Pot Retail Strategy Could Pivot to Franchise Model

 

Canadian marijuana industry’s retail strategy could most likely pivot to a franchise model, a report in the Financial Post said.

The report said that the word ‘affiliate’ in Ontario law could open new possibilities beyond the legislated one-store model since the legislation does not provide for a definition of “affiliate.”

Looking to other legislation that governs corporations in Ontario (the Business Corporations Act), it is clear that the operative element of an “affiliate” is control. In other words, if one corporation is controlled by another corporation, those two corporations will likely be deemed to be affiliates of one another. As a result, while we await clarity from the government on the meaning of “affiliate,” LPs are exploring whether they can maintain a minority interest in corporations that own retail stores, thereby not controlling them or being an affiliate of them, the report said.

This essentially means that cannabis companies will have franchise shops. The Canadian Franchise Association recently issued an alert to its members, stating that “the CFA applauds these pro-business initiatives and welcomes these changes that are sure to ease the burden on businesses, and therefore franchising, in Ontario.”

Cannabis laws are evolving faster than we can keep up with them, and what may seem like the best option today may not be the case tomorrow if the situation is different.

The Financial Post article also said B.C., on the other hand, looks to have franchising squarely in mind. It prohibits more than eight retail store licences to be issued to a company, or a group of companies, including where they can influence or affect the activities of other retail stores.

While B.C. does not really call out franchises by name, it seems likely that the intent was to cap retail stores on a per-brand basis, and the precise wording is open to interpretation.

Experts have stated there are numerous advantages and disadvantages to franchising, from both business and legal perspectives, but it may be the most viable option for scaling a retail cannabis strategy since the numbers of stores a licensed producer can own are capped and there are no restrictions in Ontario for franchising stores to independent owner-operators.

The recently released Bill 36 seeks to amend various pieces of provincial legislation and enact one new statute in relation to the use and sale of cannabis in Ontario. The Canadian cannabis industry which was waiting to know what would happen next may have some answers now. After the law is enacted, Ontario laws would limit Licensed Producers s from owning and operating more than one retail store, and that store must only be at the LP’s production facility.

While there are many questions that are answered, there are many more which remain unanswered, the cannabis industry for answers.

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