Ontario Makes a Case for the Cannabis Franchise


Oct 12, 2018

Keeping up with all the news in the cannabis industry in Canada today is challenging with all the sudden shifts. This is certainly true in Ontario, where the provincial government recently upended the planned cannabis retail sale through government outlets approach and replaced it with a framework for private sale.


Ontario's Bill 36, which was just released, will amend pieces of Ontario's legislation and institute a new statute regarding the sale and use of cannabis in the province if enacted. One of the biggest areas of confusion leading up to the release of this bill was whether Ontario would enact limits on retail store licenses and if so, how. Instead, the bill proposes directly restricting the licensed producers (LPs) of cannabis. Once this bill is enacted, the province's laws would limit a producer from owning and running more than a single retail store, and that store would have to be at the production facility already operated and owned by the LP.


Naturally, this has dashed the retail plans of many LPs, who were aiming to own more than one retail-only store in Ontario. However, it does make franchising a more attractive and viable option. Scaling a retail cannabis business may be tough without franchising as there are going to be caps on LPs that would, in theory, not apply to its independent franchisees.


On top of the structure necessity, there are good business reasons for franchising in the Ontario cannabis sector. Since a brand may not be able to differentiate by price due to government controls and the product packaging design has been severely limited, the retail experience will be the method of distinction for many Ontario consumers.


Currently, the legal teams behind LPs are taking a close look at Bill 36's language to see if there is a way to organize a business without franchising when it comes to retail stores. The legislation does place the one-store-for-each-LP cap on the LP and its "affiliates," but it is currently unclear what constitutes an affiliate.


The cannabis industry is likely to boom in Canada as it has elsewhere, but it's too early to tell exactly how the retail space will play out and evolve. For LPs going forward and for entrepreneurs who want to explore this new sector, franchising may just be the way of the near future.