The Canadian legal cannabis industry, as one of the first legal industries in the world, is very complex to navigate and has a complex set of federal and provincial restrictions that are imposed on producers and sellers of legal cannabis.
New guidance issued by the Alcohol and Gaming Commission of Ontario, which cannabis businesses operating in Ontario must comply with by June 30, 2022, will make marketing more difficult for Licensed Producers that sell into the Ontario cannabis retail network.
Cultivators, processors, and sellers of legal cannabis in Canada are regulated on a federal level and are issued licences to operated by Health Canada. These individuals and corporations are called Licensed Producers (“LPs)”. Health Canada licenses them to supply provincial and territorial cannabis retailers and directly supply registered medical cannabis patients.
Despite the cannabis industry being regulated on a federal level, many aspects of the legal cannabis industry, including retail sales, are regulated on a provincial level. In Ontario, cannabis retail store regulation falls under the purview of the Alcohol and Gaming Commission of Ontario (“AGCO”) under the Cannabis Licence Act, 2018 and Regulation 468/18.
Alcohol and Gaming Commission of Ontario
The AGCO’s stated mandate is the “safe, responsible and lawful sale of cannabis, consistent with the legislation enacted by the provincial government,” as well as ensuring that “the retail sale of cannabis in Ontario is carried out with honesty, integrity and in the public interest”.
More specifically, the AGCO:
- licenses eligible Retail Store Operators and Managers
- authorizes Cannabis Retail Stores
- approves cannabis retail employee training programs
- regulates the sale of cannabis in these stores
In order to support retail licencing, the AGCO has prepared a Cannabis Retail Regulation Guide available here as well as as a very useful Cannabis Retailer Licensing Journey Map available here both of which serve as a helpful guide for Ontario businesses and individuals interested in pursuing an application for a retail store licence.
As part of its regulation of the sale of cannabis in retail stores, the AGCO regulates the interaction between LPs and retail stores. For instance, all licensed retail stores must source the cannabis they sell in their stores from the wholesale arm of the Ontario Cannabis Store. However, while retail stores cannot source their cannabis inventory directly from LPs, retail stores can, still interact with LPs. The recently issued Guidance clarifies what LPs can do in the context of marketing their products to retail store operators.
The “Inducement” Guidance
The recently issued Guidance deals specifically with the matter of inducement. In the context of retail cannabis activities, inducement refers to the practice of:
“entering into agreements for items, benefits, payments, or services with licensed producers (LPs) and their representatives with the purpose to promote or increase the sale of a particular product” by retail stores licensees or their employees”.
Essentially, the prohibition on inducement is intended to ensure that a LP does not directly influence a retail store to offer their products ahead of products produced by other LPs based on “material inducements”. Items, benefits or services of “nominal value” continue to be permitted. In the Guidance, the AGCO confirms that “nominal value items, benefits or services, unlike financial or material inducements, are those that are of inconsequential value”.
Retail Stores Are Allowed To Accept Marketing Materials Of Nominal Value From Lps
The AGCO takes the position that “nominal value” is actually a contextual determination and is not dependent on the monetary value of the item, benefit or services being exchanged. In order to assist retail stores and LPs in determining whether an item, benefit or service is of a nominal value, the AGCO has provided the following contextual questions that should be asked by retail store operators before asking for or accepting an item, benefit or service from an LP:
- Are you likely to change your behaviour toward an LP or the LP’s product after receiving an item, benefit or service?
- Is the item, benefit or service valued at an amount that defrays your operational costs?
- How many items, benefits or services have been provided over a period of time?
The following are items that would generally be considered to have nominal value:
- Inexpensive cannabis accessories
- Gift bags of inexpensive items related to cannabis
Cannabis Training and Education
Considering the importance placed on cannabis education in Ontario, the AGCO’s Guidance confirms that LPs can continue to provide services of nominal value related to cannabis education. For example, LPs can run training sessions at their own production facilities, and as part of those training sessions, LPs can serve modest meals and refreshments.
As part of these training sessions, LPs can even offer samples of cannabis products directly related to the training sessions or seminars as long as the samples are of products that are available in Ontario and are offered infrequently.
LPs continue to be able to offer retail stores educational training or seminars at the retail stores locations.
Consumer Data Is Still Tricky
Unless retail store operators obtain direct consent from their clients, they are prohibited from sharing personal customer data by Canadian law. However, if they are able to obtain consent from certain customers, cannabis retailers are able to share that data with LPs and may enter into agreements with LPs for the sale of data for business intelligence purposes.
However, as outlined in the Guidance, the AGCO expects that the fee for such data is set at “fair market value” and reminds the retailers and LPs that both are expected to follow applicable privacy laws and regulations.
Authorized Cannabis Retail Stores in Ontario
As evidenced by all the links and information shared above, the AGCO has tried to assist potential store proprietors in navigating the complexities of applying for and receiving a Retail Store Authorization for an Ontario storefront. However, individuals and companies considering entering the cannabis industry are still faced with understanding, interpreting, and navigating a very complex and heavily regulated industry. Whether you are a cannabis newbie, an established grower, or operate a company interested in entering the industry, our team at Bader Law can be a supportive partner on your journey into this emerging industry.
Contact Mississauga Business Lawyers For Experienced Advice on Cannabis Business and Licensing Matters
The business law team at Bader Law has decades of experience in establishing new legal identities for businesses throughout Mississauga and the Greater Toronto Area, be it as a private corporation, a limited liability partnership, a sole proprietorship, or a corporation needing to make a private placement of securities. Contact us online or at (289) 652-9092.