Five things to know before opening a cannabis retail store

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This summer, the Ontario government performed a U-turn and announced that private retailers would be able to access a share of the province’s burgeoning cannabis market.

But far from a free-for-all, private pot sales will be tightly regulated when retailers are allowed to open their doors next spring. Capitalizing on this opportunity will be a challenge for those retailers unprepared to navigate the rapidly evolving regulatory environment.

Kyle Stout, an associate lawyer in Nelligan O’Brien Payne LLP’s business law group, has been closely following the changes – including Ontario’s new Cannabis Licence Act, which came into effect on Nov. 14.

With the Alcohol and Gaming Commission of Ontario beginning to accept applications for cannabis licences on Dec. 17, Stout shared his list of five essential tips that prospective cannabis retailers need to consider to successfully break into this brand-new market:

1. Location, Location, Location

Retail cannabis stores must be least 150 metres away from any schools, including private schools and schools on reserves. Stores must be in enclosed spaces and cannot be in shared spaces such as cafes.

2. Keep your competition at bay

The regulations do not specify a minimum distance between cannabis retail stores. According to Stout, this comes as a relief to first movers who were rushing to secure commercial space and get their applications in first, for fear that they might lose out on a prime location to a competitor. However, because the regulations do not prescribe a minimum distance between stores, Stout advises that those seeking a first mover advantage will need to seek other, contractual, means of keeping potential competitors at bay. For example, Stout recommends negotiating with landlords to include a clause restricting other cannabis retailers from leasing neighbouring properties owned by the landlord.

3. Pick a landlord you can trust

The AGCO considers landlords as “interested persons” in the application process, which means the AGCO may require detailed information from landlords about their business.

“You want a landlord who will be willing to cooperate with the AGCO, because only the landlord will be able to give that information,” says Stout.  In fact, Stout recommends that tenants insist upon a provision in the lease requiring the landlord to cooperate with the AGCO in connection with the tenant’s application.

4. Be prepared for a long wait before getting your licence

An individual or corporation must apply for a retail operator licence before opening a store. Each store is required to have a retail store authorization licence and a cannabis retail licence manager, who must not have a criminal record, with the exception of cannabis-related offences.

All store authorization licences will include a 15-day public review to determine if opening the store is in the public interest.

“The public review process creates uncertainty, because even if you meet all the other requirements, such as being in a safe location away from children, you still may not receive your licence,” says Stout.

5. Have a contingency plan in case your licence application is denied.

“Negotiate with your landlord to have a conditional clause that says if you don’t get the licence, you have the option to walk away,” says Stout. “According to Stout, market forces and the tenant’s own leverage will dictate whether a landlord will agree to such a condition, or alternatively, a right of early termination on the part of the tenant.  Stout advises that “at least prior to the Cannabis Licence Act coming into force, Landlord’s were nervous, and in some instances, requiring some fairly eyebrow raising nonrefundable deposits”.

If you’re looking more information or assistance in opening a retail cannabis store, visit nelliganlaw.ca.