Is this the end of cannabis retail clustering in Ontario?

by Matt Maurer, Torkin Manes LLP

Let’s start this article with a bit of a history lesson. When the Ontario Government announced that it would be allowing private companies to own and operate cannabis retail stores in the province of Ontario it gave municipalities a sledgehammer to deal with location issues but kept the scalpel under lock and key.

Specifically, the provincial government allowed municipalities until January 22, 2019 to pass a resolution prohibiting cannabis retail stores from being located in the municipality. That was the sledgehammer. If a municipality did not want any cannabis retail stores within its borders it could prohibit all of them in one fell swoop.

On the other hand, the provincial government also included a section in the Cannabis License Act, 2018 which prohibits municipalities from passing by-laws which either provide for a municipal system of cannabis retail licensing, or that has the effect of distinguishing between a use of land, building or a structure that includes the sale of cannabis and a use of land, a building or a structure that does not include the sale of cannabis.

As such, municipalities were given the ability to exclude cannabis retail stores entirely from within their borders, but if a municipality did “opt-in” it was then expressly prohibited from creating a licensing system for the stores or using by-laws to treat the stores differently than any other business.

While most municipalities opted in and allowed cannabis stores to open, there were a handful that elected not to opt-in, including Mississauga, a city with a population of nearly one million. Mississauga was not against cannabis stores in theory, it just had concerns over the ability to control where the stores would be located. Mississauga revisited the decision to opt-out in June of this year, but its councillors again voted 8 to 4 in favour of not having cannabis stores in Mississauga. The primary objections voiced by the councillors voting against allowing cannabis retail was the prevalence of clustering in other municipalities and the inability for the City of Mississauga to have any control over where the stores would be located, thus interfering with their municipal planning objectives.

The existence of clustering is not in dispute. There are neighbourhoods in the City of Toronto where you can’t walk more than a block without running into multiple cannabis stores. The City of Kitchener is seeing a similar phenomenon. While one can argue whether or not clustering actually has a significant negative impact on a city, and whether the clustering will work itself out naturally on account of the laws of supply and demand, there’s no disputing that it exists.

On the municipal planning side, cities and towns have no tools at their disposal to ensure that cannabis stores are not located near community centres, parks and other potentially sensitive areas such as addiction and mental health facilities. A staff report prepared by the City of Mississauga in advance of the councillors’ June, 2021 debate and vote showed that that City of  Hamilton had unsuccessfully objected to 29 planned retail stores and that a location has never been denied a license by the Alcohol and Gaming Commission of Ontario (“AGCO”) based on an objection presented by a municipality.

All of this may change sooner than later on account of legislation that was introduced on October 26, 2021. Bill 29, Cannabis License Amendment Act, 2021 would see the Cannabis License Act, 2018 amended to include a provision which provides that

“In the absence of evidence to the contrary, the Registrar [of the AGCO] shall consider a resolution of council of the municipality, in which are located the premises for which a person makes an application for a retail store authorization, as proof of the needs and wishes of the residents of the municipality for the purposes of paragraph 5 of subsection (6).”

Bill 29 goes on to provide that a resolution of council of the municipality may:

• Apply to a specific application for a retail store authorization, to one or more areas within the municipality or to the entire municipality; and

• Include guidance with respect to the concentration of cannabis retail stores.

It is worth noting that Bill 29 was introduced by Marit Stiles of the New Democratic Party of Ontario, and therefore the Conservative Government will need to get behind the Bill in order for it to pass. However, that is not necessarily outside the realm of possibility for a couple of reasons.

First, Bill 29 is measured in its approach. It allows the AGCO to consider the wishes of the municipality when making a decision with respect to issuing a retail store authorization. To date, submissions of the municipality have been largely ignored on the basis that the provincial government expressly took away their rights to dictate where cannabis stores can be located. It is noteworthy that Bill 29 does not expressly allow the wishes of municipalities to dictate where stores can be located, but rather gives them a voice and more importantly gives the AGCO the ability to follow that voice and decline to grant the store authorization if it feels so inclined based on the submissions of the municipality.

Second, municipalities have been calling out with louder voices in recent months for more control over what they see as runaway clustering.  During the June discussion and debate, Mississauga councillors expressly raised the notion of going to the province with a request to be granted additional tools to determine where cannabis store locations can go. Some City of Toronto councillors have been calling for similar tools as well as a temporary moratorium on the granting of new retail store authorizations within the City.

With municipalities calling out for control, clustering becoming a regular news event, and the measured nature of Bill 29, it is entirely possible that the government will be supportive and pass the Bill. If that occurs, there will be all sorts of interesting implications for the industry in Ontario. We will know sooner than later. 

---

About Torkin Manes LLP

Torkin Manes has a team of multidisciplinary lawyers with knowledge and expertise in corporate finance, M&A, information technology, corporate governance, tax, corporate structuring, property leasing and real estate, employment & labour, fintech, litigation and regulatory matters. Our combined experience enables us to provide the necessary legal advice on a timely basis to ensure that our clients are well serviced and in a position to maximize their opportunities, especially in this ever changing cannabis landscape.  Torkin Manes is the Official Law Firm of Business of Cannabis.

Learn more about Torkin Manes.

---