Here’s what you need to know about how to apply for a cannabis retail licence in Ontario…

By Chris Lavoie, PhD | Associate Consultant | CannDelta

ABOUT THIS SERIES

CannDelta, in partnership with the Business of Cannabis, has produced a 10-article series entitled “So, you want to open a cannabis retail store?” which is aimed at preparing prospective cannabis retailers with the tools and resources needed to open their own cannabis retail store. This series covers everything from initial planning, estimated start-up costs, the licensing process, location selection, staff hiring, inventory management, and much more. The goal of the series is to empower prospective cannabis retailers with the knowledge and resources needed to change their mindset from “one day” to “day one”.

Interested in accessing all 10 articles in one place? Download the CannDelta E-Book now using the sign up link at the top of this page.

OVERVIEW

Two articles into the “So, you want to open a cannabis retail store?” series, you have learned how to create a plan, register your business, secure funding, and open a bank account. In this article, we will walk you through each step of the Ontario cannabis retail licensing process to help you prepare to submit a robust application.

Figure 1. Licensing process for Ontario cannabis retailers.

KNOW YOUR REGULATING BODIES

On October 17, 2018, the Cannabis Act and Regulations made the sale of recreational cannabis legal throughout Canada. While the federal government handles industry-wide rules and regulations, each provincial and territorial government is responsible for enacting restrictions regarding the sale and distribution of cannabis for their regions. The licensing laws and requirements will, therefore, vary between provinces and territories across Canada.

For the purpose of this article series, we are focusing exclusively on Ontario cannabis retail, however much of the information contained within this article series can be translated to other provinces.

The Alcohol and Gaming Commission of Ontario (AGCO)

 After a slow rollout of retail licenses during the controversial lottery era, Ontario has shifted to a progressive open market for private cannabis retail. In December 2019, the Alcohol and Gaming Commission of Ontario (AGCO) put an end to the lottery system and removed the cap on the number of cannabis retail licenses for the province.

The open market era in Ontario began in two phases: (1) on January 6^th, 2020,  applicants could apply for a Retail Operator Licence (ROL), which focuses on the tax, financial, and criminal history of individuals and businesses; and (2) on March 2^nd, 2020, applicants could apply for a Retail Store Authorization (RSA), which focuses on the store itself, including organizational and physical security plans, and municipality approval.

The AGCO is responsible for issuing cannabis retail store licenses and regulating the activities of licensed operators. Private retailers are only permitted to sell cannabis products and accessories approved and obtained by the Ontario Cannabis Store (OCS), which operates Ontario’s only legal recreational online cannabis store.

Licensees are required to comply with the Registrar’s Standards for Cannabis Retail Stores (known herein as the Registrar’s Standards), as well as all applicable laws and regulations, including the Cannabis Control Act, 2017 (CCA), the Cannabis Licence Act, 2018, and ON Regulation 468/18.

The Registrar’s Standards stipulate licensee requirements in the following key areas:

• Store premises, equipment and facilities, including surveillance and security
• The prevention of unlawful activities
• Advertising and promotional activities
• Employee training and the responsible sale of cannabis products
• The protection of assets and the prevention of diversion of cannabis
• Record-keeping and measures to maintain confidentiality and security of records
• Compliance with the federal cannabis tracking system

During the licensing application process, the AGCO eligibility and compliance officers will be looking to see that your retail store has been designed so as to be compliant with all federal and provincial regulations. Once opened, the AGCO will periodically visit your store to conduct inspections to ensure that you are operating within the confines of the Registrar’s Standards. The strict and ever-evolving regulatory requirements can be challenging to keep up with, which is why it is important to retain the services of regulatory experts and to have staff managers dedicated to ensuring retail operations are executed in a compliant fashion.

RETAIL OPERATOR LICENCE (ROL)

 In order to open a recreational cannabis retail store in Ontario, there are two licenses and one authorization that are required from the AGCO:

• Retail Operator Licence (ROL)
• Retail Store Authorization (RSA)
• Retail Manager Licence (RML)

The licensing process begins by applying for a ROL, which primarily focuses on the financial, tax, and criminal history of the applying business and key individuals associated with that business. Holders of a ROL are referred to as “licensed retail operators”, which allows them to own and operate a cannabis retail store in Ontario.

In order to open a retail store and sell cannabis products, ROL holders will need to obtain an RSA, which focuses primarily on the physical store location, including security measures and other aspects related to operational compliance. As a holder of a ROL, you are permitted to apply for up to 10 RSA’s (10 individual stores) as of June 2020, which will increase to 30 in September 2020, and to 75 in September 2021.

ROL Application Requirements

When initiating the ROL application process through the iAGCO online platform, you will need to identify your business’s company structure and legal structure (e.g., privately or publicly held). We covered the different types of company structures in article #2 of this series (e.g., proprietor, partnership, and corporation), each of which will affect the specific requirements for your ROL application.

Regardless of the company structure, each applicant will need to supply the following information:

Tax Compliance Verification (TCV) code: to demonstrate corporate tax compliance.

Constituting document(s): g., articles of incorporation, bylaws, partnership agreements.

Details of Shares: list of all classes and series of shares in the entity, including the name of each individual or corporation who are directly or indirectly holding 10% or more of shares.

Schematic Diagram: for corporate structures consisting of more than one level, a schematic diagram depicting the relationship among all parent, controlling, subsidiary, affiliates and commonly controlled companies is required.

Financial Statements: balance sheets, income and cash flow statements for the last fiscal year. New business applicants will still need to submit a financial statement, which will indicate that the company was registered for the purpose of operating as a cannabis retail store and has incurred no income or debts to date.

Tax Returns and Assessments: completed tax returns and notice of assessments must be provided by the company (i.e. business taxes) and by key individuals, including those who are directly or indirectly holding 10% or more of shares.

Personal History: sole proprietors and disclosed individuals of other company structures must complete a personal history form that involves personal information, employment history, and educational background.

Supplementary Document: any information that would strengthen your application should be submitted as a supplementary document. This should include a concise funding plan for covering the start-up costs for your retail store, including the sources and amount of funding.

Third-Party Agreement: any pending or executed agreements must be submitted as part of your application, which includes for business partnerships and professional contractors (e.g., architects, lawyers, consultants).

 The complexity of your corporate structure can have a significant influence on how quickly your application moves through the licensing process. The more key stakeholders, controlling companies and subsidiaries associated with your company, the longer it will take for the AGCO to process your application and the greater likelihood that a red flag will be identified that could put your application in jeopardy of being rejected. This is particularly important given that the AGCO will conduct background checks on applicants and key individuals associated with the applicant, to determine eligibility for the licence.

Once all required information and documents have been uploaded, you can submit your application by paying the required $6000 licensing fee, which is non-taxed and is non-refundable. Once submitted, your application will sit in a queue until assigned to an AGCO eligibility officer (E/O). The E/O is responsible for notifying the applicant of their application status and will request additional information or clarity if needed. It is imperative that your responses to the AGCO’s request for more information address all indicated items in a clear and concise fashion, in order to prevent further delays.

Based on the ongoing review of your application, the Registrar will decide to:

• issue the ROL if the applicant has met all application and eligibility requirements
• issue the licence, with proposed conditions attached
• issue a proposal to refuse the application

If a proposal to refuse your application is issued, you may request a hearing/appeal before the Licence Appeal Tribunal (LAT). Several reasons why your application may be refused include insufficient funding, insufficient tax compliance for the business and/or key individuals, and significant criminal backgrounds for the business and/or key individuals.

RETAIL STORE AUTHORIZATION (RSA)

 In order to apply for an RSA, an applicant must either hold a valid ROL issued by the AGCO or have submitted a ROL application. Importantly, applications for both the RSA and ROL can be submitted and processed at the same time, so as long as the ROL is submitted first. Whereas the ROL application focuses primarily on the business and its key individuals, the RSA centers around the physical store requirements such as layout and location. Community input on your retail store is also a key aspect of the RSA process.

RSA Eligibility

 There are two major eligibility requirements associated with the RSA: 1) your proposed retail store cannot be located within 150 meters of a school, as defined in the Education Act; and 2) your proposed retail store must be located within a municipality that permits cannabis retail stores. Article #4 of this series is entirely devoted to finding a great retail store location that is complicit with all federal and provincial regulations.

RSA Application Requirements

 The following documents must be submitted as part of the RSA application:

1. Business Name Registration: the business name under which you intend to operate will have to be registered under the Business Names Act. Importantly, the registered business name will have to match the name of your retail store, including for all signage and promotional material.
2. Proof of Ownership / Tenancy: this includes lease agreements, property deeds and rental agreements. You need not have taken control or occupancy in the retail space at the time of RSA application submission.

While the business name registration and proof of ownership/tenancy are only the required documents, it is strongly encouraged that prospective retailers submit additional supplementary information to strengthen their application. In particular, submitting floor layouts with accompanying security designs, along with a robust physical and organizational security plan, will demonstrate your preparedness and commitment to compliance with the AGCO. The sixth article of this series is entirely devoted to teaching you how to design a robust and cost-effective security plan that will keep you on the right side of compliance.

Once all required information and documents have been uploaded, you can submit your application by paying the required $4000 fee, which is non-taxed and is non-refundable. Once submitted, your application will sit in a queue until assigned to an AGCO eligibility officer (E/O).

RSA Inspections

 Prospective cannabis retailers in Ontario will need to pass two AGCO inspections before opening their doors to customers. It is imperative that retail applicants speak to their assigned AGCO inspector prior to arranging an inspection to ensure all requirements are understood and have been satisfied.

The first inspection is the Pre-Authorization Inspection, wherein an AGCO Compliance Official (C/O) will confirm that all eligibility and store-specific requirements are met. C/O’s will be checking to ensure that the store is ready to order, receive and secure cannabis products as required by the Cannabis Licence Act, 2018. The major components/requirements of the Pre-Authorization Inspection are:

• Public Notice Period: an applicant may schedule the pre-authorization inspection as soon as the public notice placards have been posted, and need not have completed the mandatory 15-day period prior to scheduling the inspection.
• Location: the C/O will confirm that the address on the RSA application matches the physical address of the store.
• Product Visibility: the C/O will inspect the measures in place to obstruct the view of cannabis products and accessories from outside of the store.
• Video Surveillance System: the C/O will expect a secure, high-resolution surveillance system to be in place, and to be functional in accordance with the Registrar’s Standards for Cannabis Retail Stores.
• Secure Storage: the C/O will ask the applicant to demonstrate how all cannabis products will be stored securely at all times, and will only be available to staff in appropriate timeframes.
• Unauthorized Access: all entry points to the store, including doors and windows must be secure and protected against unauthorized access.
• Point of Sale: the C/O will expect applicants to have Point of Sale system in place, however, they will not require the software to operate at this stage. Applicants will need to demonstrate that the P.O.S. system is up and running in order to pass a final Pre-Opening Inspection.

A satisfactory Pre-Authorization Inspection will grant an applicant a conditional RSA licence, which allows you to set up a wholesale purchasing account with the OCS. Prior to opening up the doors to the public or receive the first order of cannabis inventory, applicants will need to pass a second, final Pre-Opening Inspection, wherein a C/O will confirm that the store is ready to open for business and sell and to securely store cannabis products in accordance with the Cannabis Licence Act, its regulations, and the Registrar’s Standards. A successful pre-opening inspection will remove the conditional component to your RSA and allow to you legally sell cannabis at your retail store.

RETAIL MANAGER LICENCE (RML)

 A cannabis Retail Store Manager Licence (RML) is required by the manager of each retail store location and/or by individuals who will perform one or more of the following functions in a cannabis retail store:

• Supervising or managing employees of a cannabis retail store
• Overseeing or coordinating the sale of cannabis
• Managing compliance issues in relation to the sale of cannabis
• Having signing authority to purchase cannabis, enter into contracts or make offers of employment

The individual(s) chosen to function as a retail store manager will be subject to more comprehensive criminal background checks than regular employees, and prospective retail managers mustn’t have any convictions or charges under the Cannabis Licence Act, 2018, or certain sections of the Cannabis Control Act, 2017

RML Requirements

The following documents must be submitted as part of the RML application:

1. Personal History: covers the employment and educational history of the applicant

2. Tax Return and Assessment: completed tax returns and assessments for last fiscal year

Once all required information and documents have been uploaded, you can submit your application by paying the required $750 licensing fee, which is non-taxed and is non-refundable. Applicants with a sole proprietorship company structure do not need to apply for an RML; the individual listed on the ROL is permitted to function as the retail store manager. Applicants functioning as a corporation will require any individual whose duties align with the AGCO’s criteria (see above) to apply for an RML.

TIMELINE

 Given the volume of cannabis retail applications that have poured in since the start of the open market era (Jan. 2020), it is difficult to provide accurate projections on the licensing timeline. This challenge is compounded by the COVID-19 pandemic, which has slowed both the AGCO and prospective retailers in readying their store for opening.

There have been approximately 1,000 ROL and 500 RSA applications submitted to the AGCO since the open market era started on January 6^th and March 2^nd, 2020 respectively (as of July 2020). Figure 3 shows our estimated licensing timeline for Ontario cannabis retailers based on the experience of licensed retailers we spoke with. While 4-6 months has been the standard up until now, this is likely to be delayed considerably given the high volume of applications currently in review. Getting your application in as soon as possible is therefore highly recommended!

Figure 3. Estimated licensing timeline for Ontario cannabis retailers.

BOTTOM LINE

Timing is everything, especially in the nascent cannabis retail industry, where there is considerable costs and risks associated with opening up a dispensary. The AGCO is currently under provincial government orders to issue no more than 5 RSA licenses per week, which will yield a maximum of 240 new stores each year. There are currently 100+ licensed stores in Ontario, and the latest projections suggest Ontario is capable of sustaining 1500+ stores based on its market size. At the AGCO’s current licensing rate, Ontario will likely reach its saturation point sometime in 2025, meaning now is the right time for prospective retailers to break into the industry.

There are a number of important tips for advancing through the licensing process more quickly:

• Simplify the business structure: fewer subsidiaries, key investors and stakeholders will require fewer individuals to supply lengthy tax documents and personal histories that will slow down the review process
• Be Prepared: submit complete, accurate applications to minimize any potential back-and-forth with the AGCO.
• Choose a location the local community will endorse: the mandatory 15-day Public Notice Period is a critical part of the RSA licensing process. Situating a retail store in an area that will upset the local community (e.g., highly residential areas close to schools, parks, and playgrounds) will lead to an abundance of objections, which will take significant time to respond to, and could potentially even result in an application being rejected (decisions are final). Another reason to hire professionals!
• Minimize construction & renovation needs: finding a retail space that requires minimal construction and renovation will be a huge time saving in the licensing process. The sooner an applicant can get the security and P.O.S. systems installed, the sooner an applicant can arrange the AGCO inspections and get approved and to get licensed.
• Be ahead of the game: just because an application is slow-moving in the AGCO queue does not mean applicants can’t be proactive. Are the proposed Retail Managers Licensed? Have you implemented a hiring strategy and begun CannSell training? Have you set up an OCS Wholesale purchasing account? There is likely always something to do while waiting for the next step in the licensing process. Be proactive, not reactive.
• Be patient and persistent: the cannabis industry is synonymous with patience, as we have waited far too long for things to move far too slow. Breaking into the Ontario cannabis retail space will be a slow burn for most but will lead to a rich return if executed properly. Aside from following the tips above, prospective retailers are encouraged to keep up a regular and respectful dialogue with your AGCO caseworker. Yet another reason to work with professionals who will regularly check-in with the AGCO to get an update on an application.
• Hire experts: If it seems like a lot to manage, it definitely can be, especially for someone with little or no retail experience. Consider working with licensing professionals to submit and manage store applications, to assist with store planning and staff training (remember, SOPs!). Many experts can liaise with the AGCO on your behalf and prepare formal, timely responses to requests for more information, but do not forget to ask for references!

PROVINCE SPECIFIC GUIDELINES

Click on your province below to see the most up-to-date legal requirements for cannabis retail store licenses in your region.

• Alberta
• British Columbia
• Manitoba
• New Brunswick
• Newfoundland and Labrador
• Nova Scotia
• Ontario
• Prince Edward Island
• Quebec
• Saskatchewan
• Territories

CANNDELTA IS HERE TO HELP

Prospective and current cannabis retailers needing support should reach out to CannDelta for a free consultation. CannDelta is a Toronto-based regulatory and scientific cannabis consulting firm that can be reached at info@canndeltav2:8890 or toll-free at 1 (877) 274-6777.