AGCO Update for Licensed Cannabis Retailers

Cannabis Retailers
Kalpna Mistry

Kalpna Mistry

AGCO Update for Licensed Cannabis Retailers

A new announcement has come from the Alcohol and Gaming Commission of Ontario (AGCO) introducing information on the soon-to-be updated rules around inducements between licensed producers and cannabis retailers in Ontario.

The AGCO has made available a document outlining the new additions to provincial rules governing how cannabis producers and cannabis retailers can operate and interact. The new rules will come into effect on June 30, 2022. 

Up until now, the rules around inducements have been vague and generalized, leaving room for a lot of interpretation. However, the updated standards generally “prohibit licensees from entering into agreements for items, benefits, payments, or services with licensed producers (LPs) and their representatives with the purpose to promote or increase the sale of a particular product by the licensee or their employees. In other words, licensees are not allowed to ask for or accept material inducements.

Inducement Standards for Cannabis Retailers 

The standards on inducements provide that licensed cannabis retailers may accept or enter into agreements with an LP or their representative for items, benefits, or services of “nominal value”. 

The guidance document provided indicates that nominal value items, benefits, or services, unlike financial or material inducements, are those that are of inconsequential value. This can include items such as T-shirts, hats, lanyards, or inexpensive cannabis accessories.

The new rules on inducements also allow licensed cannabis retailers to accept items, benefits, or services that are related to education or training. This could include training/education materials, modest meals, refreshments during the education or training, and even cannabis product samples that are directly related to education or training.

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With regards to licensed cannabis retailers selling or sharing personal customer information, this continues to be prohibited by Canadian law, unless proper consent is provided. Licensed cannabis retailers may enter into agreements with LPs for the sale of data for business intelligence purposes, however, any fee charged by the cannabis retailer should be at fair market value. 

Financing and lease agreements, as well as franchise agreements between cannabis retailers and LPs or their affiliates, are permitted however these agreements must not:

  1. Define the amount of product from the licensed producer or its affiliates that must be offered for sale at the retail store
  2. Require a defined amount of display space in the retail store to be dedicated to products from the licensed producer or its affiliates
  3. Provide merchandising, marketing, or promotional activities to the licensed producer or its affiliates or
  4. Restrict the ability of the licensed producer or its affiliates to sell its product at other retail stores, or the ability of the licensee to sell products from other licensed producers or their affiliates

AGCO General Prohibitions List

Furthermore, the AGCO clearly sets out a list of general prohibitions on agreements for items, benefits, or services between licensed cannabis retailers and LPs and their representatives. This includes:

  • Sale of in-store or online advertising space
  • This includes the cannabis retailer requiring or receiving payments from an LP for advertising of the LP’s business
  • Licensed cannabis retailer co-branding advertisements with LPs (i.e., sharing the cost of content development for the purposes of marketing and promotional activities)
  • Product features in-store or online
  • Licensed cannabis retailers requiring or receiving payments from LPs for advertising space, preferred shelf placement of products, or promotional activities either in-store or online
  • Cannabis for sensory display purposes
  • Licensed cannabis retailers receiving cannabis for sensory display purposes from LPs are no longer allowed. Retailers will need to purchase any cannabis being used for sensory display purposes.
  • Fixtures or physical assets
  • Licensed cannabis retailers receiving physical assets (e.g., branded and non-branded refrigerators, televisions, computers, projectors, monitors for product listing boards, appliances such as rosin presses) from LPs
  • Items essential to the operation of the business
  • Licensed cannabis retailers receiving things from an LP that could be considered essential to the operation of their business (e.g., staff uniforms, furniture, refrigerators, appliances, renovations, point of sale system or equipment, security equipment)
  • Sale incentives
  • Licensed cannabis retailers or their employees receiving any benefits from an LP tied to the sales performance of any given product or brand (e.g., concert tickets, gaming consoles, luxury goods)
  • Cash or rebates
  • Licensed cannabis retailers receiving cash or cash rebates, product or product rebates, or price discounts from LPs in exchange for listing certain products at below-market prices
  • In-house brands or white label products
  • Licensed cannabis retailers co-branding cannabis or cannabis accessories with LPs
  • Please note: cannabis retailers may continue to sell white label products that have already been produced; however, the AGCO expects cannabis retailers to exit any current agreements and not enter any new agreements with LPs once the updated standards come into effect
  • Travel or accommodation for education or training
  • Licensed cannabis retailers or their employees receiving travel or accommodation related to education or training, directly or indirectly from LPs
  • Monetary compensation for education or training
  • Licensed cannabis retailers or their employees receiving monetary compensation for receiving education or training from LPs

Ahead of the updated standards coming into effect in June 2022, the AGCO will share a template with cannabis retailers in which to track any items, benefits or services received or agreements that take place for such things. These records must be made available to the AGCO upon request.

The guidance document provided by the AGCO does not yet offer any information on what enforcement will look like or what any penalties will be.

How We Can Help

When it comes to cannabis retail in Canada, Cannabis License Experts offer support from day one of starting your business, including strategic planning, business plan preparation, license application submission, SOPs, and more. If you need help licensing your Ontario cannabis store, contact Cannabis License Experts today!