Why dismantling inter-provincial cannabis barriers may not transform the industry as much as it hopes

April 21, 2025 | Contributor

[The opinions of this guest post do not necessarily reflect the opinions of the StratCann. This article does not constitute legal advice.]

The Ontario government has announced the introduction of legislation that, once passed, would trigger the dismantling of every exemption reserved by the province within the Canadian Free Trade Agreement (CFTA), including those related to cannabis.

The announcement, however, doesn’t necessarily mean the end of these restrictions.

The agreement is between the provinces and the federal government to reduce inter-provincial trade barriers. Subject to its rules and exceptions, it essentially prevents provinces from discriminating against goods, services, licenses, or standards of other provinces.

Each provision can impose “exceptions,” which are carve-outs that allow the province to take action inconsistent with the CFTA.

Each province has a long list of exemptions, including cannabis-related ones, which were added in 2024 when non-medical cannabis was first recognized in the Agreement.

The cannabis exemptions are worded differently for each province, but generally shield provinces when it comes to dictating the flow of cannabis in and out of their borders and market-access related rules, such as being able to determine that there will be a sole, government-run wholesaler, and restricting who can sell cannabis at retail. In Ontario’s case, the reservations also include the ability to limit the number of stores and limit access of licensed producers to open retail stores.

Now that these are removed, does this mean that producers can have multiple stores in Ontario or sell cannabis products at retail directly into or out of the province? Are there no more limits on retailing?

In short, no. The province’s technical briefing states that the policies making up the exceptions will remain in place, and there are other reasons.

First, provinces can and do reserve broad exceptions to fully cover themselves out of an abundance of caution, even though the policy underlying the exception may not even be viewed as a violation of the Agreement.

Second, while the CFTA protects against ‘discrimination’ between provinces, it does not inherently require a province to take positive action unless it’s necessary to remove that discrimination.

Third, removing an exception does not change the legislation and regulations governing cannabis sales rules. The Cannabis Licence Act and other provincial legislation and regulations continue to dictate how retail and wholesale cannabis is regulated in the province. The government must introduce legislative or regulatory amendments to effect this change.

Fourth, removing an exception doesn’t mean the underlying policy can’t continue to exist; just that if it does, it needs to comply with the requirements of the CFTA and its principle of non-discrimination. This doesn’t mean a free-for-all in which the industries it covers become libertarian havens without the ability of each province to establish ground rules within its borders.

The exceptions each province has made to the Act are voluminous, and even once removed, there is also an escape valve in the Agreement that allows each province to impose protection “it considers appropriate to achieve a legitimate objective.” General exemptions that each province can continue to avail itself of include protection on measures they take regarding taxation or Aboriginal Peoples.

While the province may have removed the exception that protected them from restricting cannabis wholesale to one publicly-run organization, for all the above reasons, it doesn’t necessarily mean we’ll see private wholesalers here like what Saskatchewan already permits.

Ontario could very well argue that as long as OCS is non-discriminatory in its product calls and doesn’t have different requirements depending on the province from which the products originate, the OCS can continue to be the sole wholesaler, and the province would not be acting discriminatorily.

The OCS imposes no province-specific requirements as far as is made public. However, any internal policy or informal preference OCS may have for Ontario-produced products could be wiped away.

Similarly, even if all provinces removed their cannabis exceptions, it doesn’t mean direct-to-consumer (DTC) cannabis sales between producers and consumers in different provinces are a sure thing.

It could very credibly be argued that removing trade barriers doesn’t mandate DTC, but rather that companies from other provinces must have the same shot as companies in Ontario when applying for retail licences.

Currently, the Alcohol and Gaming Commission of Ontario does not require that cannabis store applicants be domiciled in Ontario or impose different requirements depending on which province the company was formed in—even though sales must be made from a physical retail store located in Ontario—so the province can credibly argue that this current requirement doesn’t constitute discrimination under the Agreement.

Let’s compare and contrast with alcohol, a favourite issue for Doug Ford.

Like the cannabis exceptions, the alcohol-related exceptions, including the shield on establishing the LCBO as the sole, government-run wholesaler, are being removed.

While exceptions are technically removed by the province’s minister sending a letter to the provinces and the feds, which would be done when the legislation passes, the province also proposed a bill to establish a framework for how Ontario and other provinces that enter into reciprocity agreements would recognize each other’s standards and certifications for goods, services, and labour.

As part of that, changes were proposed to the province’s liquor laws to direct the LCBO to allow DTC liquor sales from Ontario manufacturers to consumers in other provinces, and vice versa.

Curiously, even though the exemption protecting the province from establishing the LCBO as the sole, government-run wholesaler is being removed, there is no corresponding legislative proposal to now allow private wholesalers, suggesting that the government does not believe the LCBO’s monopoly violates the Agreement.

They appear even more confident of that with respect to its removal of cannabis-related exceptions because, unlike the legislative changes they propose in the legislation for the liquor sales regime, there is no proposal to amend the cannabis framework, and the word ‘cannabis’ does not even appear once in the introduced legislation.

However, reading the legislation shows one way the industry could be liberalized in the province.

It introduces the principle that if a person or entity is licensed to provide a service in another province, they should be granted the right to be recognized and/or issued the corresponding licence or authorization in Ontario, and vice versa.

But they must still follow the rules of the province they’re attempting to break into, just as domestic operators need to. This would mean that, just like Ontario companies seeking to sell cannabis at retail in the province, a Saskatchewan retailer would need to set up a physical store in Ontario to serve the Ontario market.

This is unless, of course, the province introduces amendments proactively to relax this requirement, which they could have always done since legalization and could still do at any time if they have the will.

Receive your cannabis retail licence in another province that has signed a reciprocity agreement with Ontario? That should be good enough for the AGCO in Ontario.

Even if a retailer is licensed in another province, they must still meet Ontario’s location-specific requirements, including having a physical store in Ontario, to obtain a Retail Store Authorization and operate there. Having a license from another province may only expedite the process of obtaining the Retail Operator Licence, but not the location-specific Retail Store Authorization.

The legislation provides some escape routes, enabling the enactment of regulations that establish rules, conditions, or limits on any mutual reciprocity. This could erode even the small sliver of reciprocal licence recognition that the legislation suggests could apply with respect to cannabis retail.

It’s important to note that no agreements with other provinces have been made because the legislation has not yet been passed.

However, Memoranda of Understanding were signed with Nova Scotia and New Brunswick, with the intent to enter into such an agreement.

Even still, the two MOUs vary, so different provinces may have different degrees of reciprocity with Ontario and/or limits or conditions different from those agreed to with another province.

When a province takes an action that could be seen as a violation of the CFTA, it is not immediately dragged to court as if it committed a cardinal sin.

Instead, other provinces may bring a case to the dispute resolution mechanism that the CFTA has created. People and entities wishing to bring a case against a province must persuade their province to take up the fight; failing this, they can file their dispute. There is an entire procedure surrounding it, with cases taking months before an order may be made against a province.

That’s how provinces are kept in check for violations of the Agreement.

And because cannabis seems to be a low priority for political leaders—after all, it’s not a significant issue for most voters—provinces may not bother filing a case for another’s conduct. And a large percentage of the cash-strapped companies in the industry may not have the capital to do so anyway.

So, when you have a free-trade agreement whose terms are already up for interpretation, general rules and exceptions that further erode the protections they impose, the removal of exceptions the underlying conduct of which may not even be non-compliant, a particular, lengthy dispute resolution process, and the fact that the province of Ontario did not include explicit changes to the cannabis framework in the legislation but did so for liquor sales, it’s hard not to see how provinces removing their exceptions from the CFTA may not provide the transformational change that the cannabis industry hopes will result.

Harrison Jordan is the founder and managing lawyer of Substance Law, a law firm focusing on regulated substances, including cannabis.