UPDATED: Alberta's Cannabis Retail Regulations and City of Calgary Land Use Bylaw Amendments

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1 UPDATED: Alberta's Cannabis Retail Regulations and City of Calgary Land Use Bylaw Amendments Daryl Fridhandler, Q.C. and Emily McDermott Introduction On February 16, 2018 the Alberta government released amendments to the regulations under the Gaming, Liquor and Cannabis Act (Alberta Cannabis Act), providing the framework for cannabis retail operation, including licensing. Later the same day, the City of Calgary administration posted their report about cannabis retail development permits recommending the adoption of two amending bylaws under the existing Land Use Bylaw. These proposed amending bylaws were considered by the City's Standing Policy Committee on Planning and Development on Wednesday, February 21 and will be subsequently considered by City Council on April 5, Alberta Government Regulations for Cannabis Retailers and Supplier Representatives Under the Alberta Cannabis Act, the Alberta Gaming and Liquor Commission (AGLC) is authorized to carry out oversight and compliance of cannabis distribution in Alberta, including managing online sales of cannabis and licensing privately owned bricks-and-mortar cannabis stores. On February 16, 2018, the Alberta government released the amended Gaming, Liquor and Cannabis Regulations (Regulations) under the Alberta Cannabis Act that set out the rules which will govern privately owned bricks-and-mortar cannabis retailers. Highlights of the Regulations include the following stipulations: No one person can have more than 15% of retail licenses in Alberta and no group of persons can have more than 15% of the licenses in Alberta where in the opinion of the AGLC the "cannabis licences are or would likely be subject to common control in any material respect" Cannabis retailers will be required to hire "qualified workers" which means workers that are over 18 years of age, have mandatory training and have passed criminal background checks Cannabis stores must be located over 100 meters away from schools and hospitals Cannabis stores (as with liquor stores) cannot be open outside the hours of 10 a.m. and 2 a.m. Cannabis stores must implement inventory tracking, count and sales systems and security measures, including alarms, video surveillance and secured product storage Cannabis consumption at cannabis stores is prohibited Cannabis suppliers and their representatives cannot offer, nor can licensees accept, perks such as loans, money, rebates, concessions, discounts, furnishings, storage equipment, fixtures, supplies, signs or any thing of value Authorized representatives of cannabis suppliers must be registered under the Regulations Transfers of licenses are prohibited and a change of control of a business must be preapproved by the AGLC. Changes in ownership but not control must be reported to the AGLC and approved prior to becoming effective, including 5% or more of a public corporation.

2 The AGLC will begin accepting applications commencing March 6 and application forms and fee information for retail licenses are now available at AGLC's website. Applications will require a signed offer to lease, floor plan of premises and site plan of the surrounding businesses. The AGLC indicates a three month processing timeline for applications. Calgary's Planning and Development Committee Report Recommends Amendments to Calgary's Land Use Bylaws to Regulate Cannabis Stores Municipalities in Alberta have the authority to introduce bylaws that will further regulate cannabis retailers primarily from a land use perspective. A report was considered by the Standing Policy Committee on Planning and Development (SPC) on Wednesday, February 21, The report outlines three potential approaches to regulating cannabis retailers under the Land Use Bylaw and recommends the introduction of a new and distinct use category for "cannabis stores" making them separate from other retailers. The recommended approach is similar to the approach used for liquor stores operating in Calgary and would implement distinct rules and guidelines under the development permit process. The report recommends phasing the new rules through two amending bylaws under the existing Land Use Bylaw as follows: The first amending bylaw (Part I) would implement new uses and rules, including permitting the sale of cannabis produced by a licensed producer and prohibiting consumption of cannabis on location at cannabis stores. The report recommends that Part I be given three readings on April 5, 2018 at a meeting of the City Council. The second amending bylaw (Part II) lists the new uses and rules in appropriate districts, including guidelines on the required distance of cannabis stores from other cannabis stores, emergency shelters, schools, liquor stores, pay day loan shops, pawn shops and child care businesses. The report recommends that Part II be given only first reading on April 5, 2018 and second and third readings when the federal and provincial legislation and regulations become effective. The amendments in Part I propose a new use called "Cannabis Store". The definition allows the sale of cannabis produced by a licensed producer. The rules do not allow consumption of cannabis in the store, but allow counselling and the ancillary sale or rental of cannabis-related merchandise. In view of the Province's concurrent release of the Regulations and the very unlikely possibility that Federal regulations would affect land use matters, Calgary might consolidate the finalization of Part I and Part II of the amended land use bylaw on April 5, A Cannabis Store is required to be a stand-alone user of its premises, which means it cannot be combined with another use, such as a convenience store. However, Cannabis Stores can be located in a multi-tenant building or as part of a mixed-use development. The amendments in Part II list Cannabis Stores as a discretionary use in all districts where Liquor Stores are listed. The SPC discussed the separation distance requirements set out in Part II, emphasizing the goal of implementing a business-friendly approach that takes cannabis out of the black market, and elected to make the following amendments:

3 remove the proposed 150 metre distance between post-secondary schools and cannabis stores relax the 30 metre distance requirement between liquor stores and cannabis stores to restrict them only from being adjacent to one another remove the 10 metre distance requirement between cannabis stores and payday loan and pawn shops The following table summarizes the proposed separation distances (in metres) where Cannabis Stores are being added as a user: FROM Schools Liquor Store Emergency Shelter Child Care Cannabis Store Liquor Store Payday Loan Pawn Shop Cannabis Store The proposed Cannabis Store guidelines allow the City's Development Authority to make 10 percent relaxations to the 150 and 300 metre separation distances. The City believes that the above approach will provide businesses with direction on location restrictions for Cannabis Stores and will enable retailers to make development permit applications prior to the legalization effective date. The amending bylaws will be subject to a public hearing on April 5, 2018 at a meeting of the City Council and, if the recommendations are followed, the first amending bylaw will be read three times and the second amending bylaw will be read once at the same meeting. The Chicken and Egg (or the Bud and Seed) Conundrum for Early License Applicants Aspiring cannabis retail licensees will be required to provide the Province with a signed offer to lease and other premises-related documentation in order to apply for a retail licence. Because the City's proposal recommends rolling out Phase II after the Provincial and Federal frameworks come into force, license applicants will not have certainty about the separation distance requirements from liquor stores and the other types of activities described above. Does an applicant wait until Calgary finalizes its regulations, thereby limiting their own geographic options? Such applicants may be disadvantaged where other applicants have acted before Phase II has been rolled out. Even if an applicant proceeds with an application on March 6, 2018 when the AGLC begins to accept applications or soon thereafter, that applicant may well find that it is denied a development permit because an earlier City applicant in the process (however to be queued) has secured a location which "sterilizes" its location for non-compliance with an applicable separation distance. Additional Updates and Considerations as Canada Moves Towards Legalization of Recreational Cannabis The Government of Canada introduced Bill C-45, the Cannabis Act in the House of Commons in April, On November 27, 2017, Bill C-45 passed third reading in the House of Commons and now needs to be approved by the Senate and receive proclamation before coming into force. If the

4 Cannabis Act is approved by Senate (which recently agreed to a timeline for a vote on or before June 7, 2018) and receives Royal Assent, cannabis would be removed from the Controlled Drugs and Substances Act and would instead be subject to the Cannabis Act. To support the implementation of the Cannabis Act, regulations must be enacted to set out the rules that will apply to various aspects of cannabis legalization such as packaging and labelling standards and risk and harm reduction. In November 2017, the Government of Canada solicited public feedback on a proposed regulatory framework for such regulations under the Cannabis Act. The comment period for the regulations closed on January 20, 2018 and we do not anticipate that there will be a further opportunity to comment. From the Cannabis Act regulations, we anticipate further developments in the following areas: A broader range of cannabis licenses or permits for one or more of a variety of activities, including cultivation, processing and sales (for example, the addition of "craft" or micro cultivation licenses) import / export licenses and research and development licences The "seed to sale" tracking system through the supply chain with a focus on products and production practices Details on health and cosmetic products, with potential exemptions under the Alberta Cannabis Act for products with no more than 10ppm THC Additional considerations, such as the legal framework for food-based cannabis products or "edibles" will be the subject of separate consultation in the future. It is expected that the sale of cannabis edibles will be enabled within one year following the Cannabis Act coming into force. We will continue to follow and report on legal updates on cannabis edibles as they unfold. While not unexpected, the provincial and municipal regulations do not yet address matters related to edibles. We anticipate that once the federal government lays out its framework, the provincial and municipal regulations will see further amendments to permit retail cannabis licensees to participate in the edibles market. In addition to the federal, provincial and municipal legal frameworks, securities regulators and exchanges continue to update their disclosure expectations and guidelines for cannabis issuers. BD&P summarized the guidance provided by the Toronto Stock Exchange and Canadian Securities Administrators (CSA) in an article in November Since then, the CSA has updated its guidance in a Staff Notice published on February 8, 2018 providing specific disclosure expectations for cannabis issuers that currently have or are in the process of development marijuana-related activities in the United States. The Canadian Securities Exchange has confirmed that it does not intend to restrict listing or trading of issuers with US cannabis operations. This Bulletin is intended as current general legal information at the time it was written and is not intended as or to be relied upon as legal advice. For further information on the subject matter contained in the Bulletin, please contact either of the authors below. Daryl Fridhandler, Q.C. dsf@bdplaw.com

5 Emily McDermott