Ontario outlines rules for sales of cannabis

Because Ontario is Canada’s largest province, its approach to cannabis post-legalization is important. Ontario has a population of 13.5 million permanent residents, approximately 37% of the Canadian population. Its economy is about double that of Quebec which is in second place.

Recently Ontario outlined its plans under legalization of cannabis. Recall that the former government of Premier Kathleen Wynne was wiped out in the June 7, 2018 election as Premier Doug Ford took over. He was also quick to change Wynne’s plans for cannabis that included government owned dispensaries only in a government controlled model. Earlier the new government had said it planned to change the rules but that would cause a delay until April 1, 2019 before any legal dispensaries will be open.

Now the government has stepped forward and clarified its new set of rules:

• Legal recreational cannabis sales will commence on October 17 under an online only model. The online platform will be operated by the Ontario Cannabis Store (OCS), which will be renamed to the Ontario Cannabis Retail Corp. (OCRC) and will act as both the exclusive online retailer and brick-and-mortar wholesaler in the province. In other words, Ontario will act as the exclusive wholesaler which means all dispensaries must buy cannabis from the government to resell to their customers. Also the only online seller allowed will be the government.

• Licensing of retail will be overseen by the Alcohol and Gaming Commission of Ontario (AGCO). Subsequent to October 17, the AGCO will commence a retail store tendering process with plans to begin rolling out stores on April 1, 2019. Further, any illegal storefronts operating after October 17 will be precluded from participating in the process. This means legal dispensaries will not begin to operate until April 1st of next year and current illegally operating dispensaries must close after October 17, 2018 or they cannot participate in the legal dispensary process.

• No absolute cap on licenses. Although the province does not plan to place an absolute cap on retail licenses, they are considering “concentration limits” to restrict the market share of any one applicant. However, no specific market share limit has been designated at this time.

• Licensed Producers (LPs) will be limited to one retail license each. This was an unexpected outcome as some Licensed Producers had plans to open many more than one dispensary. This will likely slow the sale of cannabis in Ontario.

• Municipalities will have the option to opt-out. Individual Ontario municipalities will all have until January 22, 2019 to decide if they want to opt-out of having cannabis retail stores in their communities. In addition, applicants must give the public 15 days notice with respect to planned retail locations to allow for input/feedback.

• Design elements of retail locations may be restrictive. It is unclear how much flexibly retailers will have with the look/design of cannabis retail stores. The announcement seemed to imply restrictions on entrances and tinted glass window.

• Smoking cannabis will be restricted in line with tobacco. Consistent with the Smoke Free Ontario Act, cannabis consumption will be limited and prohibited throughout the province in the same manner as tobacco.

The response to the initial announcement that private dispensaries will be allowed by the new government was almost universally optimistic. As the detail becomes available, the optimism is waning.