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A critical consideration when creating a cannabis start-up is the intricate web of public health and safety laws governing the production, sale, and use of cannabis in Canada. While federal laws are often the first to come to mind, any parties involved in the cannabis business must also be aware that many municipal by-laws may apply to their operation.

Know the law before starting your cannabis business

Each province and territory in Canada has unique cannabis regulatory regimes, as cannabis is sold and distributed to consumers at this level of government. By contrast, the federal government regulates the production of cannabis and oversees the health and safety standards applicable to cannabis products.

However, there are also laws pertaining to cannabis production and retail at the municipal level. Municipal by-laws may constrain the use, sale or growth of cannabis. Before starting a cannabis business, it is critical to know the laws of the municipality in which you plan to operate.

Cannabis regulation in Ontario 

In Ontario, all owners and operators of cannabis retail stores fall within the Cannabis Licence Act and its regulations. They are also subject to the Alcohol and Gaming Commission of Ontario (AGCO) Registrar’s Standards. The Registrar’s Standards set out the rules for a broad range of matters within the cannabis industry in Ontario, including:

  • Background checks and licensing of cannabis operators and employees;
  • Changes to a cannabis retailer’s corporate structure;
  • Physical retail store requirements, including the storage and display of cannabis products;
  • The destruction and transportation of cannabis;
  • Advertising and promotion of cannabis products;
  • The responsible use of cannabis; 
  • Record-keeping requirements; and
  • Curbside pick-up and delivery requirements.

The role of Ontario municipalities in the cannabis industry

Ontario municipalities have the power to determine whether they want to prohibit or allow cannabis stores to operate in their community. The AGCO maintains a current list of municipalities prohibiting or allowing cannabis stores. Municipalities may also implement by-laws that restrict smoking and vaping cannabis.

Municipalities cannot create their own licensing system for the sale of cannabis, nor can they pass by-laws that distinguish land or building use for cannabis from any other kind of use. Otherwise, cannabis producers and retailers must follow all municipal by-laws applicable to their business operations.

An early example of municipal cannabis regulation in Ontario: Leamington v. DeGoey

One of the earliest litigation regarding municipal regulation of cannabis in Ontario was the case of Leamington v. DeGoey before the Ontario Superior Court of Justice in 2021. The applicant was the Municipality of Leamington, a municipality in Essex County, Ontario. The respondent in the case was Mr. DeGoey, who resided on a farm within the boundaries of Leamington.

In 2018, Mr. DeGoey erected plastic-covered greenhouses on his farmland to cultivate cannabis. Leamington brought the action because Mr. DeGoey’s operation was contrary to a handful of municipal by-laws.

In response, Mr. DeGoey brought a motion to stay the municipality’s application. He requested the order be put in place until the Normal Farm Practices Protection Board could determine his application to them. In that application, he argued that certain municipal by-laws did not apply to him as his cannabis facility was a “normal farm practice”, over which Leamington lacked any jurisdiction. Leamington brought its own motion to strike Mr. DeGoey’s motion to stay because he did not answer certain questions in a February 2020 examination for discovery.

Growers were federally licensed to cultivate cannabis

Mr. DeGoey’s cannabis facility, he claimed, was operating under the law. The greenhouses he had erected were being leased to four individuals with licences from Health Canada to grow cannabis. Each of those individuals had the same medical practitioner and licence authorizing the growth of 390 to 438 cannabis plants. They were also all authorized to grow cannabis on Mr. DeGeoy’s farm, and their production type permitted by all of their licenses was for “personal” use. As the Court spells out: 

“In other words, according to the licenses, it is anticipated that each individual will ingest between 390 and 438 cannabis plants in each growing cycle. I say that because the production of cannabis by each of those licences is, as said above, limited to their own use by the terms of that licence.”

Initially, Mr. DeGoey planned for the cannabis facility to be a “test” through 2019. If successful, he intended to obtain his own licence to cultivate medical cannabis and increase his charge for allowing cultivation on his farm. He did obtain his licence on March 3, 2020, from Health Canada, allowing him to grow a maximum of 495 indoor cannabis plants for personal use.

The municipality argued that the cannabis facility was not operating under the law

At issue was how the cannabis facility was classified under Leamington’s Municipal By-Law 35-18. That by-law regulates cannabis, including cannabis facilities licensed by Health Canada. Leamington submitted that Mr. DeGoey was illegally operating a “Part II Cannabis Facility”, instead of an “agricultural hobby farm”, which was what his land was designated as under the municipality’s zoning regulations.

In response, Mr. DeGoey asserted that section 6 of the Farming and Food Production and Protection Act of Ontario does not allow a municipality to interfere with his cannabis facility. Section 6 states that “no municipal by-law applies to restrict a normal farm practice carried on as part of an agricultural operation.” The same section provides that applications to resolve disputes related to normal farm practices should be filed with the Normal Farm Practices Protection Board.

What is a normal farm practice?

Although Mr. DeGoey’s position was that only the Normal Farm Practices Protection Board had jurisdiction to hear this case, the Board declined to hear his application until this hearing had been resolved.

The main issue before the Court was what constituted a “normal farm practice” under the Farming and Food Production and Protection Act. In this Act, “normal farm practice” is defined as a practice that:

  1. is conducted in a manner consistent with proper and acceptable customs and standards as established and followed by similar agricultural operations under similar circumstances; or
  2. makes use of innovative technology in a manner consistent with proper advanced farm management practices.

The cannabis cultivation facility found to have contravened municipal by-laws

Mr. DeGoey argued that under the Farming and Food Production and Protection Act, the Normal Farm Practices Protection Board can “declare that any and all of the provisions of a zoning by-law do not apply to the applicant, including, without limitation, land-use issues such as which uses will be allowed in what zones.” The Court disagreed, finding that Mr. DeGoey was conflating the term “land use” with “farm practices,” which are distinct. “Land use” determines what farm operations can occur in which zones, while “farm practice” refers to how farm operations are carried out. Moreover, the Farming and Food Production and Protection Act refers to both “farm uses” and “normal farm practices” distinctly. So, the Court concluded that the Normal Farm Practices Protection Board did have jurisdiction to consider the zoning by-laws as it relates specifically to disturbances and normal farm practices.

However, the Normal Farm Practices Protection Board did not have the power to give the relief sought by the municipality. The dispute between Leamington and Mr. DeGoey had nothing to do with disturbances or nuisances related to his cannabis cultivation. Instead, the issue centred on zoning provisions prohibiting agricultural hobby farms from engaging in cannabis cultivation. Therefore, the Court determined that it had jurisdiction over the dispute instead of the Normal Farm Practices Protection Board.

Ultimately, the Court found that Mr. DeGoey was clearly violating municipal by-laws, and his motion for a stay of proceedings was denied. The Normal Farm Practice Protection Board would hear the remaining issues when it resumed its review of Mr. DeGoey’s application.

Contact Bader Law in Mississauga for Reliable Advice on Cannabis Start-Ups

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. 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.