New Ontario Regulations Dash Expansion Hopes For Some Cannabis Retailers

Article by Marina Strauss and Christina Pellegrini, Globe and Mail

New Ontario regulations dash expansion hopes for some cannabis retailers MARINA STRAUSS RETAILING REPORTER CHRISTINA PELLEGRINI CANNABIS INDUSTRY REPORTER Tokyo Smoke, which is 100 per cent owned by grower Canopy Growth Corp. and has opened cannabis stores in other provinces, would also have to either revamp its structure or abandon retailing if it wanted to go ahead with its plan to open a chain of stores in Ontario.

Some cannabis retailers could be shut out of operating multiple stores in Ontario as a result of new grower ownership limits issued on Thursday.
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The province’s regulations say a cannabis retailer can’t be more than 9.9 per cent owned by a producer if it wants to operate more than one store. That means, for instance, that Alcanna Inc., which is 25 per cent owned by grower Aurora Cannabis Inc., would have to overhaul its ownership structure in order to run shops in Ontario.
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Tokyo Smoke, which is 100 per cent owned by grower Canopy Growth Corp. and has opened cannabis stores in other provinces, would also have to either revamp its structure or abandon retailing if it wanted to go ahead with its plan to open a chain of stores in Ontario.
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The industry has been waiting for more clarity on whether companies owned in part by producers – affiliates – can open more than one store. The unveiling of these regulations comes three months after the new Ford government said it would overhaul the way recreational cannabis was going to be sold in the province.
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Lawyers are closely reading the new rules and devising ways their clients could restructure their businesses or create new corporate structures to get a bigger slice of the market without breaching the regulations.
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One route could be a franchising model, says Chad Finkelstein, a lawyer at Dale & Lessmann LLP in Toronto. Other options, he says, include being a lender – as long as there isn’t an option to convert that debt into shares or receive stock on default – or charging service fees for use of trademarks. Or growers might also be able to enter into a limited partnership arrangement with another company that would actually operate the stores.

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