On November 1, 2017, the Government of Ontario introduced Bill 174 which, if passed, will enact legislation to regulate the sale, use and distribution of recreational cannabis in Ontario, subject to the Federal Government legalizing recreational cannabis which is expected to occur in July 2018.

Bill 174 enacts the Cannabis Act, 2017 (Cannabis Act) and the Ontario Cannabis Retail Corporation Act, 2017 (Cannabis Retail Act). It also repeals the Smoke-Free Ontario Act and the Electronic Cigarettes Act, 2015, and replaces such legislation with the new Smoke-Free Ontario Act, 2017 (Smoke-Free Ontario Act). The provincial government also announced its intention to open and operate 40 retail stores throughout the province by July 2018, and 150 retail stores by 2020.

Ontario's announcement of the Cannabis Act and the Cannabis Retail Act follows its announcement in September 2017 outlining the provincial government's proposed framework for the sale and distribution of recreational cannabis in Ontario. As previously highlighted, one of the primary goals of the provincial government is to protect youth, public health and safety, and to deter illicit activities in relation to cannabis through appropriate enforcement and sanctions. For more information about this development, please refer to our previous Insight.

While the Cannabis Act provides a broad framework for the recreational cannabis market, below are some key elements to note:

  • The stated purposes of the Cannabis Act include: (i) establishing prohibitions for the sale and distribution of cannabis to protect public health and safety, and to ensure the sale of cannabis in accordance with the Cannabis Retail Act; (ii) deterring illicit activities in relation to cannabis; and (iii) providing youth education or prevention programs.
  • Confirmation that the retail market will be run solely through the Ontario Cannabis Retail Corporation (OCRC), and that no person is permitted to sell or purchase recreational cannabis other than through the facilities of the OCRC.
  • The Cannabis Act and its regulations will generally not apply to cannabis produced for medical purposes.
  • No person is permitted to knowingly sell or distribute cannabis to a person: (i) under 19 years of age; or (ii) who appears to be intoxicated. In addition, persons under 19 years of age are prohibited from possessing, consuming, purchasing or attempting to purchase, distributing, cultivating, propagating or harvesting cannabis, or offering to cultivate, propagate or harvest cannabis.
  • A police officer may seize any thing, including cannabis, if the police officer has reasonable grounds to believe that: (i) the thing will afford evidence of an offence under the Cannabis Act; (ii) the thing was used or is being used in connection with the commission of an offence under the Cannabis Act and, unless seized, the thing is likely to continue to be used or used again in the commission of such an offence; or (iii) the thing is proceeds of an offence under the Cannabis Act.
  • If a charge is laid against a person for a contravention of the restrictions on the sale or distribution of cannabis, and a police officer has reasonable grounds to believe that a premises was used in the alleged contravention, the police officer may cause the premises to be closed immediately and any persons on the premises to be removed. Following such a closure, a person with an interest in the premises will be required to apply to the Superior Court of Justice for an order that entry cease to be barred subject to any conditions specified by the court, if: (i) the court is satisfied that the proposed use of the premises will not contravene the Cannabis Act; and (ii) if the applicant is the person who was charged, the applicant posts a cash bond for at least CA$10,000 or such greater amount as the court determines.
  • No person shall consume cannabis in: (i) a public place; (ii) a workplace within the meaning of the Occupational Health and Safety Act (Ontario); (iii) a vehicle or boat; or (iv) any other prescribed place.
  • Landlords are not permitted to rent their premises to illegal storefront dispensaries.
  • All cannabis contained in a vehicle or boat, whether or not in motion, must be packed in baggage that is fastened closed or not otherwise readily available.
  • Corporations and individuals who violate the Cannabis Act are subject to a fine of no more than CA$250,000 and CA$100,000, respectively; however, higher penalties will be available against corporations or individuals who violate the sale and distribution restrictions of the Cannabis Act, including those restrictions applicable to landlords who knowingly permit such activities on their premises. Individuals who violate the Cannabis Act are also subject to imprisonment.

Certain key elements of the Cannabis Retail Act are as follows:

  • The OCRC will be established to have the exclusive right to sell recreational cannabis in Ontario;
  • Notwithstanding the foregoing, the exclusive right of the OCRC shall exclude sales of cannabis: (i) for medical purposes in accordance with federal law; (ii) to the OCRC in accordance with federal law; and (iii) by such persons or in such circumstances as may be prescribed;
  • The OCRC's board of directors will be comprised of at least three and not more than seven members appointed by the LCBO, subject to the approval of the Minister of Finance;
  • The OCRC's board of directors shall, subject to delegation to a committee of the board, or an employee or officer of the OCRC, manage the affairs of the Corporation; and
  • The OCRC's stated objectives include: (i) to buy, possess and sell cannabis and related products; (ii) to determine the varieties, forms and types of cannabis it sells and at what prices; and (iii) to promote social responsibility in connection with cannabis.

Smoke-Free Ontario Act, 2017

Bill 174 also proposes the Smoke-Free Ontario Act, which would place restrictions on the sale, use, display, packaging and promotion of e-cigarettes and vaporizers. Among other things, the Smoke-Free Ontario Act restricts a person from smoking or vaping in an enclosed public place, an enclosed workplace, a school or child care centre, and a sporting arena.

The proposed legislative framework established by Bill 174 provides a comprehensive framework for the sale of recreational cannabis in the province of Ontario; however, while comprehensive, the proposed framework creates a number of potential conflicts between industry participants and the provincial government, including enforcement activities and police officers’ ability to effect the closure of premises where an alleged contravention of the Cannabis Act has occurred.

Despite the potential issues that may arise in connection with the implementation of the Cannabis Act, the Cannabis Retail Act and the associated legislation, it is beneficial for market participants to have the opportunity to review the initial framework, which remains subject to ongoing review and amendment by the Government of Ontario. It is also important for market participants to ensure that their businesses and operations, including those they propose to undertake upon the legalization of recreational cannabis, are in compliance with the proposed framework detailed in Bill 174.

In addition to the guidance provided, as a result of the breadth of the proposed legislation, market participants, including consumers, will need to be cautious with respect to their activities until the scope, extent and approach to enforcement activities is formalized. Further complicating the ability of market participants to navigate the regulatory framework is the draft nature of the proposed legislation which is still required to undergo its second and third readings before being presented for Royal Assent. We anticipate that various amendments will be made to the proposed legislation in the near future.

As with the announcement of its proposed plan for the sale and distribution of recreational cannabis on September 8, 2017 that was discussed in our prior Insight, Ontario has again come forward as the first province in Canada to present proposed legislation that will implement its plan for the sale and distribution of recreational cannabis. We look forward to receiving the draft legislation presented by each of the other provinces and territories to see if they take a similar approach.

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