On September 8, 2017, Ontario unveiled its plan to give the existing Liquor Control Board of Ontario (LCBO) the oversight of retail sales of recreational cannabis in Ontario, upon its legalization in Canada. Sales will be made through new standalone cannabis stores (not combined with alcohol) and through an online ordering service. The announcement is consistent with broad industry expectations for a public distribution model in Canada’s largest province, but will be a disappointment for some retailers and clinics that hoped for private sector participation in the distribution of cannabis in Ontario.

BACKGROUND

In April, the Canadian federal government introduced the Cannabis Act, which will amend relevant legislation in Canada to legalize the production and distribution of cannabis for recreational consumption by persons over the age of 18. The Cannabis Act is scheduled to become law in July 2018, subject to passage through Parliament. For further information, please see our April 2017 Blakes Bulletin: Federal Government Introduces Cannabis Legislation.

Under the proposed Cannabis Act, adults who are 18 years or older (or such higher age as may be established by a province) will be able to legally possess up to 30 grams of legal dried cannabis (or equivalent in non-dried form) and share up to 30 grams of legal cannabis with other adults. Producers who receive a federal licence will be able to produce cannabis for the recreational market.

Provinces will be able to establish laws with respect to the distribution and retail of recreational cannabis. For provinces that opt not to have a regulated retail system, individuals will be able to purchase cannabis online from a federally licensed producer.

Medical cannabis will continue to be federally regulated, and can only be purchased directly from a federally licensed producer online or over the phone, with delivery by secure mail.

SPECIFICS OF THE ANNOUNCEMENT

Ontario is the first province to announce its plans for cannabis distribution. While Ontario is only one of 13 Canadian jurisdictions, it represents approximately one-third of population and market in Canada, and accordingly the Ontario approach will have national implications for the cannabis sector.

Under Ontario’s plan, cannabis sales will be restricted to government-operated stores and an online marketplace. Because of concerns about selling cannabis alongside alcohol, cannabis will be sold in standalone stores and not in existing Ontario liquor stores, but these new standalone retail outlets will be under the administration of the LCBO.

The province intends to open between 30 and 60 storefronts initially, in municipalities that want them, rising to 80 stores by July 1, 2019, and 150 standalone stores by 2020. This will be accompanied by stronger enforcement against the many illicit cannabis storefront dispensaries currently operating in many cities in Ontario. The location of stores will be determined in consultation with municipalities, including with a view to considerations such as school locations.

Online sales will be available across the province, which will be especially important while stores are being rolled out. These sales will have a number of safeguards currently used by the LCBO for online liquor sales, including identification checks, mandatory signatures on delivery and no unattended package drops.

Cannabis sales will be restricted to individuals 19 years of age and older, which is one year above the minimum age currently stipulated in the proposed federal legislation, but consistent with Ontario minimum age for alcohol consumption.

Initially, Ontario proposes to only allow use of recreational cannabis in private residences. Consumption of recreational cannabis (whether smoked or in any other form) would be prohibited in parks, restaurants, workplaces, vehicles and other public places. Ontario is also launching a consultation to consider the feasibility of introducing designated establishments where recreational cannabis could be consumed.

Many details of Ontario’s plan, including pricing and taxation, were not included in the initial announcement and will likely follow further consultation with stakeholders and the federal government. The Ontario plan will also require passage of provincial legislation, which is expected to be introduced later in fall 2017.

IMPLICATIONS

The most significant implication of this announcement is the confirmation of a public approach to the distribution of cannabis in Ontario. Private sector participants, including retailers looking to participate in distribution (many of whom were hoping for a public-private combination model) will not be able to do so in Ontario.

For licensed producers, the plan will simplify the sales and distribution process of recreational cannabis, in that there will be a single purchaser of recreational cannabis in Ontario. However, a single buyer for Ontario cannabis could also impose significant regulatory requirements for vendors.

For alcohol vendors, for example, the LCBO imposes a number of packaging, testing, social responsibility, quality assurance, logistics and pricing requirements on vendors, and as one of the largest purchasers of alcohol in the world, can typically insist on its preferred result. Similar requirements will likely be imposed on licensed cannabis producers looking to sell their product to the LCBO.