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AGCO looking to change rules and guidance surrounding inducements

By: Matt Maurer, Co-Chair, Cannabis Law Group, Torkin Manes LLP

Starting today, the Alcohol and Gaming Commission of Ontario (AGCO) has launched a 30-day consultation with retail license holders and other stakeholders pertaining to potential changes and clarification around the inducement rules contained in the Registrar’s Standards For Cannabis Retail Stores.

The main thrust of the consult is to establish a clearer framework regarding the relationship between retailers and licensed producers (holders of federal cultivation or processing licenses). Currently, standard 6.4 reads as follows:

6.4 Licensees may not accept or request material inducements from Licensed Producers, their representatives, or suppliers of cannabis accessories.

Much has been made of what constitutes a “material” inducement. To date, the AGCO has taken a flexible, case by case, approach, evaluating potential infractions within the circumstances in which they arose. While this has avoided having an overly regimented regime, it also has led to confusion for many retailers over what is and what is not acceptable. Some licensed producers have been utilizing creative and aggressive ways to help boost sales by creating various commercial relationships with retailers. The confusion amongst retailers as to where the goalposts lie, as well as the aggressive nature of some of the licensed producers has caused the AGCO to reconsider the existing standard and instead move to a standard which prohibits all commercial relationships between producers and retailers unless the relationship falls within certain exceptions. Those exceptions may include things like providing educational services to retailers and their staff, providing items of nominal value, or allowing retailers to invest / loan money to the retailer when the producer holds an ownership interest in the retail licensee.

The AGCO wants to ensure a level playing field for retailers of all sizes and wants to ensure a diverse product selection for consumers in Ontario that is free from pressure higher up in the supply chain. Some licensed producers will certainly not be happy to see changes looming, but any changes would only seem to benefit retailers (who will now have clarity) and consumers.

Also on the agenda for the consultation is looking at providing better guidance as to what sort of conduct constitutes an inducement on the retailer’s behalf when it comes to their customers. Currently, standard 6.3 reads as follows:

6.3 Licensees may not provide cannabis or cannabis accessories free of charge or provide any other thing or benefit, as an inducement for the purchase of cannabis or a cannabis accessory. 

This standard has also resulted in much confusion for retailers who are often unsure of what actually constitutes an “inducement”. For example, if a retailer provides a free hat with any purchase, is that an inducement?  Does the analysis change if the customer has no prior notice that they will receive the hat after the purchase? Does the analysis change if every customer who enters the store gets a hat irrespective of if a purchase is made? Questions pertaining to the dos and don’ts of rewards programs have especially been a hot topic of debate thus far as they fall under the rubric of the inducement standard. 

It is fair to assume that as a result of the outcome of the consultation, retailers will have a much more concrete idea of what is, and is not, permissible, and this knowledge should allow them to better focus on rewards programs and other creative customer loyalty building concepts, without having to worry as much about inadvertently running offside the rules and regulations.

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.

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