The Ontario government has announced significant changes to the retail cannabis market. Those changes include the elimination of the previous lottery based system for retail store operator licences, and a loosening of restrictions on the ownership and operation of retail stores.
Gowling WLG Focus
The objective of the amended Ontario regulations is to increase the availability of cannabis retail stores in the province, most notably achieved by removing the cap on the number of retail stores and eliminating pre-qualification requirements.
The new regulations have been positively received by stakeholders in the cannabis industry as the legal cannabis market continues to mature.
Open Application Process
The Ontario government will eliminate the current maximum of 93 retail store authorizations accessed via the lottery system and implement an open application process for cannabis stores.
On January 6, 2020, the Alcohol and Gaming Commission of Ontario (AGCO) will begin accepting applications from potential retailers seeking a retail operation licence. Retail Store Authorization (RSA) applications will commence March 2, 2020 and the AGCO expects to grant store authorizations at a rate of 20 per month as of April 2020.
The open application process will allow any interested parties to submit an application to the AGCO, whereas previously applicants were required to be selected via a lottery system. By processing RSAs at the initial rate of 20 stores per month, Ontario will likely multiply the amount of authorized retail stores opened by mid-2020.
Enabling Market Certainty for Retail Store Licence Holders
The new regulations will increase the number of RSAs that any particular licence holder may have on a phased-in basis. Currently, holders of a retail operation licence and their affiliates are limited to a single RSA.
Under the new regulations, retail operators will be eligible to own a maximum of 10 cannabis stores, with that number gradually increasing to 30 stores and 75 stores, in September 2020 and September 2021, respectively.
By increasing the amount of retail stores allowed under common ownership, retail operators will be provided with greater certainty with respect to their province-wide retail strategy. This will benefit both operators and consumers as it will allow for stronger brand awareness and positioning in the marketplace than the regulations currently provide for.
Increased Participation in Retail Market by Licensed Producers
Licensed producers of cannabis will each be allowed to open a cannabis store at one of their production facilities in the province. This represents a shift from the current outright prohibition against the issuance of an RSA to a licensed producer or its affiliates. Allowing for licensed producers to operate a retail store will provide the opportunity to sell cannabis products directly to consumers, and increase supply of cannabis products into the marketplace.
Licensed producers will remain restricted from owning retail stores other than at the one permissible production facility. However, the Ontario government has announced that under the new regulations licensed producers will be able to own or control up to 25 percent of a retail operator licensee corporation. This is a significant increase from the previous 9.9 percent and will incentivize licensed producers to expand their interest into retail operations in order to position their brand effectively in the marketplace as the Ontario cannabis market matures under this new retail regime.
Increase of Cannabis-Related Offerings
The Ontario government further announced that it will increase the additional items that may be sold in retail stores under the new regulations. Examples provided include cannabis-related magazines and cookbooks. The increased offerings coincide with the roll-out of Cannabis 2.0 and will complement the cannabis edible, extract and topical products that are expected to be available at most retailers in January 2020.
This announcement by the Ontario government can be seen as a response to various industry stakeholders. By addressing the retailing concerns in Ontario, such as supply-chain and consumer access, the government is aiming to ensure that the cannabis regime is adhering to the objective of cannabis regulation while fostering an appropriate business climate.
Gowling WLG's Cannabis Group continues to monitor these developments closely. For more information about these changes, please contact any member of our team.