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07 December 2018

Al Hudec speaks on regulatory restrictions impeding private retailers in the BC cannabis market

Al Hudec, a Farris LLP partner, provided an overview of the new legal regime regulating the distribution and sale of recreational cannabis in British Columbia.  His presentation was part of an international webinar by Canadian members of Lex Mundi, an international association of leading law firms, on the varying legal regimes governing the legalization of cannabis in the various provinces across Canada.

Investors and others looking to participate in the BC retail market for cannabis should be aware that the regulatory approach taken by British Columbia is likely to impede the entry and operations of cannabis retailers in the British Columbia market.

Under the BC regime, the Liquor Distribution Branch is the sole distributor of cannabis products in the province, and as well is establishing a chain of government cannabis stores that will compete with private entrants in the retail market. As monopoly distributor, the ability of the LDB to provide the range of products desired by consumers at attractive pricing will be a key determinant of the degree to which the new legal market for cannabis will supplant BC’s well established illegal market.  A recent report to government by private sector participants in BC’s liquor market highlighted the inefficiencies and conflicts of interest arising from the LDB’s role as the sole distributor of liquor in the province and as a major competitor of private sector retailers.  It is highly likely that BC’s cannabis market will experience similar issues. Profits from the LDB’s wholesale and retail cannabis operations are likely to become a major source of revenue for the provincial government.

The establishment of private chains of cannabis retail stores in British Columbia will be severely restricted by regulations prohibiting any group of related persons from holding more than eight retail store licenses.  This restriction applies to any situation where a person, through an association, financial interest or family or other connection is likely to influence or affect, directly or indirectly, the activities carried out under more than eight retail licences. Alberta has no such restrictions, and in Ontario up to 75 stores can be under common control.

British Columbia is also likely to vigorously enforce tied house and inducement rules similar to those that currently exist for liquor in the province.  The tied house rules prohibit the issuance of a retail license to a federally licensed producer and also make it an offense for any licensee to sell the cannabis of a particular producer to the exclusion of the products of another producer.  Under the inducement rules, marketing activities are restricted by prohibitions on the giving or acceptance money, gifts, or other rewards or remuneration to promote or induce the sale of a particular brand of cannabis.

A copy of Al’s presentation is available here or he can be reached by phone at 778 886 9356. 

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