On September 8, 2017, Ontario became the first province or territory in Canada to comprehensively outline its proposed plan in respect of the sale and distribution of recreational cannabis which is currently scheduled to commence on July 1, 2018. Under the proposed framework, the Liquor Control Board of Ontario (LCBO), which currently controls all liquor sales in Ontario, will be responsible for overseeing the legal retail of cannabis in Ontario through both brick-and-mortar and online stores.

The key elements of Ontario’s proposed plan are, as follows:

  • Minimum age: The proposed minimum age to use, purchase and possess recreational cannabis in Ontario will be 19. This is a departure from the proposed Cannabis Act (Canada) which would set the age of majority for the use, purchase and possession of cannabis at 18. Under Ontario’s proposed plan, law enforcement would be allowed to confiscate small amounts of cannabis from those under the age of 19 without resulting in a criminal record.
  • Prohibition of use in public places: The consumption of recreational cannabis will be prohibited in public places, workplaces or inside motor vehicles. However, the province will be exploring the feasibility of introducing designated establishments for the consumption of recreational cannabis.
  • LCBO: The LCBO will oversee the legal retail sale of cannabis in Ontario. The sale of alcohol and cannabis will be made through separate physical outlets in order to ensure that cannabis and alcohol are not sold alongside one another.
  • Enforcement: As a corollary to LCBO’s exclusive right to sell and distribute recreational cannabis in Ontario, the province has stated that it will work with law enforcement to shut down all illicit cannabis dispensaries in advance of the proposed July 1, 2018 recreational cannabis launch date.
  • Storefronts: It is expected that between 30 and 60 storefronts will be initially operated by the LCBO, with a total of 80 storefronts being opened by July 1, 2019. An additional 70 storefronts expected open by 2020. To put that number in perspective, there are approximately 650 liquor stores currently operated by the LCBO.
  • Online sales: Online sales are expected to become available immediately, subject to the legalization of recreational cannabis. Certain safe guards for the online sale of cannabis will be built in, including identification checks and signatures upon delivery.
  • Pricing: Decisions in respect of pricing and taxation will be made following the receipt of further details from the federal government. The province acknowledged that the objectives of discouraging consumption and eliminating the illegal market will inform final pricing decisions.

Analysis

The announcement by the Ontario government of a comprehensive framework to regulate the retail distribution of recreational cannabis will have vast implications for both the cannabis industry and the other provincial and territorial governments in Canada. The most immediate implication is the confirmation that cannabis distribution in Canada’s largest market will be made through an Ontario government enterprise. Additionally, New Brunswick's Select Committee on Cannabis also recently recommended public distribution and government operated stores for cannabis sales in New Brunswick. Although the approaches in each of the provinces and territories may not be identical, we expect that many jurisdictions will soon announce frameworks that are similar to the Ontario model.

The implications for Canada’s licensed producers of cannabis are equally significant as the Ontario framework will streamline the sales process by establishing a single purchaser for recreational cannabis. As the production and sale of recreational cannabis shifts to a wholesale model in the province of Ontario, operation scale, production volume and reliability of supply and quality will become increasingly important to licensed producers. However, smaller licensed producers may also see potential benefits associated with certainty over the distribution chain and the potential cost saving on customer acquisitions, assuming such producers are able secure the ability to distribute their product through the government operated stores.

As July 2018 draws closer, each of the provinces and territories will need to rapidly formalize their respective frameworks for the regulation of recreational cannabis. Dentons’ leading cannabis team will continue to work closely with policy makers, licensed producers and other key stakeholders and provide frequent Insights on future developments.