Commercial cultivation, retail and marketing
Business licensing requirements
What licensing requirements apply to businesses seeking to cultivate, distribute, produce and sell cannabis products in your jurisdiction? What procedures, timeframes and fees apply in this regard, and on what grounds can a licence be revoked?
The federal Cannabis Act (the Federal Act) governs licensing requirements for the commercial cultivation and production of all cannabis, and for the distribution and sale of medical cannabis products. Ontario’s Cannabis Licence Act 2018 (the Licence Act) governs the distribution and sale of recreational cannabis products in the province and delegates authority to the Alcohol and Gaming Commission of Ontario (AGCO) to regulate licensing and oversight of private cannabis retail stores in Ontario.
Under the Licence Act, a business looking to sell recreational cannabis to Ontarians must obtain from the AGCO a retail operator licence and a store authorisation issued for each retail location. The Licence Act also requires that cannabis retail store managers be vetted and licensed by AGCO.
To obtain the necessary licences, applicants must satisfy the AGCO as to both their own personal character, financial history and presumed competence and potentially that of persons interested in the applicant or the proposed retail location (eg, shareholders, creditors and landlords). Proposed store locations must satisfy location-specific conditions, such as compliance with statutory rules on the display and sale of cannabis products, security and layout requirements, minimum distances to nearby schools and compliance with zoning and other municipal considerations.
The AGCO will seek to revoke a licence if it believes that the licence holder is in breach of the Licence Act, the regulations issued under it or any conditions attached to the applicable licence, or if the licence holder does not continue to satisfy any of the eligibility criteria that must be satisfied for the licence to be issued in the first instance.
Timeframes and fees cannot be determined as the AGCO has yet to release specifics details about the licensing process for private retailers.
Are any businesses specifically prohibited from selling cannabis products?
Any Ontario business not holding a valid authorisation from the AGCO to sell recreational cannabis products is prohibited from doing so under the Cannabis Licence Act 2018. Similarly, any business not holding a valid federal licence to sell medical cannabis is prohibited from selling cannabis for medical purposes within the province (or elsewhere in Canada).
An authorised retail store is permitted to sell prescribed goods (eg, accessories) only in addition to cannabis purchased from the government’s sole distributor, the Ontario Cannabis Retail Corporation.
Subject to compliance with applicable legislation regarding promotion and advertising, any business is permitted to sell cannabis accessories.
Federal licensed producers, together with their affiliates, are currently limited to operating a single retail cannabis store in Ontario, and this must be located in or adjacent to their federally licensed site. Federal licensed producers or their affiliates are not permitted to own more than 9.9% of any authorised provincial retailer.
Ontario municipalities that do not want to host cannabis retail stores anywhere within their municipal boundaries can pass a council resolution to that effect at any time until 22 January 2019. Municipalities can reverse this decision at a later date to permit retail stores, but that reversal would be final.
For retail stores proposed to be located on reserve, the First Nation band council must approve the location. Band councils can also prohibit retail cannabis stores outright. Ontario’s Cannabis Licence Act 2018 also contains provisions permitting First Nations to enter into side agreements with the Ontario government to establish parallel licensing frameworks applicable on First Nation lands.
Zoning and real estate considerations
Are there any zoning restrictions on where businesses can cultivate, produce and sell cannabis products?
Three different approaches have emerged for the regulation of cannabis cultivation or production facilities through municipal zoning bylaws.
Under the first approach, a municipality simply defines the term ‘cannabis production facility’ (or a similar term) in its zoning bylaw. In Ontario, all uses are presumed to be prohibited, except those that are explicitly permitted in a zoning bylaw. However, this approach does not provide a prospective federal licensed producer with any additional guidance as to how the use may be regulated in a particular zone, which potentially raises questions with respect to certain matters (eg, mandatory separation distances from other land uses).
Under the second approach, a municipality defines the term ‘cannabis production facility’ (or a similar term) in its zoning bylaw and provides detailed regulations regarding where and how the use can be permitted or expressly prohibited. This was the approach taken by the City of Toronto when it amended its City-Wide Zoning Bylaw in 2014 to permit medical marijuana production facilities in specific zones. As a result, the city created a new defined term and added a new chapter to its City-Wide Zoning Bylaw containing regulations addressing:
- the location of the production activity;
- open storage;
- separation distances from sensitive uses (eg, residential, institutional and open space zones, as well as schools, places of worship and open spaces); and
Under the third approach, a municipality makes no amendments to its zoning bylaw and instead determines that the cannabis production facility use falls within existing use definitions and zoning permissions.
Many municipalities have not looked at this issue and have made no changes to their zoning bylaws to address cannabis production facilities. In these cases, it will be difficult for a prospective federal licensed producer to know whether the use is permitted without consulting the municipality’s planning department.
With respect to the sale of cannabis at a consumer level, the Licence Act permits a local municipality to pass a resolution by 22 January 2019 to prohibit the retail sale of recreational cannabis in the municipality. The prohibition may be lifted by a later resolution; however, once lifted, the municipality would be unable to prohibit cannabis retail stores from being located in its community at a later date.
The Licence Act does not permit a municipality to create a zoning framework for cannabis retail stores that differs from the zoning framework applicable to any other retail store. That is, zoning bylaws, interim control bylaws or site plan control cannot be used to distinguish between buildings containing a cannabis-related use and those that do not.
Are there any other notable real estate issues pertinent to cannabis businesses, including with regard to landlord/tenant relationships and real estate market activity?
Permissive use clauses in leases could present a challenge to landlords who do not wish to rent to cannabis businesses. Such landlords should ensure that they are clear about what a tenant can and cannot do on the premises. Tenants should ensure that they can use the property for their intended purpose without disruption.
Even if they are comfortable with the risks and issues associated with cannabis use when entering a lease, landlords may want to consider providing for specific termination rights, which permit them to terminate the lease for any reason or in certain circumstances. For tenants, it is likely that this issue will be the subject of intense negotiations, with particular emphasis on minimising any possible disruption to business operations.
With respect to financing, landlords should review their mortgage documents and, if the premises form part of an industrial or commercial condominium, the applicable condominium documents and bylaws to determine whether, despite legal compliance, such uses are permitted under those documents. Compliance requirements by insurers may also present issues for both landlords and tenants. In addition, tenants that have or want to seek financing for their business should ensure that the terms of the lease provide for operational security. A lender may not extend financing if it is unsure whether the borrower will enjoy undisrupted possession of the premises.
Typical commercial lease agreements provide the landlord with rights of access to the premises on reasonable notice or in the event of an emergency. However, a standard access clause may not work for the security requirements of a cannabis business. Similarly, in a typical commercial tenancy, a landlord could exercise the self-help remedy of distress to seize the property of a delinquent tenant. However, in the context of a cannabis business, seizing any inventory could constitute a criminal offence.
Product restrictions and specifications
Are any cannabis products and accessories prohibited from sale? Do any product specifications apply?
Pursuant to the federal Cannabis Act and its Cannabis Regulations (the Federal Act) the only forms of cannabis that are permitted to be distributed or sold anywhere in Canada are:
- dried flower;
- fresh flower;
- plants; and
Edibles (ie, candies, other foods and beverages) are scheduled to be legalised for sale in late 2019 once applicable regulations are published. Until then the only legal edibles are those made at home by consumers for their own use. The Federal Act prohibits the sale of any product that contains a mixture of cannabis and nicotine, caffeine or alcohol. Indeed, it requires that any cannabis product must be comprised only of cannabis – except for certain permitted residues in connection with the production of cannabis oil or resin. It also contains prohibitions on cannabis products intended to be used in the human eye and products administrated by disrupting the skin barrier.
The Federal Act also prohibits any cannabis accessory that imparts a characterising flavour to the cannabis and any accessory that would alter or enhance its phytocannabinoid effects – other than through heating or combustion.
Ontario has the power to further narrow the forms of cannabis permitted for retail sale, but the province’s cannabis legislation has not done so at this point. Ontario’s legislation provides that cannabis retail stores shall be permitted to sell only those cannabis products authorised by the Federal Act, together with cannabis accessories and shopping bags.
Packaging and labelling
What packaging and labelling requirements apply to the sale and distribution of cannabis products and accessories?
Cannabis products must be packaged and labelled in compliance with the Federal Act, which contains strict and comprehensive rules on cannabis product labelling and packages. For example, dried cannabis packaging and labels are subject to approximately 70 unique requirements, which prescribe requirements for:
- the immediate container;
- the container;
- the container covers;
- the container interior and exterior surfaces;
- the label content; and
- the presentation of text.
Ontario’s cannabis legislation requires that any cannabis products sold in Ontario must be packaged only in the packaging in which such products were purchased from the Ontario government’s sole recreational cannabis wholesale distributor, the Ontario Cannabis Retail Corporation.
Advertising and marketing
What rules and restrictions govern the advertising and marketing of cannabis products and accessories (including online)?
The Federal Act prescribes strict rules relating to the promotion of cannabis products and accessories. Cannabis products and accessories cannot be promoted (online or otherwise):
- in a manner that could be appealing to young persons;
- through the depiction of characters or animals, real or fictional; or
- by presenting their brand elements in a manner that:
- evokes an emotion or associates the product or the brand with a way of life that can be seen as glamorous, exciting or daring;
- communicates information about pricing or distribution (except at point of sale); or
- contains any testimonial or endorsement.
The Federal Act provides for limited exceptions to permit informational or brand-preference promotions, provided that such promotions are in a communication sent directly to an adult, in a place where young persons are not permitted by law or communicated by means of telecommunication where reasonable steps have been taken to ensure that young persons cannot access the promotion. Only federal licence holders are permitted to promote cannabis products – although anyone can promote a cannabis accessory. Additional restrictions apply to sponsorships and branding on items that are not cannabis products or accessories. Finally, cannabis drugs that are subject to the Food and Drugs Act are subject to additional marketing requirements and all marketing and advertising – of any product – must comply with consumer protection legislation (eg, it cannot be deceptive or misleading) and the Canadian Code of Advertising Standards administered by Advertising Standards Canada, the advertising industry’s self-regulatory body.
Ontario’s Licence Act provides that the (as yet unpublished) regulations and the province’s regulator, the AGCO, may prescribe rules relating to the advertising and promotion of cannabis by authorised retail store licensees.
What rules and restrictions govern the branding and trademarking of cannabis products and accessories? Are there any other special branding considerations for cannabis businesses?
Branding in the broad sense (eg, the use of a characteristic logo or other mark or slogan for marketing purposes) is governed by the rules regarding promotion in the Federal Act, the details of which are described under “advertising and marketing”.
Branding in the more narrow sense (eg, the design of the characteristic logo, other mark or slogan itself) is also restricted by such promotion rules to the extent that a cannabis business logo or slogan could take a form that is appealing to young persons, depict a character or animal (real or fictional) or evoke an emotion or create an association with a way of life (eg, one including glamour, excitement, vitality or daring).
Brand logos (or any other brand element) cannot be used to promote:
- individuals; or
As a result, cannabis companies are limited in the extent to which they can sponsor events (eg, sporting events or music festivals).
Cannabis businesses can display their logo or other brand element on items that are not cannabis or a cannabis accessory, provided that those items cannot reasonably be interpreted as being associated with or appealing to minors or with a particular lifestyle. There is much room to argue about what goods are associated with or appealing to minors.
Cannabis logos or other marks must also comply with the Federal Act’s labelling requirements if the cannabis company intends to use them to identify its products.
Registering a cannabis brand trademark is generally a straightforward exercise, but industry participants should consider whether they will be permitted to use the proposed mark in commerce, given the restrictive promotion and packaging rules contained in the act.
Although the regulations remain to be published, Ontario’s cannabis legislation does not currently contain any restrictions on brand logos.