/distribution), 7 (sale to a minor), 8 (sale to an intoxicated person), 8.1 (false representation as an authorized cannabis retailer), 13 (landlord knowingly permitting unlawful sale/distribution on their premises), or 15 (possession of proceeds of an offence); or

b.    Cannabis Act sections 8 (possession), 9 (unlawful distribution), 10 (unlawful sale), 11 (unlawful importation/exportation), 12 (unlawful production), 13 (possession, etc. for use in production or distribution of illicit cannabis), or 14 (use of a young person in the commission of an offence) (Act, s. 4(6)3; Regulations, s. 4).

6.    The store manager must hold a cannabis retail manager licence (Act, s. 4(6)4). Anyone who performs one or more of the following tasks requires a cannabis retail manager licence (Act, s. 5(1)):

a.    Supervising or managing the store’s employees;

b.    Overseeing or coordinating the sale of cannabis;

c.     Managing compliance issues in relation to the sale of cannabis; and/or

d.    Having signing authority to purchase cannabis, enter into contracts or make offers of employment.

7.    The issuance of the cannabis retail store authorization must not be against the public interest, having regard to the needs and wishes of the residents of the municipality (Act, s. 4(6)5). The public will be given an opportunity to comment on the proposed location for 15 days after the AGCO posts a public notice either online or at the proposed store (Act, s. 4(7)). Residents may make written submissions to the AGCO as to whether the issuance of the retail store authorization is in the public interest (Act, s. 4(9)), however, the only matters of public interest that may be considered are (Regulations, s. 10):

a.    Protecting public health and safety;

b.    Protecting youth and restricting their access to cannabis; and

c.     Preventing illicit activities in relation to cannabis.

8.    For stores that would be located on a reserve, the council of the band must have approved, by passage of a resolution applicable to the proposed store, the location of the store on the reserve (Act, s. 4(6)6).

9.    The proposed store location must be completely enclosed by walls and must not be a passageway to or from any other commercial establishment other than the common area of an enclosed shopping mall (Act, s. 4(6)7; Regulations, s. 9(a)). This eliminates cannabis retail from kiosks, outdoor areas, or in shared models such as combined cafes.

10. The AGCO must be satisfied that the applicant will exercise sufficient control over the premises, equipment and facilities (Act, s. 4(6)7).

11. There must be no false statements or false information in the application (the applicant must be truthful) (Act, s. 4(6)8).

12. The applicant must not be or ever have been a member of a criminal organization, or otherwise be involved in or contribute to the activities of a criminal organization (Act, s. 4(6)9; Regulations, s. 8).

13. The applicant must not have been refused a retail store authorization or had a retail store authorization revoked for the same store location within the last two years, unless the AGCO is satisfied that there has been a significant change in circumstances since the refusal or revocation (Act, s. 4(3)). (This is not relevant for first-time applicants.)

If all of these requirements are met, and the applicant pays the required fee (which will reportedly be $10,000, though I have not seen that from a government source), the AGCO shall issue the cannabis retail authorization (Act, s. 4(10)(a)). If the application for a retail store authorization is refused, the decision is final. There is no appeal (Act, s. 4(14)).

If a cannabis retail store authorization is approved, the store must open and start selling cannabis within a year (Act, s. 7(1)).

Cannabis Retail Manager Licence (Act, s. 5)

Lastly, at least one, and likely multiple, employees of the store must obtain cannabis retail manager licences. Any person who performs one or more of the following tasks must have a cannabis retail manager licence (Act, s. 5(1)):

1.    Supervising or managing the store’s employees;

2.    Overseeing or coordinating the sale of cannabis;

3.    Managing compliance issues in relation to the sale of cannabis; and/or

4.    Having signing authority to purchase cannabis, enter into contracts or make offers of employment.

To be eligible for a cannabis retail manager licence, the following must apply:

1.    The person must be at least 19 years old (Act, s. 5(2)).

2.    The person must not have been refused a retail manager licence or had a retail manager licence revoked within the last two years, unless the AGCO is satisfied that there has been a significant change in circumstances since the refusal or revocation (Act, s. 5(3)).

3. There must not be reasonable grounds to believe that the applicant will not carry on business in accordance with the law, or with integrity, honesty, or in the public interest, having regard to the past or present conduct of the applicant (Act, s. 3(4)2). This means that the applicant’s criminal record (and possibly other information in the public record) may be subject to scrutiny in the application process, however, previous convictions and charges for cannabis offences under sections 4 (possession of cannabis), 5 (cannabis trafficking), 7 (cannabis production), and 7.1 (possession, etc. for use in production or trafficking of cannabis) of the CDSA specifically do not preclude applicants from eligibility for a retail manager licence (Act, s. 5(4)1; Regulations, s. 5).

4.    The applicant must not have been convicted of or charged with an offence under:

a.    the Act;

b.    Cannabis Control Act sections 6 (unlawful sale/distribution), 7 (sale to a minor), 8 (sale to an intoxicated person), 8.1 (false representation as an authorized cannabis retailer), 13 (landlord knowingly permitting unlawful sale/distribution on their premises), or 15 (possession of proceeds of an offence); or

c.     Division 1 of Part 1 of the Cannabis Act (which includes all the new criminal prohibitions, including possession offences) (Act, s. 5(4)2; Regulations, s. 3).

5.    There must not be reasonable grounds to believe that the applicant is carrying on activities that are in contravention of or not in compliance with:

a.    Cannabis Control Act sections 6 (unlawful sale/distribution), 7 (sale to a minor), 8 (sale to an intoxicated person), 8.1 (false representation as an authorized cannabis retailer), 13 (landlord knowingly permitting unlawful sale/distribution on their premises), or 15 (possession of proceeds of an offence); or

b.    Cannabis Act sections 8 (possession), 9 (unlawful distribution), 10 (unlawful sale), 11 (unlawful importation/exportation), 12 (unlawful production), 13 (possession, etc. for use in production or distribution of illicit cannabis), or 14 (use of a young person in the commission of an offence) (Act, s. 5(4)3; Regulations, s. 4).

6.    There must be no false statements or false information in the application (the applicant must be truthful) (Act, s. 5(4)4).

7.    The applicant must not be or ever have been a member of a criminal organization, or otherwise be involved in or contribute to the activities of such an organization (Act, s. 5(4)5; Regulations, s. 8).

If all of the above requirements are met, and the applicant has paid the fee (which will reportedly be $1,000, though I have not seen that from a government source), the AGCO must issue the cannabis retail manager licence (Act, s. 5(6)(a)). If the AGCO does not approve the application, they will issue a proposal to refuse the application, which the applicant will have the opportunity to respond to (Act, ss. 5(6)(b), 14-15).

Renewals

All three of these licences/authorizations will expire unless they are renewed (Act, s. 8(1)). The intervals at which the licences/authorizations must be renewed are not set out in the Act or Regulations. The holder of the licence or authorization must apply to renew before the expiry date (Act, s. 8(2)). There will be fees associated with renewals, but we do not yet know the amounts.

Summary

If you are considering opening your own legal pot shop, you will need to obtain a cannabis retail operator licence, a cannabis retail store authorization for each store that you intend to open, and a cannabis retail manager licence for each person with managerial responsibilities. Before applying for a retail store authorization, you must secure retail space. The fees are yet to be confirmed by the AGCO, but will in all likelihood be quite large and should be taken into consideration when securing funding.

**UPDATE (NOVEMBER 27, 2018): For updated information regarding the application fees and renewal periods for the three types of licences/authorizations required, please click here.**

**UPDATE (DECEMBER 14, 2018): The retail regulations were amended on December 14, 2018 to include a preliminary lottery process and to implement a phased licensing process, limiting the first phase of licensing to 25 stores. For updated information, please click here.**

Once your operation is fully licensed, there are additional operational requirements set out in the Act and the Regulations that you must follow at all times in order to remain compliant and avoid the revocation or non-renewal of your licence.

For legal assistance with any aspect of the licensing process, please contact cannabis lawyer Magdalena Fish at maggie@mfishlegal.com or by phone at (647) 720-2929.