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Licensed Producers Owning Retail Shops

Are provincial licensed producer (LP) ownership inequities here to stay? Since 2018 cannabis legalization in Canada continues to evolve. However, it must be recognized that the industry is not in its infancy as many regulators seem to think, and that the benefits of cannabis have been in discussion since it was added into the Narcotics Drug Act Amendment Bill in 1923, almost a century ago.

This long history demonstrates that government regulators don’t easily adapt to legislation. Simply put, it is a slow process that seems to take decades to educate the regulators who govern LPs. There are provincial inequities relating to LP ownership and cannabis retail that need to be addressed. In order for change to occur, business owners must continually work with both federal and provincial governments to find balance in complex issues at a provincial level.

Inequities in Provincial Regulation Affecting LPs

It is common knowledge that each province regulates the how, who, and where of the retail cannabis landscape, however, the federal government issues LP licenses. Inequities have been built into the system by regulators who don’t fully comprehend a business model or contemplate trends in consumer demand for product education and locally grown items.

At present, the hodgepodge of provincial regulations across the country has been firmly established. It will take significant efforts from the industry to continue educating all levels of government that we must move in a cohesive direction. The common goal must be to level the playing field for federally-licensed producers to meet the demand of consumer shopping expectations and prevail against the illicit market. Consumer education and awareness continue to be key factors when it comes to reducing illegal market activity and breaking the stigma around cannabis consumption.

Consumers have become accustomed to the idea of “locally made” and that includes a shopping experience where they interact with those who are making and selling a product. It appears the best model would be that of a liquor manufacturer that has onsite sampling and a retail store to showcase their own micro products. LPs need to be given this opportunity to connect with their consumers directly. Unfortunately, the illicit market still does this well, and LP success is being limited on the direct-to-consumer front by cumbersome regulations.

Below are brief outlines, by province, that highlight the provincial retail inequities that LP owners face if they want to be involved with retail. Some provinces have gotten close to getting it right but there is still work to be done, to achieve a cohesive Canadian model.

The Inequities Province by Province

• LPs are not permitted to hold 20% or more of shares of a non-medical cannabis retail outlet.
• LPs are required to have a marketing license in BC to sell their items to a retailer, who then in turn would sell direct to the consumer.

• Cannabis producers are permitted to have a financial interest in a retail cannabis licensee’s store, but producers and retailers must operate as separate business entities.
• Cannabis licensees or their employees may not own, operate, or manage a cannabis supplier.

• A person can have financial interest in a LP, retail, or wholesale operation.
• LPs must have a wholesale license before they are permitted to sell in the province.
• Retailers may only purchase from a wholesaler licensed by the province.
• There is no cap on the number of wholesale licenses.

• LPs are permitted to be associated with retail stores but may not hold more than 15% of the province’s entire cannabis retail market, based on the number of current licensed stores in the province.

• LPs may own up to 25% of shares in a retail cannabis store.
• There is one provision that allows for a licensed producer to apply for one Retail Store Authorization to be located on their production site in Ontario.
• Franchising and shared brands are permitted.

• Consumers can purchase direct from NULC or a NULC agent. At present there are two NULC Agents, both are licensed producers.
• LPs are permitted to apply to become licensed agents in Nunavut.

• Licensed producers are permitted to own cannabis retail stores.
• The Yukon government is the only permitted online retailer.

• LPs are permitted to be associated with cannabis retail stores.
• The RFP program saw 13 successful proponents out of 42 proposals.
• There is no further intake at this time.

New Brunswick:
• LPs are permitted to sell their products on-site at their licensed facilities as part of a FarmGate Program.
• LPs cannot make an application for a private retail store as the only permitted retailer in the province is Cannabis NB.

Quebec, Nova Scotia and PEI:
• Only government stores are permitted within these provinces; therefore no LPs are permitted to have retail stores.

Rebecca Hardin is with Thrive Liquor & Cannabis Advisors, a BC-based license consulting firm operating across Canada.

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