In 2021, Ontario became the first province in Canada to permit farmgate cannabis retail, giving business owners and hopeful entrepreneurs a different option for entering the cannabis sector. This article provides an overview of what interested business owners should know about farmgate cannabis retail.

What is farmgate cannabis retail?

Farmgate cannabis retail is available to licensed cannabis producers who can combine their production site with a retail storefront. The model is most similar to vineyards, where wine is both produced and sold to customers in the same location.

Farmgate stores are licensed and regulated by the Alcohol and Gaming Commission of Ontario. Instead of the producer needing to deliver cannabis products to the Ontario Cannabis Store (which distributes products to retailers), farmgate stores allow producers to eliminate a step between the harvest of product and its sale to consumers. To be eligible to apply, the producer must already be federally licensed.

In May 2022, the Alcohol and Gaming Commission of Ontario authorized the province’s fourth farmgate location in Brampton. The other three are located in Simcoe, Toronto, and St. Thomas. The Alcohol and Gaming Commission has announced that as of July, 25 producers have applied for the first stage of the farmgate licensing process and 14 are on the second stage.

What are the stages of becoming a cannabis farmgate retailer?

Businesses interested in becoming farmgate operations must obtain two licences in addition to an authorization by the Alcohol and Gaming Commission. First, businesses need to obtain a licence from Health Canada permitting the sale of cannabis products to the Ontario Cannabis Store. Second, they must apply for the Retail Operator Licence under the Cannabis Licence Act and pay the corresponding fee. To apply for the licence, individuals (or directors and shareholders in a corporation) must be 19 years of age or older. The current fee for the Retail Operator Licence is $6,000.

After the application has been submitted, the next step is to apply for a Retail Store Authorization. The Retail Store Authorization will only be granted after the Retail Operator Licence is issued, although applications for both can be submitted at the same time. The current fee for a Retail Store Authorization is $4,000.

Once the Retail Operator Licence is obtained, the retail store operator will need to enter an agreement with the Ontario Cannabis Store to start acquiring product for resale. This product can add to the stock already being generated by the production site.

A final licence is required for most cannabis retailers before beginning operations

Every cannabis retail store in Ontario requires a Licensed Retail Manager. The Licensed Retail Manager is there to do the following, set out in section 5(1) of the Cannabis License Act:

5 (1) Subject to the regulations, an individual who wishes to perform one or more of the following functions in respect of a cannabis retail store may apply to the Registrar for a cannabis retail manager licence:

1.  Supervising or managing employees of a cannabis retail store.

2.  Overseeing or co-ordinating the sale or distribution of cannabis.

3.  Managing compliance issues in relation to the sale of cannabis.

4.  Having signing authority to purchase cannabis, enter into contracts or make offers of employment.

As with the application for the Retail Operator Licence, applicants for Licensed Retail Managers must be at least 19 years old. The current fee for this licence is $750.

Licensed Retail Managers are not required when the retail store operator is a sole proprietor or a partnership. In these instances, the retail store operator would perform the duties of Licensed Retail Manager.

Who can’t apply to operate a cannabis farmgate retail store?

Not everyone can become a cannabis farmgate retail store operator in Ontario. The Cannabis Licence Act sets out situations in which the issue of a retail operator licence is prohibited:

1. There are reasonable grounds to believe that the applicant will not be financially responsible in the conduct of the applicant’s cannabis retail business, having regard to the financial history of:

• the applicant;
• persons interested in the applicant; and
• if the applicant is a corporation, the directors, officers or shareholders of the applicant and persons interested in those directors, officers or shareholders.

1. There are reasonable grounds to believe that the applicant will not carry on business in accordance with the law, or with integrity, honesty or in the public interest, having regard to the past or present conduct of any of the persons referred to above (under #1).
2. A person referred to above has been convicted of or charged with an offence under the Cannabis Licence Act, the Cannabis Control Act, 2017, the Cannabis Act (Canada) or any applicable regulations made under any of those Acts.
3. There are reasonable grounds to believe that the applicant is carrying on activities that are, or would be if the applicant were the holder of a retail operator licence, in contravention of or not in compliance with a provision of the Cannabis Licence Act, the Cannabis Control Act, 2017, the Cannabis Act (Canada) or any applicable regulations made under any of those Acts.
4. The Registrar under the Cannabis Licence Act is not satisfied that the applicant will exercise sufficient control, either directly or indirectly, over the applicant’s cannabis retail business.
5. The applicant or an employee or agent of the applicant makes a false statement or provides false information in the application.
6. Any other circumstance that may be prescribed under the Cannabis Licence Act.

What restrictions are there on retail store authorizations?

As with the cannabis farmgate retail store process, the Cannabis Licence Act sets out restrictions on the issue of retail store authorizations:

1. Except as otherwise provided by the Cannabis Licence Act regulations, the proposed cannabis retail store must be located on or within the site set out in the licence.
2. The person and its affiliates, as defined by the regulations, may not between them hold more than one retail store authorization or such other number of retail store authorizations as may be prescribed.
3. Any other restriction that may be prescribed under the Act.

Further rules around the eligibility of retail store authorization applicants are fleshed out in the legislation, although they are similar to those pertaining to retail operator licences.

Contact the Lawyers at Bader Law to Help Organize Your Cannabis Retail Business

Bader Law helps businesses navigate the complexities of the cannabis industry in Ontario. Our knowledgeable business lawyers assist clients in obtaining Retail Store Authorizations and ensuring ongoing compliance with the shifting changes in cannabis regulation. We create dynamic, creative legal solutions for cannabis newbies and experienced operators alike. We also represent clients with corporate financing and information technology law, amongst other areas. Our firm proudly serves clients in Mississauga and throughout the Greater Toronto area. To schedule a consultation, call us at 289-652-9092 or reach out online.