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Ontario issues $200,000 fine for “data deals” to cannabis retailer

April 8, 2024 | David Brown

The Alcohol and Gaming Commission of Ontario (AGCO) has issued an administrative penalty to a cannabis retailer for alleged violations of the province’s regulatory standards related to provincial anti-inducement laws.

In a press release issued on April 8, the AGCO issued an Order of Monetary Penalty totalling $200,000 to 2776112 Ontario Inc., the licensed operator of the Cannabis Xpress chain of cannabis retail stores.

This fine was for alleged violations of the province’s rules that disallow cannabis stores from asking for or accepting inducements from cannabis producers as a condition of selling or giving preferential treatment to products in their stores, also known as paying for shelf space.

The provincial regulatory agency says it began its investigation after receiving information about possible “inducement activity.” The AGCO investigated Cannabis Xpress, including a review of over 82,000 relevant documents. The agency found that Cannabis Xpress’ “Data Services Program” and/or other agreements with licensed cannabis producers are actually an inducement program.

Cannabis Xpress has 14 locations in Ontario and two in New Brunswick. Chris Jones, the owner of Cannabis Xpress, declined to provide comment at this time.

So-called “data deals” have been a controversial subject in the industry for some time now, with some Ontario retailers calling out the practice last year. Provincial rules do allow retailers to sell data to producers.

“Provincial law and AGCO standards include anti-inducement regulations to protect consumer choice and maintain a level playing field for small businesses in the cannabis retail industry,” Dr. Karin Schnarr, Registrar and CEO of AGCO, said in a press release. “The AGCO monitors the sector’s compliance with these requirements and will take strong action against any licensee found to be engaging in illegal behaviour.”

A media representative for the AGCO declined to say if they are investigating any other companies for such activities, but says they “continuously monitor all licensed cannabis retail operators for compliance with the CLA and Standards.”

The AGCO alleges that it found that Cannabis Xpress was repeatedly seeking to secure agreements with more than a dozen cannabis producers over the course of more than two years. These agreements allegedly offer preferential treatment in exchange for a percentage of product sales.

The AGCO says the retailer refused to stock one cannabis producer’s product unless the producer agreed to enter into one of these prohibited inducement agreements while promoting the sale of cannabis products from producers who entered such inducement deals.

A licensed retailer served with an Order of Monetary Penalty by the AGCO has the right to appeal the Registrar’s action to the Licence Appeal Tribunal (LAT ), an adjudicative tribunal independent of the AGCO and part of Tribunals Ontario.

Some publicly traded cannabis companies report sales of their own data programs. Ontario rules do allow retailers to sell data to producers, allowing them to better understand product sales trends.

Nova Cannabis, a company behind one of Canada’s largest chain of cannabis stores, Value Buds, recently reported revenue from its own “proprietary data licensing arrangements” of $12.4 million for 2023, an increase of 125% from $5.5 million in 2022.

High Tide, another sizeable retail cannabis business in Canada with more than 150 Canna Cabana locations across the country, reported sales from its own “Cabanalytics business data and insights platform” increased to $6.5 million in the third fiscal quarter of 2023 from $5.5 million during the same period in 2022.