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Navigating Regulator Disputes

Q: Does the municipal or provincial government have the authority to place a cap on the number of businesses or would that infringe on any laws affecting businesses?

We all know that the Cannabis Act, which legalized adult-use cannabis nationwide, is a piece of legislation enacted by the federal government, however, under the Canadian Constitution the provinces and territories have exclusive jurisdiction over property and civil rights within their borders. “Property and civil rights” essentially includes all commercial transactions that take place within a province or territory.

As such, the manner in which cannabis retail is to be conducted within a given province or territory and the rules by which retailers must abide, including any potential cap on the number of stores or businesses, is within the purview of the provincial and territorial governments. Indeed, a number of provinces have set caps on things such as the total number of stores that can be opened within the province or territory and also how many stores can be owned or operated by any given retailer (and their “related” or “affiliated” entities).

The fact that provinces and territories each set their own rules has created vastly different retail regimes across the country. At the municipal level, the rules and regulations are even more diverse.

What a municipality can and cannot do is dictated by the province or territory, and the various provinces and territories have taken different approaches. In Ontario, for example, the province has expressly provided that any municipal by-law that has the effect of treating a cannabis store different than another business is essentially void. Ontario has also removed the ability for municipalities to pass business licensing by-laws as they relate to cannabis retail stores. In Alberta on the other hand, not only are municipalities allowed to set certain rules, retailers may not even apply for their provincial sales license until such time as they have first received approval from the local municipality.

Q: How can a store owner navigate policy disagreements between retailers and regulators in a mutually beneficial way?

While things can vary slightly from province to province, generally speaking it is very difficult to “win” an argument with the regulator once the regulator has made up its mind. Retailers can go to court to have the decision of the regulator “reviewed”, but that process is incredibly expensive and time consuming. Moreover, the odds are typically stacked against the retailer in such cases as the courts are directed to show deference to the decision-making body, thus elevating the standard that the retailer will need to meet in order to have the decision overturned.

The key then is to change the regulator’s mind before it is set in stone. Think about the issue from the regulator’s perspective—What are its concerns? What problems might it have with what you are trying to accomplish? How can you alleviate those concerns and avoid those problems for the regulator? Providing the regulator with solutions to potential problems or issues it will have at the outset not only demonstrates that you are trying to work with the regulator, but that you appreciate its role and the challenges it has and are trying to address them head on for both of your benefit.

Q: How can management build a relationship with inspectors and work with them to create a positive outcome?

In some jurisdictions, your relationship with your inspector, representative, or officer will be the most important relationship you have and can have dramatic consequences (both positive and negative) for your business operations.

Starting with the licensing process, not all officers are created equal. Officers are human after all, and a good relationship with them can lead them to respond to your inquiries and move your file along quicker than if your relationship is of the type that elicits an eye-roll from them every time your phone number shows up on their call display.

Once your business is operational, a good relationship with your inspector may result in a bit more leeway on minor transgressions, both in terms of potential penalties and the timelines given to rectify the issue. Additionally, having a positive relationship with your inspector may help you get timely and accurate information on future developments that are on the horizon and also may lead to a direct source of information (as opposed to being told, “That is not in my department, call the 1-800 number instead.”).

As they say, you catch more flies with honey than with vinegar… just don’t actually give your officer some free honey, as that likely constitutes providing them with an inducement, which is prohibited.

Matt Maurer is a partner at Torkin Manes. He is co-chair of the Cannabis Law Group and chair of the Franchise Law Group. He is also an accomplished trial and appellate lawyer in the Litigation Group with over a decade of experience advocating on behalf of his business clients.

Tags: Cannabis Act (40), cannabis inspectors (1), cannabis law (3), cannabis store inspections (3), disagreements between retailers and regulators (1), Matt Maurer (2), Torkin Manes (1)