Interpreting Highs and Lows: The Impact of Cannabis Regulations on Real Estate: Volume I

Aug 01st 2023

Cannabis Considerations in Commercial Real Estate: Volume 1

The advent of legalized recreational cannabis in Canada has heralded a new chapter in the commercial real estate domain. This development has left stakeholders, such as property owners, landlords, tenants, lenders, and those aspiring to invest in real property, grappling with a myriad of questions and considerations. This article aims to dispel some of the uncertainty by providing a comprehensive overview of the implications and challenges presented by the intersection of real estate and cannabis laws.

Understanding Cannabis Regulations in Ontario

Our discussion will primarily revolve around commercial real estate in Ontario, although we will also touch upon federal regulations and considerations applicable across Canada. Key aspects we will explore include:

• Understanding the complex labyrinth of rules and regulations that govern the cannabis industry.
• Grappling with tenants’ rights and restrictions and landlords’ rights concerning the use, cultivation, and sale of cannabis on leased premises.
• Gaining insights into buying properties specifically for producing or selling cannabis.
• Exploring financing avenues for commercial real estate that caters to the cannabis industry, and the nuances of granting security over such property-related assets.
• Procuring a title insurance policy for properties involved in the production, distribution, and sale of cannabis.

It’s essential to remember that the cannabis landscape in Canada is complex. While medicinal cannabis, legalized in 2001, continues to be subject to a different set of rules, recreational cannabis, legalized in 2018, falls under a combination of federal, provincial, and municipal regulations.

Join us as we delve into this fascinating crossroads of commercial real estate and cannabis laws. At Nazarian Law, we aim to provide you with the insights and knowledge you need to navigate this evolving landscape successfully.

Decoding the Federal Cannabis Act: Implications for Commercial Real Estate

The federal Cannabis Act provides the framework for the governance of cannabis in Canada. It stipulates the rules regarding:

• The minimum legal age for recreational cannabis consumption.
• The assortment of cannabis products that are legally available for sale. As of October 17, 2018, specific quantities of dried and fresh cannabis, cannabis oils, plants, and seeds were deemed legal. The Act expanded on October 17, 2019, to legalize edible cannabis, cannabis extracts, and cannabis topicals. These products became potentially available for retail sale on December 16, 2019.
• Requirements for product packaging and labelling.
• Limitations on promotional activities, displays, and dispensing of cannabis products.

The Cannabis Act has laid the groundwork for:

• Legalizing public possession of 30 grams or less of dried cannabis or equivalent other legal cannabis products for individuals 18 years or older, while possession beyond this limit remains a criminal offence.
• Legalizing cultivation of up to four cannabis plants within private residences, while growing more plants or having them in public places is considered illegal.
• Establishing licensing regimes and requirements for the commercial production of cannabis and its wholesale sale to provincial and territorial distributors.
• Permitting provinces and territories to establish their unique regulatory frameworks for the distribution and sale of recreational cannabis to persons 18 years of age or older.
• Retaining offences for production, distribution, or selling of cannabis outside of the regulated cannabis industry, barring a few exceptions.
• Continuing a separate legal system for cultivating and selling medicinal cannabis to medical patients.

Under the Cannabis Act, the federal government licenses and regulates the cultivation, processing, and production of cannabis products for commercial purposes. Each province and territory is responsible for controlling the distribution and sale of recreational cannabis within its jurisdiction. Importantly, only cannabis products cultivated or produced by a federally-licensed producer may be legally sold or purchased within the provinces and territories.

Understanding Ontario’s Cannabis Regulations: A Guide for Commercial Real Estate Stakeholders

Each province and territory in Canada has its own specific regime for the distribution and sale of recreational cannabis. For instance, Saskatchewan relies on private retailers for cannabis sales, Quebec utilizes a government-operated entity, and British Columbia employs a blend of both public and private retailers.

Every province and territory has the authority to introduce more restrictive regulations, complementing those in federal legislation. These include:

• Reducing the quantity of cannabis permissible for personal recreational possession and consumption.
• Instituting additional rules for homegrown recreational cannabis.
• Limiting the consumption of recreational cannabis in public spaces.
• Increasing the minimum age for cannabis possession and consumption.

Ontario’s cannabis regulations are shaped by several legislative acts, including the Cannabis Control Act, 2017, the Ontario Cannabis Retail Corporation Act, 2017, the Cannabis Licence Act, 2018, and the Cannabis Taxation Coordination Act, 2019. Together, these pieces of legislation:

• Establish the Ontario Cannabis Retail Corporation (OCRC), a provincial public retailer for the online sale of cannabis via the Ontario Cannabis Store.
• Limit the sale, use, possession, and distribution of recreational cannabis to individuals aged 19 or older.
• Prohibit cannabis use in specific indoor settings, such as schools or hospitals, and public outdoor areas like sports fields, while permitting use under defined conditions in many indoor and outdoor areas. These restrictions mirror those on tobacco use.
• Govern the consumption, smoking, and vaping of cannabis in public as per the Smoke-Free Ontario Act, 2017.
• Introduce new laws against drug-impaired driving.

As of April 1, 2019, Ontario has laid the groundwork for the private retail of cannabis products from brick-and-mortar stores via General Regulation, O. Reg. 468/18. In this model, only licensed private retailers can legally sell recreational cannabis from physical stores, and only the OCRC can sell it online for home delivery.

The Alcohol and Gaming Commission of Ontario (AGCO) licenses private cannabis retailers and stores under the Cannabis Licence Act, its regulations, and the Registrar’s Standards for Cannabis Retail Stores established by the AGCO. All licensed cannabis stores:

• Must not be located closer than 150 metres to a school.
• Must be situated in a self-contained building separate from other commercial establishments, with exceptions for certain common areas and automated teller machines.
• Can only sell cannabis, shopping bags, cannabis accessories (as per the federal Cannabis Act), and since December 12, 2019, other items that relate directly to cannabis or its use, excluding any food or drink.

All cannabis sold by licensed private retailers in Ontario must be purchased from the OCRC, the exclusive wholesale supplier of legal recreational cannabis in the province.

For more details on Ontario’s cannabis licensing requirements, refer to the Ontario government’s publication, “Cannabis Legalization“, and the AGCO’s guide, “Cannabis, Private retail licensing and regulation“.

Municipal Cannabis Laws Overview

Municipalities, as per provincial statutes, have the power to regulate land use through zoning by-laws. In the context of cannabis regulation, they strive to avoid negative land use effects from the sale or production of recreational cannabis, mainly through zoning and land development regulation. However, the degree to which they can regulate cannabis facilities depends on the province or territory they’re in.

In Ontario, the Cannabis Licence Act (CLA) section 42(1) doesn’t allow municipalities to enact business licensing by-laws to govern retail cannabis sales. In contrast, Calgary in Alberta mandates a municipal business licence for provincially licensed retailers.

Public cannabis consumption in Ontario is chiefly regulated by the Smoke-Free Ontario Act (SFOA), and municipalities can enact more restrictive by-laws, as demonstrated by Markham By-law 2018-135.

Zoning for Cannabis Production Facilities in Ontario

The federal government issues licenses for cannabis growth, processing, and production, but compliance with municipal zoning by-laws is not a prerequisite under the federal Cannabis Act. No federal or Ontario laws currently preclude the application of municipal zoning by-laws to cannabis production facilities. Some municipalities have started using zoning by-laws to govern the location of medicinal cannabis production facilities.

As such, various municipalities are revising their zoning by-laws to accommodate cannabis production and are defining strategies for how recreational cannabis production fits into their laws.

Zoning for Cannabis Stores in Ontario

Ontario allowed the private retail of cannabis products from physical stores starting from April 1, 2019. However, under section 42 of the CLA, municipalities are prohibited from passing zoning or site plan control by-laws that regulate land use based on whether it is used for selling cannabis. This power lies with the provincial Alcohol and Gaming Commission of Ontario (AGCO), which issues Retail Store Authorizations.

In Ontario, the number of Retail Store Authorizations and the locations of licensed cannabis stores are regulated by section 9 of O. Reg. 468/18. Over time, the number of possible Retail Store Authorizations was increased from 25 to 93 due to a phased approach to licensing retail cannabis stores in the province. This approach was due to a shortage in the supply of cannabis from federally licensed producers.

However, Ontario municipalities could opt out of allowing any brick-and-mortar retail stores within their jurisdiction. This opportunity was open until January 22, 2019. Municipalities that opted out could later opt in by passing a resolution, but they cannot opt out again as per section 41 of the CLA.

Overview of Private Cannabis Regulations

Private rules and regulations may also govern the production, sale, and use of recreational cannabis at certain avenues. These can stem from:

• Condominium corporation’s declaration, by-laws, or rules, if the location is a condominium unit or part of the common elements. 
• Lease agreement or building rules made under the lease, if the location is leased (refer to Cannabis and Leasing for more details). 
• Any restrictive covenants registered on the property title or other title instruments.

These private regulations must adhere to the human rights code in the province or territory and refrain from discrimination based on identified grounds, such as disability under the Ontario Human Rights Code, R.S.O. 1990, c. H.19. These private rules might necessitate a balance of different parties’ human rights. To adhere to human rights legislation, prohibitions on usage might need to be adjusted.

Concluding Remarks

In conclusion, the regulatory landscape surrounding cannabis in Ontario is a complex interplay of federal, provincial, and local laws, as well as private regulations. The diverse and evolving nature of these regulations reflects a continued effort to balance societal, economic, and health-related considerations.

From the Federal Cannabis Act, the Cannabis Control Act of 2017, and Ontario’s Cannabis Retail Corporation Act of 2017, to private condominium or lease agreement regulations, each level of governance plays a crucial role in controlling cannabis possession, consumption, production, and sale.

Despite the comprehensive legal framework, gaps and uncertainties remain that necessitate continued updates and revisions to current laws. To that end, staying informed and compliant with the existing laws and regulations is paramount for businesses and individuals alike.

As we move forward, it’s clear that the cannabis regulatory environment is a dynamic space. Next week, we will delve deeper into this intricate field by discussing Cannabis and Commercial Leasing, highlighting how leasing agreements interact with the laws governing cannabis usage, distribution, and retail operations. This will provide another essential lens through which to understand and navigate the evolving cannabis sector in Ontario.

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Disclaimer

The content provided in this article or blog is for informational purposes only. It is not intended to constitute legal advice or to replace the advice of a qualified legal professional. While we strive to provide accurate and current information, the law is complex and constantly changing, and each person’s circumstances are unique. Therefore, you should not rely on this information as a substitute for professional legal advice. This information does not create an attorney-client relationship between you and our law firm. We strongly recommend that you consult with a qualified attorney in your jurisdiction to understand your legal rights and obligations. Always seek legal advice before making any decisions that may impact your legal rights or obligations.