Ontarios new retail cannabis regs leave room for Big Bud to corner the market

The Ford government finally released regulations that will guide the roll-out of retail cannabis stores in the province. As currently.


The Ford government finally released regulations that will guide the roll-out of retail cannabis stores in the province.

As currently drafted, the new regs clear up some of the uncertainties that had been hanging over the question of retail stores since the government announced plans to privatize cannabis sales back in August, like where stores can be located and who can work at them.

But the rules are still hazy in parts, especially regarding the interests of big bud Licensed Producers (LPs), who have been buying up existing retail operations and other properties in the hope of being able to sell their products through street-level operations.

The regs place a hard cap on the number of stores that can be owned and operated by a single person or company at 75. One company with that kind of bricks-and-mortar infrastructure right now is Shoppers Drug Mart, which does have a licence to sell marijuana. Under the new regs, however, Shoppers wont be able to plop a dispensary into any of their existing stores.

On the other hand, National Access Cannabis (NAC), a medpot distributor that currently owns two retail pot shop brands, Meta Cannabis Supply and NewLeaf, is well positioned to take advantage of this high and healthy allowance. NAC has a deal with Second Cup to convert some of their stores over to cannabis sales.

Well take it, well use it and were certainly going to push ourselves to the max, says Matt Ryan, VP of marketing for NAC.

However, LPs can only have one store that they own outright, and it has to be at the point of sale, i.e., their production facility. There is also a limit in what ownership stake they can have in other stores (to a maximum 9.9 per cent). Some lawyers at LPs are confused about whether they can have separate stores at separate grow facilities. For example, can Canopy, Canadas largest LP, have one retail store at its headquarters in Smiths Falls and another at its Niagara grow-op?

Canopy recently purchased the high-end bud retailer Tokyo Smoke for $250 million. Will Tokyo Smoke be able to sell Canopys product given the restrictions on ownership?

The answers to those questions will be up to the Alcohol and Gaming Commission of Ontario (AGCO), which is planning to start accepting applications from prospective store owners on December 17. But theyre not yet revealing how theyre going to interpret the regulations where theres a grey area, and didnt answer our calls or emails for comment.

Whether LPs will be allowed to have a retail footprint through franchises is one of the biggest questions, says Chad Finkelstein, who practises franchise law.

Finkelstein argues that the government has worded the regulations in such a way that it will permit franchising by LPs.

All the regulations explicitly prohibit is exercising control in fact over the store owner, which he says is very, very different than franchising.

If the government wanted to ban franchising, All they had to do was use the word franchise, says Finkelstein. Its a statutorily defined term, he says.

That means that, with the proper ownership structure, you could see LPs like Tweed, for example, license their name and Tweed-branded product through storefront operations, even though the regs as written would limit Tweed to one single store. At least according to the letter of the law, anyway, Finkelstein argues.

The idea, he says, seems to be to allow LPs to use their capital and resources to support small businesses. Where there is ambiguity, Those same doubts do not exist for non-LPs, says Finkelstein meaning any franchising by a non-LP will be, generally speaking, permitted.

There are also no density restrictions on cannabis retail outlets in the new regs, leading to some concern in legal weed circles that pot stores would concentrate in certain neighbourhoods, like the grey market dispensaries do. For their part, NAC wants to have some diversity in where they are located.

Were looking fully across the province, Ryan says, not just in saturated downtown areas. We already have some sites that we think are completely viable.

Except the province has also given municipalities the option to opt out of cannabis sales. The city councils of Oakville, Richmond Hill and Markham have already expressed their intentions to do just that.

The regs also say that stores cant have distribution services, so no trying to compete with Ontario Cannabis Store on online sales.

Theres virtually nothing in the cannabis regulations that dictates where you can and cant open a cannabis store as long as your store has walls separating it from any other commercial establishment or activity and from any outdoor area and as long as you have security where cannabis is stored.

In addition, stores have to be dedicated cannabis stores and arent able to be a store-within-a-store. So, there wont be any stores that resemble the Wine Rack that are inside some grocery stores.

You also wont be allowed to open a pot store thats connected to an existing business. But you could see pot shops in malls, since the regulations make a specific exemption for enclosed shopping malls.

During the provincial election campaign, Doug Ford blasted Kathleen Wynnes plan to allow stores 450 metres from schools, considering it selling to kids. I wont put it beside schools like you did, he said, referring to one of the first planned stores. But under the new regulations, pot shops can be as close as 150 metres to a school roughly the length of a city block.

The regs contain a specific distance exemption for private schools on First Nations reserves. But even so, some Indigenous communities, plan on making those decisions and others related to cannabis retail for themselves.

Most grey market dispensaries have closed since the province introduced hefty fines in August. But there are still a handful operating in some cities in Ontario.

Youll be able to tell which stores are legit and which arent come April 1. Per the regulations, government-approved stores must display an authorization seal, a black-and-white, shield-shaped symbol that says Ontario Authorized.

The seal must be at least 7.5 inches tall and displayed in a conspicuous place that is visible from the exterior of the public entrance to the cannabis retail store.

The regulations do allow people with a cannabis-related offence to open up or work in a store. The provinces proposed law does not prevent the issuance of a cannabis retail manager licence to an applicant if the applicant has been convicted of or charged with a prescribed offence under the Controlled Drugs and Substances Act (Canada) in relation to cannabis.

But there is one exception anyone charged with a marijuana-related offense since legalization came into effect will be prohibited from getting in on the action.

@nowtoronto

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