Industry: Cannabis & Psychedelics

New Trademark Laws For Québec – What You Need To Know

Posted on by Evgenia Apelfield

In approximately three years or less, the Québec Government’s newly adopted Bill 96, An Act respecting French, the official and common language of Québec will go into force. Bill 96 will have a significant impact on the use of English trademarks in the Province of Québec. For example, whereas in the past, both unregistered and registered trademarks did not need to be translated into French, under Bill 96, only registered trademarks will be exempt from translation into French. Currently, it takes approximately two years for a trademark application to mature to registration in Canada. As such, it is imperative businesses review their trademark portfolios and consider which trademarks ought to be filed for registration to ensure continued use in the Province of Québec.

The Present Rules in Québec:

Promotional Material/Packaging
At present, a “recognized trademark” is exempt from translation requirements in Québec. A recognized trademark includes a registered trademark, an applied-for trademark with a pending application, or a common law trademark. As such, unless the English trademark has been registered in French, it is not necessary to translate the English trademark registered or common law (unregistered) on packaging offered in Québec into French.

Signage
Currently, in Québec, outside signage, inside signage that is seen outside, mall signage and/or signage on a pole/column (with some exceptions) displaying an English registered or common law (unregistered) trademark does not need to be translated into French. However, if the equivalent French trademark is a registered trademark, then the French trademark must be used on the signage. In any event, if there is only an English trademark, unlike packaging or promotional material, the signage must have “sufficient presence” in French and include:[1]

  • A generic term or a description of the products or services;
  • A slogan; or
  • Any other term or indication favouring the display of information pertaining to the products or services to the benefit of consumers or persons frequenting the site (location).

The “sufficient presence” of French means that it should be displayed with permanent visibility and legibility in the same visual field as the non-French mark, although not necessary to be present side-by-side, in the same number, in the same materials or in the same size.[2]

Exception: If the English trademark is displayed on a pole/column and there are more than two trademarks on the pole/column then the signage does not need to disclose the generic term, slogan or other terms in French.  The typical situation would be the external signage of the parking lot entrance for an outdoor mall.[3]

Bill 96 – New Requirements in Québec for French in Trademarks:

When Bill 96 goes into effect, the scope of the “recognized trademark” exemption is greatly reduced.

First, only non-French registered trademarks will be exempt and not need to be translated into French. As such, an unregistered (i.e., applied-for or common law) English trademark will need to be accompanied by its French equivalent on commercial advertising and public signage.

Second, even if a non-French trademark is registered but is used on public signs and posters visible from the outside of a premise, the signage must still have a generic term, slogan or other term in French marked predominately in French.[4] Predominantly means that the space allotted to the French text must be at least twice as large as the space allotted to the non-French text, or the characters used in the French text must be at least twice as large as those used in the non-French text.[5]

Implications of the New Québec Language Laws:

It is expected that the newly adopted Québec language laws will be in force in three years or less.  Currently, it takes approximately two years for a trademark application to mature to registration in Canada. As such, if you offer goods and/or services in Québec and do not want to run afoul of the new Québec language laws, then it is imperative for you to review your trademark portfolios and consider a tailored solution to meet your business goals (for example, filing trademark applications with the Canadian Intellectual Property Office immediately).

Notably, these implications may not only affect English language trademarks but also trademarks using other non-French languages and potentially “coined” words.

 

For more information, please contact:
Scott Miller, Co-Managing Partner, Head of the Litigation Department
T: 613-801-1099
E: smiller@mbm.com

 

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.

[1] Regulation respecting the language of commerce and business, CQLR c C-11, r 9, ss 25(4) and 25.1.
[2] CQLR c C-11, r 9, s 25.3.
[3] CQLR c C-11, r 9, s 25.2(1).
[4] Bill 96, An Act respecting French, the official and common language of Québec, 1st Sess, 42nd Leg, Québec, 2021, cl 47 (assented to 1 June 2022).
[5] CQLR c C-11, r 11.

Important CIPO Update – Amendments to Canadian Patent Rules

Posted on by Evgenia Apelfield

Canadian Intellectual Property Office (CIPO) just announced that the new amendments to the Canadian Patent Rules to ‘streamline examination’, including excess claim fees, will be coming into effect on October 3, 2022. The changes will include a $100/per claim fee for applications with more than 20 claims and a fee for continued examination after three office actions equal to the original examination fee. The amendments also add steps such as ‘notice of conditional allowance’.

As a result of these changes, we advise our clients to review their patent portfolios to determine which patents have over 20 claims and request examination for these patents before the October 3, 2022 date to avoid paying the access claim fees, as they would apply at the examination stage after this date.

We will follow up this announcement with more comprehensive coverage of the new changes to Canadian Patent Rules – stay tuned!

 

For more information please contact:

Claire Palmer, Ph.D., Senior Patent Agent
T: 613-801-0450
E: cpalmer@mbm.com

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.

Conference Posters and Materials: Beware! They Can Constitute Prior Art

Posted on by Debbie Malek

In the academic world, it is common for researchers to attend and present their findings at conferences. Papers presented will typically end up as part of conference handouts or available online for future use. PowerPoint slides used in presentations are also sometimes published or distributed. Posters are often set up where attendees may view them. Conversations between researchers happen after presentations, and at numerous coffee breaks and networking events. In the publish or perish world of academia, conferences provide one of the best venues to present your ideas and research and meet with like-minded people.

Similarly, in the corporate world tradeshows are often used to show off products and demonstrate their features and capabilities to potential customers. Trade show booths often include demonstration systems, brochures, and marketing presentations that are only available for the two or three days of the show. Copies of brochures and presentations may be saved or may be destroyed afterwards.

Unfortunately, what is good for the sharing of information is often not good for the patenting of inventions that arise from the research and products presented at these conferences. The subject matter of a patent claim must not have been previously disclosed, and the invention must not be obvious to a person skilled in the art or science to which it pertains[1]. Conference presentations, presentation slides, and posters can all be prior art, whether they come from an inventor or someone else, and can prevent you from patenting your inventions.

Posters are an interesting case in that they may often be displayed for just a few hours, be viewed by passersby, and usually do not become part of the published conference proceedings. They are often untraceable or destroyed later. They often will not contain enough information to prevent an invention from being novel, but nevertheless may form part of the state of the art that must be considered when determining if an invention contains an inventive step.

In Biogen Canada Inc. v. Taro Pharmaceuticals Inc., 2020 FC 621, a poster was presented at a conference in Baltimore in 2002, 18 years previous. The poster was available to the court but had only been presented for a short time at the conference, and in the intervening years could not have been found even with a reasonably diligent search. Nevertheless, expert testimony established that the poster was indeed genuine and therefore its contents formed part of the state of the art in 2002 for determining obviousness of the patent claims in question. The poster, together with information found in other sources of prior art, were enough to find the patent claims in question obvious and invalid. This case is interesting since a poster, only presented for a short time at the conference and thereafter not being available, was used to establish the state of the prior art 18 years ago.

In Mediatube Corp. v. Bell Canada, 2017 FC 6 the plaintiff alleged that the defendant’s Fibe TV service could be modified to infringe its patents. Bell argued that all limitations of the relevant patent claims had been disclosed in a number of sources, including brochures and prototype systems that had been presented at the SuperComm tradeshow in June 1998, 19 years previous. Brochures were available to the court. Mediatube argued that the brochure was only disclosed at the tradeshow and could not be considered to have been available to the public as it could not later be found in a reasonably diligent search by a skilled person. With the help of expert testimony, the court decided that the brochures and presentations of the systems, despite only being available for a short time, were part of the state of the art at the time and could be considered when determining the validity of Mediatube’s patent claims.

On the other hand, in Valence Technology, Inc. v. Phostech Lithium Inc., 2011 FC 174, the defendant was challenging the validity of plaintiff’s patents. Phostech asserted that conference publications, presentations, and posters presented twelve years previous were prior art to at least some of the patent claims. The presenter had also had discussions while at the conference. The poster had since been destroyed and could not be presented to the court. When defining the common general knowledge at the key date the judge decided to exclude the presentations, posters, and any discussions that may have happened. Though not stated, this may have been because the poster had been destroyed and that there were no experts to testify to its contents or importance.

It is difficult to determine in advance if a poster will later be found to form part of the state of the art when considering patent validity. For prior art, such as a poster, that may only be presented for a few hours at a scientific or industry conference, it is uncertain whether it can be considered part of the body of prior art of which a person skilled in the art could be said to possess, especially since it may not be found later even through a reasonably diligent search. Like any disclosure, the best practice is to:

1. Review all public disclosures, even those that are short-lived and will be unavailable later.

2. Be careful what kind of information you put on a poster. Try to use more general information on all conference materials if possible.

3. If you must disclose detailed information, restrict any disclosures to individuals or groups in a non-public space under NDA.

4. File a provisional or utility patent application before the event.

5. Review and document what others present. Smartphones make it easy.

Better to be safe than sorry!

If you are considering filing a patent and are worried about your conference/event disclosure, please feel free to contact MBM for a free consultation.

T: 613-567-0762
E: patents@mbm.com

Author: David Fraser, Patent Agent

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.

[1] Canadian Patent Act 28.2 and 28.3. https://laws-lois.justice.gc.ca/eng/acts/P-4/page-10.html#docCont

High Stakes: Protecting Your Cannabis Intellectual Property

Posted on by Debbie Malek

It has been almost two years since the federal legalization of cannabis, and Canada’s legal cannabis market is quickly blossoming into a massive industry. The market is constantly growing with many US states (e.g., Illinois) and Europe embracing regulatory change. Market research predicts that the global legal cannabis market could reach CAD $100 billion by 2027[1].

While medical cannabis has traditionally been a source of intellectual property (IP), legalization is sure to bring an influx of applications in the coming years. Therefore, understanding and deploying your IP toolbox to its fullest potential is the best means of ensuring strong protection of your IP assets. This article will briefly discuss some of the tools that cannabis businesses should consider when creating a robust IP moat around their products and services.

Patents in the cannabis industry can include novel or modified active ingredients, methods for the isolation of novel cannabinoids, novel formulations of active ingredients, genetically modified cells, and the use of compositions comprising cannabinoids for treatment.

In addition to patents, Plant Breeders Rights (PBRs) are an excellent complement and can be used to protect new cannabis plant varieties. PBRs are a form of intellectual property that specifically protects new plant varieties and offers exclusivity in terms of the sale, production, reproduction, import and export of the variety. This protection can be further extended beyond Canada by filing an international application.

While higher life forms are not patentable subject matter in Canada[2], genetically modified cells and methods of producing such cells are patentable[3]. New plant varieties that have been produced by traditional breeding methods are not patentable and as a result, are only eligible for protection under PBR. As such, businesses should take advantage of both regimes by obtaining a patent to protect genetically modified cells and PBRs to extend protection to the resulting plant variety.

In order to be granted protection under PBRs, the variety must meet the following criteria:

  • New: the variety may not have been sold longer than 1 year in Canada and 4 years outside Canada;
  • Distinct: the variety must be distinguishable from varieties whose existence was common knowledge on the date of filing;
  • Stable: the variety must express a stable set of characteristics throughout propagation; and
  • Uniform: the variety must exhibit characteristics that are consistent between plants within the variety.

Industrial designs are another useful tool in your IP arsenal and can be used to protect the three-dimensional features of a shape and configuration, as well as the two-dimensional features (patterns and ornaments) of finished products intended to be sold (e.g., cannabis cigarettes). Once granted, an industrial design offers protection for up to 15 years. Businesses should also be aware that Health Canada has strict regulations surrounding the packaging design for cannabis products.

Trademark registration is another available tool cannabis businesses should employ to protect their brand. It is important to be mindful that, for example, cannabis products or any related service cannot be promoted by depiction of a person, character, or animal, whether real or fictional. For additional information, check out our recent article about how to properly protect your cannabis-related trademarks. Canadian businesses should also be aware that American companies might choose to register their trademarks in Canada due to some difficulty in obtaining a cannabis-related trademark in the US.

Utilizing and deploying the proper tools in your IP toolbox is the best way to maximize the value of your cannabis business. Consult a professional at MBM to discuss how to best protect your IP portfolio.

For more information, please contact:

Poonam Tauh, Partner, Patent Agent
T: 403-800-9018
E: ptauh@mbm.com

Co-author: Carl Farah, Law Student

 

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.

[1] https://www.grandviewresearch.com/press-release/global-legal-marijuana-market

[2] Harvard College v. Canada (Commissioner of Patents), 2002 SCC 76.
[3] Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34.

 

Almost 2 Years Post-Cannabis Legalization – A Comparative View of the Budding Industry Across Canada

Posted on by Debbie Malek

For budding cannabis enterprises in Canada, navigating the legal and regulatory regimes pose unique challenges. This article will briefly discuss the federal cannabis framework and delve into the various provincial frameworks adopted across Canada for the recreational sale of cannabis.

The Cannabis Act (the “Act”) came into force on October 17, 2018, and legalized the sale, distribution and consumption of recreational cannabis across Canada. Exactly one year later, the second wave of cannabis legalization introduced Cannabis 2.0 products to the marketplace. Cannabis 2.0 products include edibles, topicals, vape pens and beverages. The Act gives the Canadian federal government the power to regulate the cultivation, processing and sale tracking of cannabis. It sets the minimum age of consumption at 18 years old and allows for the possession of up to 30 g of cannabis per individual. In concert with the provinces, the federal government has the authority to regulate road safety, impaired driving, regulatory compliance and taxation. The federal government is also responsible for establishing regulations surrounding the branding, labelling and marketing of cannabis.

In response to the Act, each province has also adopted its own framework for recreational cannabis. The provinces are permitted to strengthen, but not weaken, the federal legislation and are responsible for regulating the age of consumption, retail sales, possession limits, advertisements and home cultivation, amongst other aspects. Here, we present an overview of the regulatory schemes for recreational cannabis of each province.

 

The Maritimes

St. John’s, NL will famously be remembered as the location of the first legal sale of recreational cannabis in Canada. The Maritime Provinces have mostly adopted a legislative monopoly for the retail of recreational cannabis with the exception of Newfoundland and Labrador, which has chosen to implement a mixture of the public and private models. New Brunswick has announced that due to disappointing sales numbers, it will accept takeover bids for its retail operations.[1] The province hopes this switch to private retail will energize the private sector and maximize benefits for taxpayers. To order cannabis online in Nova Scotia, consumers must first visit a brick-and-mortar store and obtain an online access code by showing valid proof of age. This age verification measure is intended to prevent minors from browsing the website. In light of the recent illnesses associated with vaping, Nova Scotia has banned the sale of flavored cannabis vaping products.[2] Newfoundland and Labrador has taken a stricter approach to cannabis vaping products by banning their sale entirely.[3]

 

The Territories

Both the Northwest Territories and Nunavut have implemented a legislative monopoly of the retail sale of recreational cannabis while the Yukon has opted for a mix of the public and private model. The Yukon is in the process of selling its provincially owned physical stores to the private sector but plans to retain online store.[4] The Nunavut crown corporation operates entirely from within the provincial government via a special revolving fund that sees its profits transferred back to the government at the end of each year. This approach ensures that the profits of legalization are directly put to work for the taxpayers. Interestingly, there are no physical stores in Nunavut and customers must rely on two territory approved agents for online purchases.

 

Ontario

Ontario had initially planned to implement a government monopoly, which would have established online and physical points-of-sale. This plan was abandoned, and it was decided to instead let the private sector run the brick-and-motor stores. These last-minute changes meant that stores were not ready by legalization and customers had to rely exclusively on the online store. The Alcohol and Gaming Commission of Ontario (AGCO) is the regulator in charge of licensing private retailers throughout the province. In response to a slow rollout of retail stores, the province has cancelled its lottery system for awarding licenses and will instead open up applications and issue up to 20 store authorizations per month. Private retailers must apply and obtain a Retail Operator License and a Retail Store Authorization from the AGCO. The Ontario Cannabis Store, which runs the online store, is the exclusive wholesaler to private retailers. As of this article, roughly 500 applications have been submitted to the AGCO.

 

Quebec

Quebec decided to implement a legislated monopoly on the sale of recreational cannabis. The Cannabis Regulation Act explicitly authorizes the Société Québécoise du cannabis (SQDC), a subsidiary of the Société des alcools du Québec (SAQ), as the sole entity in charge of regulating recreational cannabis sales. It was decided to increase the minimum age of consumption to 21, the highest in the country.[5] Quebec has also banned the home cultivation of cannabis plants for personal use. To protect children from the risk of inadvertent consumption, the Quebec government has decided to ban cannabis chocolates, sweets, and desserts.[6] In the face of a dramatic increase in vaping-associated lung illnesses south of the border, Quebec has banned cannabis vaping products.[7]

 

The Prairies

Both Manitoba and Saskatchewan have adopted a private model for the recreational sale of cannabis while Alberta opted for a public and private model. To the surprise of many, Alberta has become the poster child of a successful recreational cannabis rollout; boasting nearly 500 licensed retailers.[8] Alberta is also home to Aurora Cannabis which owns and operates an 800,000 square foot growing facility, one of the largest in Canada.[9] Edmonton will soon be home to the largest manufacturing plant in Canada for the production of cannabis gummies.[10] Saskatchewan and Ontario are currently the only two provinces that allow private retailers to deliver cannabis directly to consumers.

 

British Columbia

British Columbia (BC) has adopted a public and private model for the sale of recreational cannabis whereby the provincially run Crown corporation operates online and physical points of sale and the licensed private retailers operate physical stores. Interestingly, British Columbia was allegedly, Canada’s largest illicit market of recreational cannabis prior to legalization. Commentators who were hoping that BC’s large illicit market would translate into a strong retail presence were surprised when BC posted one of the worst sales records amongst the provinces one year into legalization.[11] Indeed, it appears that a substantial portion of the current dispensaries throughout the province operate without a license.[12] In order to protect the youth from vaping, the province has recently passed new regulations which prohibit nicotine-cannabis vaping products.[13]

 

Conclusion

Table 1 below provides a quick glance at the differences in the regulatory frameworks adopted by each province. It is still too early to tell which provinces will come out on top and which will have to tweak their regulatory frameworks to reflect emerging trends and public policy. Market stabilization could take many years and while the illicit market will not disappear overnight, it is important that federal and provincial governments apply pressure to squeeze it out. Moving forward, it will be important for the provinces to reflect on whether their chosen regulatory frameworks are actually achieving their intended objectives. Navigating these regulatory regimes can be daunting. Instead of taking this journey alone, we recommend you contact one of the legal professionals at MBM. Interested businesses should also check out our recent article that details how to protect your cannabis related trademark.

  

For more information, please contact:

T: 613-567-0762
E: patents@mbm.com

Authors: Osman Ismaili, Patent Associate, and Carl Farah, Law Student

 

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.
[1] https://www.cbc.ca/news/canada/new-brunswick/cannabis-pot-new-brunswick-companies-1.5424992
[2] https://www.cbc.ca/news/canada/nova-scotia/cannabis-vape-health-flavour-ban-1.5387308
[3] https://financialpost.com/cannabis/cannabis-health/newfoundland-labrador-bans-sales-of-cannabis-vapes
[4] https://www.cbc.ca/news/canada/north/cannabis-retail-stores-yukon-1.5478599
[5] https://www.cbc.ca/news/canada/montreal/legal-age-cannabis-edibles-1.5399211
[6] https://www.cbc.ca/news/canada/montreal/cannabis-regulations-quebec-legal-1.5223723
[7] https://financialpost.com/cannabis/cannabis-health/newfoundland-labrador-bans-sales-of-cannabis-vapes
[8] https://aglc.ca/cannabis/retail-cannabis/cannabis-licensee-search
[9] https://www.cbc.ca/news/canada/edmonton/aurora-sky-cannabis-airport-1.4856279
[10] https://edmontonjournal.com/news/local-news/edmonton-set-to-be-home-to-largest-cannabis-gummy-facility-in-canada
[11] Statistics Canada, The Retail Cannabis Market in Canada: A Portrait of the First Year, Catalogue no. 11‑621‑M (Ottawa: Statistics Canada, 19 June 2020).
[12] https://www.cbc.ca/news/canada/british-columbia/cannabis-pot-shops-illegal-vancouver-1.5616877
[13] https://www.cbc.ca/news/canada/british-columbia/vaping-laws-update-bc-1.5656157

Don’t Let Your Trademark Go Up In Smoke: “smoking is cool” Branding Is Prohibited Under Canada’s Cannabis Act

Posted on by Debbie Malek

In Canada, trademark registration is an important form of intellectual property protection for brand-owners as it confers the right to exclude others from using confusingly similar trademarks across Canada. Having said that, brand-owners in the cannabis space looking to register their name or logo as a trademark face a unique challenge; a trademark registration does not mean the trademark itself can be lawfully used in association with cannabis products, accessories, or services in Canada under the Canadian Cannabis Act, SC 2018, c 16 (“Cannabis Act”).

BRANDING RESTRICTIONS UNDER THE CANNABIS ACT

The Cannabis Act has placed strict regulations surrounding the sale and promotion of cannabis products, accessories, and services for the purposes of protecting Canadians, in particular young persons. Since the legalization of cannabis, many Canadians have become familiar with strict packaging restrictions, similar to those required in the sale of tobacco products. What may be less known is that the Cannabis Act imposes rigorous branding and promotional restrictions which go beyond the actual packaging.

Of particular concern with respect to the selection and use of a trademark, cannabis products or any related service cannot be promoted:

  • in a manner that could reasonably be believed to be appealing to young persons;
  • by means of the depiction of a person, character or animal, whether real or fictional; or
  • by presenting it or any of its brand elements in a manner that associates it or the brand element with, or evokes a positive or negative emotion about or image of, a way of life such as one that includes glamour, recreation, excitement, vitality, risk or daring.

(see section 17 of Canada’s Cannabis Act).

Similarly, each province may also have additional restrictions related to cannabis branding. Quebec, for example, a particularly strict province with respect to cannabis branding, is governed under a similar provision which restricts promotion of cannabis in such a way that associates the use of cannabis with a particular lifestyle (see section 53(3) of Quebec’s Cannabis Regulation Act.)

CANNABIS TRADEMARKS SHOULD BE CHOSEN CAREFULLY

In light of the above, careful consideration must be taken when selecting the name and/or logo to be used as a trademark in association with cannabis-related products and services in Canada, as non-compliance can result in a fine as high as $5 million or up to 3 years imprisonment. Therefore, savvy cannabis businesses should recognize these limitations and work within these restrictions when developing a commercial strategy in order to distinguish their brand.

Budding cannabis entrepreneurs should also keep in mind that in addition to the Cannabis Act, trademark applications for registration must be in compliance with the regulations imposed by Trademarks Act and Trademarks Regulations. For instance, it remains to be seen whether a cannabis trademark can be restricted under section 9(1)(j) of the Trademarks Act for being scandalous, obscene or immoral in such a way that would offend a significant segment of the Canadian public. Ideally, it is recommended that cannabis brand-owners seek legal counsel before using or applying to register a trademark to ensure that they are set up for commercial success with a brand strategy that falls within the purview of lawful promotion and branding of cannabis.

 

For more information please contact:

Deborah Meltzer, Trademark Agent & Associate Lawyer
T: 613-801-1077
E: dmeltzer@mbm.com

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.

New LCBO Subsidiary to Control Cannabis Sales in Ontario

Posted on by Debbie Malek

In response to the imminent legalization of recreational use of cannabis in Canada as proposed by the Parliament in Bill C-45, the Cannabis Act, the Ontario government released a detailed plan on distribution system and usage regulations of recreational marijuana in a document titled “Ontario’s Safe and Sensible Framework to Federal Cannabis Legislation” on September 8, 2017.

The centerpiece of this proposal is to create a subsidiary of the Liquor Control Board of Ontario (LCBO) to hold monopoly over cannabis retail and online sales in Ontario. This approach, as Attorney General Yasir Naqvi said, will focus on ensuring “a safe and sensible transition” to federal legalization. However, the LCBO operated subsidiary will be the single buyer of marijuana producers and the exclusive distributor to consumers. This inevitably puts it at a dominant position to make decisions on market entrance credentials, quality controls, retail prices and geographical accessibility. Private investors will not be allowed to open and operate cannabis retail stores and consumption premises in Ontario for the time being. The monopoly will also make smaller marijuana producers difficult to compete with powerhouses as Aphria Inc. (TSX: APH) and Canopy Growth (TSX: WEED), two of the country’s biggest marijuana producers.

WHAT ARE THE KEY ELEMENTS OF THE PROPOSED FRAMEWORK?

  • The LCBO will establish a new subsidiary to exclusively oversee the distribution of cannabis in Ontario through retail stores physically separate from existing LCBO liquor stores and an online order service.
  • Approximately 150 retail stores will be opened by 2020, including 40 in July 1, 2018 and another 80 by July 1, 2019. The stores will run similar to tobacco sales as behind-the-counter model and there will be no self-service.
  • The locations of these retail stores will be determined in consultation with municipalities. The guideline is to target areas with illegal marijuana dispensaries to crush black market.
  • The LCBO operated website for online orders will be available by July 1, 2018. It will make recreational marijuana accessible to residents far away from retail stores.
  • Pricing and taxation decisions will come later. The anticipated profits will be modest, especially at the beginning stage with necessary infrastructure and personnel training costs.
  • The use of recreational marijuana will only be permitted in private residences. The consumption of any form of recreational cannabis in public places, workplaces or when inside a motor vehicle will be prohibited.
  • The Ontario Government will explore the feasibility and implications of introducing designated establishments where recreational cannabis could be consumed.
  • Cannabis dispensaries currently operating in Ontario are not and will not be legal retailers. These shops will be shut down through a coordinated and proactive enforcement strategy with municipalities and police forces.
  • Ontario will set the minimum age for possessing or consuming recreational cannabis at 19, same as the current alcohol restrictions. The Government of Canada in Bill C-45 proposed the age of 18. Other rules and restrictions for distribution of cannabis will be strictly in keeping with federal rules and regulations.

HOW WILL THIS FRAMEWORK AFFECT CANNABIS INVESTORS, PRODUCERS AND CONSUMERS?

  • The safety concern is legit and marijuana should still be a tightly controlled substance after its legalization. However, the proposed monopoly model may not benefit interested parties except the Ontario government, LCBO and labour unions. This framework may deter potential investors, hamper smaller producers and drive consumers to black market.
  • Private-owned retail stores and cannabis lounges will not be allowed in Ontario according to the proposed framework. For investors, the investment opportunity is limited to marijuana production. Therefore, if some other provinces and territories present less stringent rules and regulations, Ontario would be less attractive to potential investors.
  • For marijuana producers, the monopoly model strongly favours giant corporations who have financial resources, lobbying power and business expertise to strike a supply contract with LCBO. Smaller producers may face obstacles to put their products on the shelves of legal retail stores, same as what happened to small craft brewers in Ontario under the current alcohol distribution monopoly.
  • The shut down of currentprivate-owned stores selling cannabis and business premises will make many people lose the only source of income. If the new LCBO subsidiary is not able to accommodate these people into the system, many of them may not leave cannabis business and choose to go underground. That, in return, will significantly increase the law enforcement costs and endanger the public.
  • For consumers, forty stores at the beginning stage made accessibility a big concern, especially for those who are unable to travel without assistance and having difficulty to put an online order. Furthermore, if the retail prices in legal stores are significantly higher than the black market, many consumers may simply pick the cost-effective way. It is hard for the law enforcement to tell illegal marijuana products from those purchased from legal retail stores

 

For more information, please contact:

Randy Marusyk, Co-Managing Partner
T: 613-801-1088
E: rmarusyk@mbm.com

Co-Author: Yang Wang

 

This article is general information only and is not to be taken as legal or professional advice. This article does not create a solicitor-client relationship between you and MBM Intellectual Property Law LLP. If you would like more information about intellectual property, please feel free to reach out to MBM for a free consultation.
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