Business Opinion

OPINION: Cannabis Retail, Regulatory Issues and Go-to-Market Strategies You Should Know About

Cannabis retail

Even in the best of times, starting a new business can be challenging. Entrepreneurs and investors need to be determined, patient, and informed. In the midst of a global pandemic, establishing a business, a cannabis retail business included, can be risky and fraught with uncertainty.

Specific challenges for cannabis retailers prevail. Canada legalized adult-use cannabis on October 17, 2018, becoming the second country (after Uruguay) to legalize the substance for adult-use. Fast forward to today where cannabis retail stores are proliferating, even as other retailers suffer under COVID-19 restrictions. Not only are these stores distributing a product that was demonized and banned until two years ago, but they are also competing with a long-standing, illicit (“legacy”) market that was established to sell cannabis illegally and continues to do so. The challenges are complex. Here is a list of some of the compliance measures for cannabis retailers in Ontario to keep in mind. The list in its entirety can be found here:

Registrar’s Standards for Cannabis Retail Stores | Alcohol and Gaming Commission of Ontario (agco.ca)

Regulatory Compliance

To open a recreational cannabis retail store one must meet all of the eligibility criteria set out in the Cannabis Licence Act and its regulations. This includes obtaining a Retail Operator Licence through the Alcohol and Gaming Commission of Ontario (AGCO), which is the provincial regulator. The Retail Operator Licence allows the Licensee to operate up to thirty retail stores in Ontario. Following the submission of the Retail Operator Licence, a Retail Store Authorization is needed. The Cannabis Licence Act and its regulations require that each store meet certain requirements relating to physical security, layout, and location. There must be at least one licensed manager for each authorized store location. The Cannabis Licence Act and the Registrar’s Standards set out the eligibility criteria for managers. This explains the responsibility for inventory management and record-keeping, hiring employees, and ensuring the store operates with honesty and integrity at all times. If applying as a sole proprietor or as a partnership between two or more individuals, a Cannabis Retail Manager Licence is not required if the operators will also manage the proposed store.

Know Your Community

Ontario municipalities had a one-time option until January 22, 2019, to opt-out of having cannabis retail stores and to inform the AGCO. Municipalities that opt-out can opt-in at any time; once they are in, they may no longer opt-out. 

As part of the licensing process, local residents have an opportunity to share their views with the AGCO before a retail store is authorized during the public notice period—the storefront must have a placard displayed indicating the intent of the operator to open at this location. To date, this process has largely been an exercise in mediation between the operator and the community to have their concerns heard. In some cases, there are no objections but letters of support from the municipality. Others can collect as many as 300 responses per store. The operators must then respond to each point within five calendar days.

The only areas of public interest the Registrar could consider, as defined by the regulations, are related to public health and safety, protecting youth and restricting their access to cannabis, and preventing illegal activities in relation to cannabis. However, to be considered, the responses would need a stronger argument than “NIMBY.” 

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Standard Operating Procedures (SOPs)

Licensed Retail Operators must exercise oversight of their operations and ensure that all employees act in accordance with the Act. Operational processes should be clearly outlined in comprehensive documents called standard operating procedures (SOPs) for managers and employees to ensure regulatory obligations and compliance are maintained. .Cameras and lighting must clearly capture 24-hour coverage of the interior of the premises wherever cannabis could be present and around any entrances and exits. Cannabis must always be stored securely and be accessible only by staff from receipt of the product to point of sale, destruction, or return.

Any cannabis product that is spoiled, defective, recalled, damaged, deteriorated, misbranded, adulterated, returned, or otherwise ineligible to be sold must be kept separate from other cannabis. Cannabis that is ineligible to be sold and ineligible for return to the Ontario Cannabis Retail Corporation (OCRC) must be destroyed such that it is rendered unusable. And importantly, Licensees must take reasonable measures to ensure that patrons are not under the age of 19.

These regulations and requirements apply to Ontario. Each province has its own regulations and requirements, including the minimum legal age to buy, use, and possess cannabis.

The Rewards

Opening a cannabis retail business is a challenging but potentially rewarding endeavour. Canada has been recognized as a progressive leader in cannabis laws and consumption rules. Every store has the potential to help Canadians access cannabis, deflate the illicit market, and to create a revenue stream in taxes. Good luck and happy selling!

About the author: Lucas McCann is the Co-Founder and Chief Scientific Officer of CannDelta, where he provides scientific oversight and business strategies on all projects.

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