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Nov 2018 | High Priorities for 2019

CANNABIS RETAIL: MUNICIPAL OPT-OUTS & INABILITY TO PASS BY-LAWS
MATT MAURER & DEVRA CHARNEY, TORKIN MANES LLP

Ontario’s Cannabis Licence Act, 2018 (the “Act”) permits authorized stores to sell recreational cannabis privately in Ontario. The Act, which is not yet in force, establishes requirements for the sale of cannabis in cannabis retail stores and the operation of cannabis retail stores. The Alcohol and Gaming Commission of Ontario (the “AGCO”) is the provincial regulator authorized to grant store licences. Two major aspects of the Act as it relates to municipalities, are the ability to opt-out of cannabis retail sales and the inability to pass by-laws in respect of where cannabis retail stores can be opened and to whom a store licence is granted. This article will look at both of these issues in turn.
 

I. Opting-Out

 

The Act explicitly allows local municipalities to opt-out of cannabis retail sales. The private retail model for cannabis is set to launch by April 1, 2019. Until that time, all recreational cannabis sales will be carried out online through the government’s Ontario Cannabis Store website. Once privately-owned bricks and mortar locations are established, the Ontario Cannabis Store will be the exclusive wholesaler to these stores and will continue to be the exclusive online retailer in the province. The Act explicitly permits municipalities to pass a resolution prohibiting cannabis retail stores from being located in their community. Any such resolution must be passed by no later than January 22, 2019. A municipality that opts-out can at a later date lift the prohibition and permit cannabis retail stores to be located in the community by passing a further resolution. However, the lifting of a prohibition is final. In other words, once a prohibition has been lifted, the municipality cannot restore it in order to prohibit retail stores at a later date.

When CBC Ottawa asked candidates during the recent municipal election campaign whether they supported private retail cannabis stores in the city, some answered that they see the AGCO as a strong regulator, while others said that they would consider opting-out. As of October 2018, only Markham and Richmond Hill have publicly indicated that their plan is to opt-out. Dave Barrow, the Mayor of Richmond Hill, stated last year, “Richmond Hill is not a willing host of a cannabis retail location in our community.” Barrow disclosed that while some residents agreed with him, others were eager to welcome retail cannabis shops. People in areas without access to brick-and-mortar shops will not be out of legal options, as they can still buy cannabis online from the Ontario Cannabis Store, which offers safe home delivery across the province.

John Henry, the Mayor of Oshawa, who will take office as chair of the Regional Municipality of Durham on December 1, 2018, stated that the province has given municipalities insufficient information to decide whether to opt-out. He predicts that Oshawa’s next mayor and council will require more time than the three months the province is providing to reach a decision. A list of the municipalities in which cannabis retail stores cannot be located will be published on the AGCO website, along with the dates of the relevant resolutions.

The Ontario Public Service Employees Union (“OPSEU”) is encouraging people to lobby municipal politicians to opt-out. OPSEU would prefer that the province scrap its privatization plan in favour of implementing government-run cannabis retail stores. Warren (Smokey) Thomas, president of OPSEU, stated that he supported the plan proposed by the previous Liberal government (which would have seen all retail owned and operated by the government) because it “respected societal issues, health-care issues and took a big step toward retail availability.” OPSEU’s push for the public model has been criticized by many in the cannabis industry as having less to do with its purported purpose of public safety and more to do with creating public-sector union jobs.

 

II. By-law Restrictions

 

The second major aspect of the Act as it relates to municipalities is the prohibition on passing by-laws that apply only to retail cannabis stores. During consultations with the province, municipalities lobbied for special zoning powers to limit the locations of retail cannabis stores, similar to the provisions in the Municipal Act that permit municipalities to limit the number of strip clubs and payday loan stores and define their locations. Nonetheless, the Act ensures that municipalities cannot designate cannabis retail as a separate land use from retail generally. Municipalities do not have the authority to pass a by-law under the Planning Act that has the effect of distinguishing between a use of land, a building or a structure that includes the sale of cannabis and one that does not. A by-law or an order made under the Planning Act that conflicts with the Act is of no effect.

Retail cannabis stores are also exempt from cannabis-specific municipal licensing requirements. Municipalities lack the authority to pass by-laws providing for a system of licences respecting the sale of cannabis, holders of a licence or authorization issued under the Act or cannabis retail stores. In other words, unlike taxis or building permits, cannabis stores cannot be licenced by the city. Instead, the AGCO administers the licensing and regulatory regime for cannabis retail stores. Potential retailers can apply to the AGCO for one of two licences – a retail operator licence or a cannabis retail manager licence – and a retail store authorization for specific cannabis retail store locations.

Despite these constraints on city control, municipalities and their residents do not lose their say entirely in determining whether a retail cannabis store is authorized. Once an application for a retail store authorization is made, the AGCO is required to give public notice of the application so that citizens can voice their concerns about a particular store and/or argue against its authorization. The municipality and its residents have 15 days to make written submissions to the AGCO on whether the retail store authorization in question is in the public interest.

Ontario plans to provide a total of $40 million to municipalities to help local governments implement recreational cannabis legalization. Over the next two years, each municipality is set to receive at least $10,000. Ontario plans to make its first payment to all municipalities by the end of 2018 on a per household basis, with a guarantee of at least $5,000 to each municipality. A second round of payments is scheduled for after the January 22, 2019 opt-out deadline. Municipalities that have not opted-out will receive funding on a per household basis, whereas municipalities that have opted-out will receive $5,000 each. The province aims to support costs related to hosting retail cannabis storefronts in municipalities.

 

MATT MAURER is a partner at Torkin Manes and Vice Chair of the firm’s Cannabis Law Group. He is an accomplished trial and appellate lawyer in our Litigation Group with over a decade of experience advocating on behalf of his corporate clients.

DEVRA CHARNEY is an articling student at Torkin Manes LLP. She graduated from Queen’s University Faculty of Law. In her final year, she placed third in the Wilson Moot, 2018. During her time at Queen’s, she also volunteered as a student caseworker at Queen’s Legal Aid and was awarded the McDougall-Watson Memorial Award for her contributions.

 

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