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Aug 14, 2018

Ontario Government Confirms Private Retail Model

By Fiona Brown and Gobind Ahuja

Yesterday evening, and less than three months before Canada legalizes the recreational use of cannabis, the Ontario provincial government confirmed that the province would reverse the previous government’s plan and allow private retailers to sell cannabis in retail locations. Confirmation that Ontario will have a privatized system, like Alberta and Saskatchewan, is largely considered a welcome change for industry participants who will likely be moving quickly to get an early lead on business opportunities.

The Ontario provincial government supplied limited details regarding the private retail model. We now know that the private retail model will be instituted by April 1, 2019. In the interim period, the only available retailer will be an online store operated by the Ontario Cannabis Retail Corporation (“OCRC”). The OCRC faces an unenviable logistical burden of operating an online store which will be the sole legal supplier of recreational cannabis to the most populous province. However, the delay is needed to give the government enough time to organize an RFP process for licensees, as has already occurred in a number of other provinces.

It will be interesting to see whether Ontario adopts any of Alberta’s regulatory initiatives, such as prohibiting cannabis sales where alcohol, tobacco and pharmaceuticals are sold and prohibiting agreements between retailers and suppliers to sell or promote the supplier’s cannabis. With respect to licensing, Alberta will restrict any person or entity from holding more than 15% of retail licences in the province. Saskatchewan, on the other hand, has set a fixed limit of 51 retail cannabis permits. The Ontario provincial government has indicated that municipalities will have a one-time opportunity to prohibit private retailers from selling cannabis within their boundaries.

A further question relates to enforcement action against black market retailers currently operating without licences. In British Columbia, the currently-illegal dispensaries will be eligible for provincial licences. It does not appear that Ontario will adopt this initiative. The Ontario provincial government announced a “zero-tolerance policy, including severely escalating fines, for any retailer or dispensary who continues to operate in the illicit markets.” However, in the event the OCRC is unable to effectively service demand, the public is likely to turn to existing dispensaries. The proliferation of such businesses is a matter of record – according to an estimate by the CBC, there were 66 dispensaries in the Toronto region alone on February 8, 2018. Indeed, this number may underrepresent the true figure, since criminal businesses are likely to underreport. It would require serious enforcement action to shut them all down – a game some commentators have referred to as “whack-a-mole.”

The announcement has been anticipated for several days. Nearly two weeks ago, The Globe and Mail received an unofficial report from an unidentified source in the provincial government stating that the province would no longer be pursuing an exclusive public retailer model. The recent announcement clears up additional uncertainty by confirming that the OCRC will not operate any physical retail stores.

We will continue to monitor and report on events as they develop. If you have any questions about the announcement or the cannabis industry more generally, please contact one of our members in the Cannabis Group.

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