Ontario judge freezes cannabis retail licensing process amid legal challenges

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An Ontario judge has frozen the province's cannabis retail licensing process for at least two weeks.

Twelve of the original 42 winners of the Aug. 20 lottery draw were disqualified for failing to submit all the required application materials within five business days of the results and one voluntarily withdrew. All 13 were replaced by names from regional wait lists across the province.

All but one of those disqualified for not filing applications on time filed a legal challenge of that decision earlier this week requesting the licencing process be frozen until their case can be heard.

Justice David L. Corbett of Ontario Divisional Court issued a preliminary decision Thursday to freeze the Alcohol and Gaming Commission of Ontario (AGCO) review process.

Justice Corbett "was not persuaded that a two-week delay is going to cause anyone irreparable harm," Caryma Sa'd, a Toronto-based cannabis lawyer who was present in the courtroom for the decision, said in an interview. "However, [he said he did] believe that if he paused only part of the process and not all of it, that will cause chaos."

"He decided the lesser of two evils was to pause the process for everyone," Ms. Sa'd said.

Thursday's preliminary decision means that until the Court "has had an opportunity to hear the judicial review on September 25, the AGCO should temporarily halt the lottery process," AGCO spokesperson Ray Kahnert said via e-mail. "As a result, the AGCO will pause the lottery process until the Court issues its decision on the judicial review."

Peter Brauti, co-managing partner at Brauti Thorning LLP who is acting on behalf of all 11 disqualified lottery winners, called Thursday’s decision “a huge win.”

“It is more than what I had even hoped for,” Mr. Brauti said. “You hope for a home run, but a grand slam is what this was. [Justice Corbett] suspended the entire system right across the province.”

When the case resumes on Sept. 25, Mr. Brauti will argue for his 11 clients to be reinstated “as if they were never disqualified and can submit their applications.”

Ms. Sa’d, meanwhile, says the final decision will depend on what Mr. Brauti and AGCO lawyers submit into evidence.

“That is the date when the court will actually delve into the issue of whether these [11] individuals were properly disqualified, if there is some kind of procedural flaw in the lottery, what happens to them, what is their remedy? I don’t know that you’ll actually get a decision on the 25th but that is when they intend on making their submissions and presenting their evidence,” Ms. Sa’d said. “Shortly thereafter, the judge would make an order.”

Mr. Brauti said earlier this week there were a “few nuances” among the 11 plaintiffs behind the request for judicial review, but all are effectively cases of the AGCO failing to properly notify the winners.

"“The AGCO sent [winners] an e-mail notification saying congratulations, except that the email didn’t go through, it bounced back,” he said. “They also sent registered letters but those were received two days later and [the winners] assumed they had five days from when they received the letter because they never got the e-mail. Once they were notified, they met the requirements, but the AGCO position is they were notified by an e-mail they never got.”

In total, the second lottery had 4,864 submissions from about 1,800 businesses or sole proprietors. The process was intended to be an improvement upon the first lottery in January, which saw more than 17,000 individuals compete for the right to apply for Ontario’s first 25 permits.

While Mr. Brauti is arguing for his clients to “bump those that were moved up from wait lists,” he says the government has another option available.

“The government could simply amend the regulations and open up 11 new licences, so instead of there being 42 there would be 53 so they can reinstate those 11 people who were not notified properly but the 11 people who got moved up from wait-lists, they can get licences too, because at the end of the day, there is going to be more,” Mr. Brauti said.

Ontario was originally planning an open licencing system for cannabis retail stores, but two days before the AGCO was due to begin accepting applications in December, 2018, the province announced a move to a “phased approach” amid a national cannabis supply shortage.

Following the results of the second lottery last month, the province said it was working with the AGCO and the Ontario Cannabis Store “to return to our original plan to allocate retail store licences based on market demand,” according to Jenessa Crognali, spokesperson for Ontario Attorney-General Doug Downey.