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Ontario to License 50 New Cannabis Retail Stores This Fall

By Matt Maurer

This morning, the Ontario Government announced that it will be moving to the next phase of its plan to license cannabis retail stores within the province by adding 50 new stores this fall, with 42 of these stores being allocated among various regions within the province with the remaining 8 to be operated on First Nations reserves.

Key Take-Aways

  • 42 / 50 stores to be awarded via lottery to be held on August 20, 2019;
  • lottery entrants will need to pre-qualify and in particular demonstrate: (i) that they have secured a physical location, (ii) the ability to access $250,000 in cash or cash equivalents, and (iii) the ability to obtain a $50,000 standby letter of credit;
  • intention is for these new stores to be licensed and opened on a rolling basis starting in October, 2019;
  • pre-lottery organization and preparation will be key given tight deadlines following the lottery process;
  • Torkin Manes’ Cannabis Law Group uniquely positioned to assist potential entrants and brand partners having previously been involved in nearly 30% of all cannabis retail licenses granted within the province to date.

Lottery To Be Held for 42 Stores

A lottery will be held on August 20, 2019, to determine who will be eligible to apply for licenses to open 42 of the available stores.

Who May and May Not Enter the Lottery

The lottery is open to corporations, limited partnerships, partnerships, trust and sole proprietors.

However, the following groups of people and entities are not permitted to enter the lottery:

  1. The holder of a cultivation, processing or nursery licence issued by Health Canada under the Cannabis Act (federal) or the Affiliate of the holder of a cultivation, processing or nursery licence issued by Health Canada under the Cannabis Act (federal);
  2. The holder of a Retail Store Authorization or an Affiliate of the holder of a Retail Store Authorization in Ontario;
  3. Persons who are on the selected list for the first cannabis lottery or who have been selected for a cannabis retail store to be located on a First Nations reserve;
  4. Persons who are not legally permitted to operate a business in Ontario;
  5. Employees and board members of the Alcohol and Gaming Commission of Ontario;
  6. Employees and board members of the Ontario Cannabis Retail Corporation, operating as the Ontario Cannabis Store;
  7. KPMG LLP, its partners and employees; and,
  8. Gaming Laboratories International LLC, its employees, owners, and/or board members.

Store Location Allocations

The 42 stores that will be available in the lottery process will be allocated as follows:

  1. East Region (Stormont, Dundas and Glengarry, Prescott and Russell, Ottawa, Leeds and Grenville, Lanark, Frontenac, Lennox and Addington, Hastings, Prince Edward, Northumberland, Peterborough, Kawartha Lakes, Simcoe, Muskoka, Haliburton, Renfrew): seven (7) stores;
  2. GTA Region (Durham, York, Peel and Halton): six (6) stores;
  3. Toronto Region thirteen (13) stores;
  4. West Region (Dufferin-Wellington, Hamilton, Niagara, Haldimand-Norfolk, Brant, Waterloo, Perth, Oxford, Elgin, Chatham-Kent, Essex, Lambton, Middlesex, Huron, Bruce, Grey, Manitoulin): eleven (11) stores; and,
  5. North Region (Nipissing, Parry Sound, Sudbury, Greater Sudbury, Timiskaming, Cochrane, Algoma, Thunder Bay, Rainy River, Kenora): five (5) stores, with one to be located in each of the following cities: Kenora, North Bay, Sault Ste. Marie, Thunder Bay and Timmins.  

Pre-Qualification and Submission Requirements

Unlike the first lottery in which the right to apply for 25 different retail licenses were allocated, this second lottery will require entrants to pre-qualify prior to being eligible to be selected in the lottery process.

The “Expression of Interest Application” must be submitted between 12:01 AM on August 7, 2019 and 8:00 PM on August 9, 2019.

Notably, entities who wish to be eligible for selection will have to demonstrate that they have secured the retail space for the store, have the financial capacity necessary to obtain $250,000 in Cash or Cash Equivalents and the financial capacity necessary to obtain a Standby Letter of Credit in the amount of $50,000.

Specifically, each entry must be accompanied by the following pre-qualification documents and attestation:

1. The Applicant, or if the Applicant is not a sole proprietor, an individual with authority to bind the Applicant, acknowledges and confirms the following:

a. The Applicant has not made a false statement and has not provided false information in this application;

b. The Applicant will exercise control over the cannabis retail business;

c. The Applicant is legally permitted to operate a business in Ontario;

d. It is possible that the Applicant may not receive a Retail Operator Licence even if the Applicant meets the statutory eligibility criteria;

e. If issued a Retail Operator Licence and a Retail Store Authorization, the Applicant will abide by all applicable legislation, including the Cannabis Licence Act, 2018, the Cannabis Control Act, 2017, the Smoke Free Ontario Act, 2017, and the Accessibility for Ontarians with Disabilities Act, 2005;

f. If issued a Retail Operator Licence and a Retail Store Authorization, there is a risk that the Applicant may not be able to obtain a sufficient quantity of cannabis to operate a cannabis retail business; and,

g. Ontario and its Agencies have not represented that there will be a sufficient quantity of cannabis for the Applicant to operate a cannabis retail business.

2. Submission of a Letter of Confirmation – Cash or Cash Equivalents Capacity, from a bank found in Schedule I or Schedule II of the Bank Act(federal), or a credit union or caisses populaire registered under the Credit Unions and Caisses Populaires Act1994, which must be substantively in the form set out by the AGCO and uploaded in an electronic format to iAGCO that is clearly legible.  The Letter of Confirmation that must be dated no earlier than July 3, 2019, must confirm the Applicant is in good standing and has the financial capacity necessary to obtain $250,000 in Cash or Cash Equivalents.  Applicants who are applying for more than one Region are permitted to use the same Letter of Confirmation for each Expression of Interest Application;

3. Submission of a Letter of Confirmation – Commitment to Provide Letter of Credit, from a bank found in Schedule I or Schedule II of the Bank Act(federal), or a credit union or caisses populaire registered under the Credit Unions and Caisses Populaires Act1994, which must be substantively in the form set out by the AGCO and uploaded in an electronic format to iAGCO that is clearly legible.  The Letter of Confirmation must confirm the Applicant has the financial capacity necessary to obtain a Standby Letter of Credit in the amount of $50,000 and that the Letter of Credit will be provided within five (5) business days of the Applicant being notified of their selection by the Registrar from the bank or credit union providing the Letter of Confirmation. Applicants who are applying for more than one Region are permitted to use the same Letter of Confirmation for each Expression of Interest Application and,

4. Submission of a document, substantively in the form set out by the AGCO, that confirms the Applicant has secured retail space, and that sets out the following:

a. The street address for the retail space, which must be the same address identified in the Expression of Interest Application;

b. Attest that the retail space will be available for the Applicant to operate a cannabis retail store as of October 2019; and

c. The name and contact information for a person with a legal interest in the retail space.

5. Payment in full of a $75 non-refundable fee for each Expression of Interest Application.

Process for Successful Entrants

Successful entrants will be notified of their selection by the Alcohol and Gaming Commission of Ontario within 24 hours of the lottery being conducted and will be moved to the “Selected List”. An applicant on the Selected List will be required:

  1. Within five (5) business days of the Registrar notifying the Applicant of their selection:
    1. To submit an original $50,000 Standby Letter of Credit from a bank found in Schedule I or Schedule II of the Bank Act (federal), or a credit unions and caisses populaires registered under the Credit Unions and Caisses Populaires Act1994, substantively in the AGCO form identified by the AGCO.   The Standby Letter of Credit is to be secured until the end of the Allocation Timeline;
    2. To submit a formally executed legal instrument that demonstrates the Applicant has a right to possession of the retail space as identified in the Expression of Interest Application.  The legal instrument must:
      1. Be in the name of the Applicant; and
      2. Provide the same street address for the retail space as identified in the Expression of Interest Application.
    3. To submit an application for a Retail Operator Licence and make the non-refundable $6,000 Retail Operator Licence fee payment; and  
    4. To submit an application for a Retail Store Authorization using the same retail store location as provided within the Expression of Interest Application and make the non-refundable $4,000 Retail Store Authorization fee payment.
  2. To use the same legal name and Applicant type in the Retail Operator Licence application as was used in their Expression of Interest Application.

Applicants who are selected will be required to be in possession of the retail space that is set out in their Expression of Interest Application by October 1, 2019 or as otherwise agreed by the Registrar. Approval to open will be given once all requirements have been met and on a rolling basis starting in October, 2019, as the successful entrants conclude their supply agreements with the Ontario Cannabis Store (the provincial wholesaler).

No-Transfer or Change of Control Permitted Until July, 2020

Successful entrants are required to use the same legal name and applicant type identified on the Expression of Interest Application in their Retail Operator License application and are not permitted to change their applicant type, ownership and/or corporate structure in a way that would result in a change of control of the applicant or holder of a retail operator license during the period spanning July 3, 2019 to July 3, 2020.

Barring any further changes to the rules it therefore appears that those who were selected in the first lottery process will still be eligible to transfer ownership of their stores this coming December, 2019.

First Nations Stores

In addition to the 42 stores that will be allocated through the lottery process, the Government is also allowing for eight cannabis retail stores to be located on First Nations reserves.   

These stores will be allocated on a first come, first served basis as determined by the time of their submission of a complete, online Retail Store Authorization Intent to Apply – First Nations Reserve Lands application to the AGCO. The AGCO will begin accepting applications at 9:00 AM on July 31, 2019.

Applicants will only be eligible to obtain a Retail Store Authorization if that applicant has demonstrated that the Band Council has approved the location of the prospective cannabis retail store, and the cannabis retail store is located at that approved location. 

To receive a Retail Operator Licence or Retail Store Authorization for a cannabis retail store to be located on a First Nations reserve, a prospective operator will be required to meet the requirements of the Cannabis Licence Act, 2018.  The pre-qualification requirements for the lottery process discussed above do not apply to applicants wishing to operate a store to be located on a First Nations reserve.   

Persons who are on the selected list for the first cannabis lottery or who have been selected for one of the forty-two (42) cannabis retail store authorization opportunities through the second cannabis lottery will not be able to apply for these eight (8) store authorization opportunities.

Contact Us For Assistance

Torkin Manes’ Cannabis Law Group has extensive experience in obtaining
retail sales licences within the province and structuring relationships between
lottery winners and strategic partners to in a manner that passes the strict
requirements set out in the regulations and AGCO scrutiny.

Our group has been engaged on nearly 30% of all successful license applications within the province to date, making us uniquely positioned to assist interested parties in the lottery and licensing process.

If you are interested in applying, or partnering with a successful entrant, please do not hesitate to contact us to inquire as to how we may assist.

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