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Due Diligence: What You Need to Know

In the cannabis industry, there are plenty of regulations to comply with. As retailers, some of the most important rules involve ensuring minors can’t purchase cannabis at their establishment, or even step inside. What are the regulations around due diligence, and what happens if they are broken?

Q: What should cannabis retailers know about due diligence?

A fundamental responsibility for all retailers licensed to sell cannabis in Canada is to ensure that minors do not enter their retail stores and are not sold, or otherwise provided cannabis or cannabis products. In general, this obligation requires a retailer to take reasonable steps to ensure compliance.

The guidelines set out by various provincial regulators require a licensee’s staff to obtain valid identification and verify proof of age whenever an individual who appears to be under the age of 25 attempts to enter a licensed cannabis retail store. Valid primary identification must be government-issued, have the individual’s name, photograph and date of birth, and must not be expired. If the identification does not appear to be genuine or is not familiar to the licensee’s staff (e.g., out-of-province or out-of-country identification), a second piece of identification ought to be requested.

When an individual refuses to produce identification, or where there may be uncertainty as to the authenticity of the identification presented, a licensee’s staff must refuse entry or ask the individual to leave the store.

In general, it is up to the licensee to determine its own approach for enforcement, however, a standard approach is recommended to ensure consistency with compliance, set out in a clear set of standard operating procedures for all employees.

Apart from the obligation to check identification, certain guidelines require a licensee to post signage at entrances to a licensed premises indicating that minors are prohibited.

Q: How are ID-checking and other age-gating measures enforced?

Compliance with age-related rules (among other rules and regulations) is primarily enforced by inspectors or compliance officials employed by the provincial regulators. Licensees and their employees are expected to co-operate with inspectors and not interfere with their inspections.

An inspector may enter a licensed retail premises at any reasonable time to conduct an inspection.

In the course of carrying out an inspection, an inspector may interview and request identification from any individual in the licensed premises who appears to be a minor, if the inspector has reasonable grounds to believe that the individual is underage. An inspector may even interview and request identification from an individual who is outside of a licensed premises and appears to be a minor, if there are reasonable grounds to believe that the person is in contravention of the regulations.

Some provinces permit inspectors to seize identification from individuals when there are reasonable grounds to believe that the identification has been altered or does not belong to the individual in possession.

Q: What are the consequences of breaking the rules?

The sale of cannabis to minors is strictly prohibited in all provinces. In the most egregious circumstances, an individual convicted of selling cannabis to a minor may face imprisonment.

All provinces have a range of penalties for offences and contraventions of their respective cannabis rules and regulations. Set fines are defined for certain contraventions related to minors. For example, in Alberta, the failure to request proof of age from an individual who appears to be under 25 years old may result in a $750 fine or 3-day suspension, up to a $3,000 fine or a 12-day suspension; in Ontario, the same failure is subject to a fine of up to $15,000. Provincial regulators otherwise may impose warnings, impose terms or conditions on a retail license, or even revoke a license.

Where an individual or licensee may be subject to a contravention hearing, it is notable that there is the ability to present a defence to any age-related offence. In Manitoba, for example, the individual alleged to have committed an offence may be found to have a valid defence if he or she attempted to verify an individual’s age by requiring production of identification, the identification indicated that the individual was the required age, and there was no apparent reason to doubt the authenticity of the identification.

Given the potential consequences, it is important for retailers to implement policies and procedures to ensure compliance with age and identification requirements. Licensees are wise to establish standard operating procedures, set proper expectations for employees and ensure proper training in order to be in compliance at all times.

Jason Arcuri is an associate at Dolden Wallace Folick LLP in Toronto. He has consulted on various cannabis law matters.