Corporate

Ontario's cannabis retail gold rush part 1

By AdvocateDaily.com Staff

In the first instalment of a two-part series, Toronto business lawyer Peter Murphy looks at the issues facing cannabis store retailers.

Prospective cannabis retailers need to proceed carefully as a new gold rush gets underway in the market for bricks-and-mortar sales of the newly legal drug, Toronto business lawyer Peter Murphy tells AdvocateDaily.com.

Following the federal government’s recent legalization of cannabis for recreational use, the provincial government unveiled its own framework for licensing retailers in the Cannabis Licence Act (CLA).

And Murphy, partner with Shibley Righton LLP, says the province’s private sector model for retail stores has sparked a scramble for the best locations.

“Cannabis retail in Ontario is the new gold rush,” he says. “There’s a huge potential opportunity here, and many new businesses are going to be getting into this.”

While the former Liberal government had planned a provincial monopoly over the retail sales of cannabis, similar to the LCBO, Premier Doug Ford's Tory administration has established a licensing regime for private retailers overseen by the Alcohol and Gaming Commission of Ontario (AGCO).

However, the AGCO is not yet accepting licence applications and doesn’t expect to be ready to receive any before December. When it is up and running, the CLA's two-stemmed approach will require businesses to obtain a retail operating licence, plus a retail store authorization for every location they plan to operate. A third type of licence, for cannabis retail managers, will also be required for every individual responsible for a store's management and compliance.

Regulations under the CLA provide additional requirements that must be met before licences may be obtained, Murphy says.

“For example, the regulations under the CLA say that retail stores will not be allowed within 150 metres of a school,” he says. “You can bet prospective retailers are looking at Google maps and starting to lock up the best locations.

“Cannabis retail is going to be heavily regulated, and anyone getting into the retail business should be prepared to bear related costs. Advertising and promotion are already heavily restricted at the federal level, and the CLA requires every individual hired to work in a cannabis retail store to complete AGCO-approved training programs,” Murphy says.

He also says the Ontario Cannabis Retail Corporation has the exclusive right to sell cannabis to authorized retailers, which will limit their ability to competitively source inventory.

Another potential problem for retailers is that municipalities still have until Jan. 22 to opt out of cannabis retail sales. Richmond Hill and Markham have already taken advantage of the opportunity, but Murphy says individual retailers could be left exposed if they agree to lease a particular location in a municipality that subsequently joins the list of non-cannabis jurisdictions.

To mitigate their risks, Murphy says cannabis retail hopefuls looking to enter into a lease should consider negotiating for a refundable deposit and the ability to walk away if zoning or licensing permits do not come through.

“You don’t want to be locked into a long-term lease without a viable business, either because of zoning or other surprises,” he says.

Stay tuned for part two, where Murphy will discuss the unique issues facing landlords of cannabis stores.

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