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January 15, 2018

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Page 8 January 15, 2018 • Law Times www.lawtimesnews.com Government-run pot stores coming BY SHANNON KARI For Law Times T he Ontario govern- ment is promising to open 40 government- run cannabis stores in more than a dozen municipali- ties once federal legislation is enacted later this year to permit the sale of the product for recre- ational use. That number is scheduled to rise to 80 stores and online sales by the summer of 2019, increas- ing to 150 stand-alone govern- ment operations in the following year. Even then, the retail options will be a fraction of the existing network of LCBO and Beer Store outlets in Ontario to sell a prod- uct that a recent study for the federal government estimated could generate nearly two-thirds of the existing annual revenues for beer and wine. For municipalities in Ontar- io, the decision to have the retail operations run by the provincial government has generally been well received. But there are con- cerns over the added costs in- volved in ensuring compliance with the new provincial laws, including enforcement against any illegal retail outlets that try to remain open. To help cover these costs, municipalities are asking for a share of the tax rev- enue that will be generated once recreational use is legalized. The locations of the govern- ment-operated stores will be up to the province, but that should not be an issue for municipali- ties, says Mary Ellen Bench, city solicitor for the City of Missis- sauga. "We don't see it as any differ- ent than an LCBO. For zoning purposes, it will be the same," she says. "Our biggest challenge is go- ing to be funding enforcement by police and bylaw officers," says Bench. The federal government has announced money to go to the provinces for enforcement training of police and bylaw of- ficers, including $161 million for Ontario. What is still in discus- sion, though, is how much of that funding may be turned over to municipalities, notes Bench. The provinces will also re- ceive 75 per cent of the revenue from an excise tax of at least $1 per gram of marijuana sold or 10 per cent of the retail price. As well, there will be HST revenue from cannabis sales. No amount has been set aside for municipal- ities as of yet. In contrast, in the United States, where municipalities have more taxing power, the city of Denver imposes a tax rate of 7 per cent, in addition to state taxes, on the sale of marijuana for recreational use. Lynn Dollin, president of the Association of Municipalities of Ontario, stated in a speech to a legislative committee late last fall that policing costs alone are estimated to increase by a total of $10 million annually in the initial 14 municipalities where a government outlet will open this year. She called on the province to be obligated to pay these costs. The extent of the black mar- ket after the government stores are open is hard to predict, says Bench. "I am not expecting it to get any worse," she suggests. How- ever, many dispensaries provid- ed edible marijuana products, which will not be available in government stores until 2019. There are also potential is- sues with home production, where individuals will be per- mitted to grow up to four plants or grow edibles. As well, there is the increasing popularity of a marijuana concentrate known as "shatter" that is much more potent. The process requires the use of a solvent to extract the cannabinoids, which could be a potential fire hazard, Bench says. The province has indicated there will be four store locations located in the Greater Toronto Area and Hamilton. In Toronto alone, there were more than 100 dispensaries operating in the fall of 2016 before a police crack- down, according to city statis- tics. The size of the consumer market coupled with the rela- tively small number of govern- ment stores that will open ini- tially means that there are still likely to be illegal operations selling cannabis, says Benjamin Kates, a civil litigator at Stock- woods LLP, who has previously acted for dispensaries. "I don't think they will be op- erating as openly as they have re- cently. But they will continue to fill whatever gaps there are. If the government's plan is to succeed, it needs to get rid of the black market," says Kates. The investigation of dispensa- ries in Mississauga is based on a formal agreement of co-operation between the city and police. The new framework, though, could mean increased responsibilities for bylaw officers in terms of en- suring individuals comply with the laws on where marijuana can be consumed. The province's new legis- lation permits individuals to smoke marijuana only inside a private residence, with some ex- emptions for authorized medi- cal users. "It will be treated very much like [tobacco] smoking," says Bench. At the same time, there are limits on what municipalities can do in terms of enforcing rules such as where cannabis can be consumed. "Most bylaw enforcement is complaint-based. We won't have teams of inspectors out there," says Bench. The one area where the law might not still be entirely settled is the sale of cannabis to autho- rized medical users, says Kates. Under the current medical marijuana scheme, authorized users must obtain cannabis by mail from licensed producers. "In the realm of legal chal- lenges, I think it is still on the table," says Kates regarding whether medical dispensaries have a right to operate in mu- nicipalities. LT FOCUS ON Cannabis Law Mary Ellen Bench says the locations of government- operated stores that sell marijuana will be up to the province, but that should not be an issue for munici- palities. Matt Maurer Lawyer ■ Chair, Cannabis Law Group 416.369.4322 ■ @MattPMaurer ■ mmaurer@mindengross.com canadacannabislegal.com ■ @CanCannaLegal Minden Gross llp barristers & solicitors 145 King Street West, Suite 2200 Toronto, ON M5H 4G2 T: 416.362.3711 F: 416.864.9223 @MindenGross www.mindengross.com Cannabis Law Group Working in partnership with clients to achieve creative and effective solutions for business. Untitled-2 1 2018-01-10 10:29 AM

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