Cannabis Xpress, a licensed operator of 14 cannabis retail stores in Ontario, will pay a penalty of $100,000 for pursuing and accepting prohibited payments from licensed cannabis producers (LPs).
Ontario's cannabis rules bar cannabis retailers from demanding payments from LPs as a condition of securing product orders or giving preferential treatment to products in their stores. The rules exist to protect consumers and ensure a level playing field in the legal cannabis industry.
The regulatory breaches were discovered following a comprehensive compliance assessment by the Alcohol and Gaming Commission of Ontario (AGCO), which included an exhaustive review of over 82,000 documents.
The review concluded that:
- Between January 2021 and July 2023, Cannabis Xpress entered into agreements or arrangements with at least 61 LPs, the majority of which were referred to as "Data Sharing Agreements" or "Data Agreements".
- While the agreements were ostensibly related to the sale of data, the fees to be paid under some of the agreements were, in fact, based on the number of Stock Keeping Units (SKUs) to be carried at Cannabis Xpress stores.
- Cannabis Xpress' representations to LPs implied that, by entering so-called data agreements, they could expect to enhance sales volumes due to limited resulting competition by other LPs' product lines in its 14 Ontario retail stores. Cannabis Xpress represented to LPs that: "our goal is to have long-term relationships with a limited number of suppliers, and pump as much volume as we can out of the stores."
- Certain LPs were told that Cannabis Xpress was not willing to purchase their cannabis products without entering into a data agreement. Other LPs that sought to renegotiate, terminate or alter the terms of data agreements saw the purchase of their cannabis products decline in volume and frequency.
- Cannabis Xpress retail staff were informed that, before they stocked new products, they were to confirm whether the LP had a data agreement in place.
- Cannabis Xpress retail staff were also informed to not "mention deals of any sort to customers or brand reps we don't have a deal with" and "[i]f someone asks why we don't stock a certain brand, just politely say we have the maximum amount of SKUs we're able to get at the moment, or something along those lines."
Following the review, the AGCO issued an Order of Monetary Penalty to Cannabis Xpress, which they subsequently appealed.
Cannabis Xpress has withdrawn its appeal, acknowledging that certain of the data agreements effectively induced the company to purchase the relevant LPs' products. Further, Cannabis Xpress has confirmed that it does not contest accepting payments contrary to the anti-inducement provisions of the Registrar's Standards for Cannabis Retail Stores.
"Ontario's anti-inducement rules exist to protect small businesses and consumers from predatory 'pay to play' schemes. The AGCO will continue to monitor business arrangements between licensed retailers and producers and will take strong action against any licensee found to be engaging in illegal behavior."
Source: Alcohol and Gaming Commission of Ontario