Later this year, on a date to be determined, the manufacture, sale and distribution of recreational cannabis will become legal.

Many Canadians think cannabis is already legal. Many Canadians think cannabis is legal as long as you purchase it from a dispensary and it is for medicinal purposes. Many Canadians think cannabis will be legal on July 1. And many Canadians think that this whole issue of the legalization of cannabis is a ‘gray area’ and that is why it is permissible to buy and sell cannabis from certain outlets which have not yet been raided by local law enforcement.

In fact, none of these presumptions or beliefs is true. As of the date of this publication, there is only one method to legally procure cannabis, and it involves the following three steps:

  1. Get a prescription for medicinal cannabis from a doctor
  2. Submit that prescription to one of the producers of medicinal cannabis who are licensed by Health Canada
  3. Receive your prescription in the mail

That’s it.

There are no legal means of purchasing recreational cannabis. There is no retail outlet that can legally sell cannabis, whether medicinal or recreational. There is no gray area.

But it feels that way, in large part because of the proliferation of dispensaries across Canada following the federal government’s announcement in 2017 that cannabis would be legalized on July 1, 2018. This nature of this announcement confused many Canadians into thinking that if they saw a dispensary that had not been shut down, it must be one of the ‘legal’ ones. This public confusion was, no doubt, exacerbated by recent proclamations that legalization will likely take effect in the late summer or early fall of 2018.

Across the country, Canadian businesses are wondering what the impact of cannabis legalization will mean for them and what opportunities it may present. I have spoken with many members of the Canadian restaurant and foodservice community, and the common refrain is that people know they want to be part of this green wave, but don’t know how or in what way.

In that spirit, the following is an overview of the top five potential opportunities presented by cannabis legalization for the restaurant and foodservice industry. And, since I am a lawyer and it is my job to do the worrying, that list is followed by the top five potential risks and liabilities for restaurant and foodservice businesses which may result from cannabis legalization.

Cannabis and Foodservice – The Legal Issues to Consider Now For the Laws That Don’t Yet Exist

Top 5 Opportunities for Restaurants and Foodservice Businesses

1. Edibles

When Bill C-45 (also known as the Cannabis Act) was first tabled in 2017, it contemplated the legalization of the production, sale and distribution of dried cannabis. Earlier this year, the federal government announced that Canada would follow the lead of US states which had legalized cannabis and, within 12 months of the date of legalization here, would pave the way for the legalization of cannabis edibles. We can only speculate about what those regulations may look like, but it does present possibilities for restaurants and foodservice businesses to develop cannabis-infused food and beverage products, sell them from within restaurants or other licensed establishments or sell the prepacked cannabis-infused products produced by other manufacturers. It is safe to assume that establishments in Canada will likely be prohibited from selling both alcoholic beverages and edibles from within the same premises. But with reports speculating that cannabis-infused beverages will be the product category leader combined with reports that edibles are less detrimental to your health than smoking marijuana, these regulations could mean big opportunities for the restaurant industry in 2019. And who better than this industry, with its demonstrated experience in food safety and food preparation know-how, to lead the charge for the safe and effective production and sale of edibles?

2. Lounges

The Ministry of the Attorney General of Ontario made remarks earlier this year which suggested that the province would explore the regulation of licensed lounges or clubs for cannabis consumption. If lounges are to be regulated, this could open up opportunities for restaurant businesses to establish operations in close proximity to existing restaurants which could facilitate the consumption of cannabis on-site while providing patrons with dining or snack options from that restaurant’s broader menu.

3. Tourism Revenue

With cannabis legalization will likely come increased customer traffic to neighbourhoods. More visitors from outside Canada may be more likely to visit Canadian cities to sample for themselves the legalized cannabis landscape and more visitors ought to equal increased revenue opportunities for restaurants.

4. QSR Food Sales

Data figures across the U.S. in states that have legalized and have not legalized cannabis are somewhat unsteady as they relate to the impact of cannabis legalization on food sales. While a well-known side effect of marijuana is an increased appetite, there is no clear data which suggests that food sales have increased in states where cannabis is legalized. That said, there is no marked decrease either, in particular at quick-service restaurants, where cannabis users who were polled expressed a clear preference for the offerings at these facilities. QSR owners and operators may have opportunities to get more customers in the door by way of shrewd marketing, which stays inside of Canada’s highly restrictive cannabis advertising regulations.

5. Retail Sales

Some Canadian provinces will implement a regulatory framework which permits private enterprises to obtain a license to sell cannabis products from retail outlets. We have already seen Second Cup announce that it intends to convert certain of its locations in those provinces to cannabis retail outlets. Chains with struggling units may see the opportunity to leverage their credibility and business history to obtain similar licenses from provincial regulators to effect similar conversions to retail sales, and this may provide for marketing opportunities to promote other restaurants under common ownership.

Cannabis and Foodservice – The Legal Issues to Consider Now For the Laws That Don’t Yet Exist

Top 5 Risks for Restaurants and Foodservice Businesses

1. Occupier’s Liability.

Restaurant businesses which serve alcoholic beverages are well-aware of the special relationship that exists at law between establishment owner and patron. Restaurant and bar owners have enough to worry about having properly-trained staff who can serve alcohol responsibility so that they will not be legally liable if a customer causes personal injury or property damage after consuming alcohol within that establishment. The legalization of cannabis promises to lead to an increase in cannabis consumption, and various methods of cannabis consumption are difficult to detect. Complicating this is that restaurant servers can track how much alcohol they are serving and observe the impact of consumption on a patron. That is not necessarily the case for a customer privately vaping outside the view of the server.

2. Alcohol Sales

Studies across the U.S. (in particular in those states which have legalized recreational cannabis) have demonstrated a decline in alcohol sales of up to 13% per month, and recent studies in Canada have projected a decline in alcohol sales of up to 15% following cannabis legalization. It may be surprising to some that the seemingly undeniable conclusion of these studies is that in the eyes of many consumers, cannabis serves as a substitute for alcohol. Barring any lucrative revenue opportunities for restaurant businesses relating to the serving of cannabis-infused food and beverage products, restaurants’ bottom lines will no doubt be negatively impacted as it relates to their alcohol sales.

3. Employee Attrition

Restaurant owners across Denver, Colorado, have experienced a tumultuous impact on their abilities to attract and retain employees following the legalization of cannabis within their state. Cannabis retail outlets target the same types of employees as restaurants do, and the former can pay wages of $20 to $25 per hour, without the pressure and heat of a kitchen environment. Canadian restaurant owners should brace themselves for a similar shock to the system.

4. Effect on Workplace

Restaurants need to revisit their employment agreements and employee handbooks to make sure that the impact of cannabis legalization is properly reflected. That includes taking a closer look at whether substance abuse policies need to be revised, as well as what kinds of accommodation need to be made for employees who consume cannabis for medicinal purposes. The legalization of cannabis also promises to increase consumption of the substance across Canadians, so restaurant owners need to be on high alert (pardon the pun) for employees under the influence.

5. Real Estate

Fascinatingly, a 2017 study found that Denver home prices in the immediate vicinity of a recreational cannabis dispensary have risen at a rapid pace since the retail sale of cannabis was legalized. By comparing Denver home prices from 2013 with home prices in 2014, the first year of retail cannabis sales, researchers determined that single-family homes within 0.1 miles of a dispensary saw an 8.4% increase in price compared to homes further from a dispensary. Some contributing factors to the increase in property values include an increase in housing demand as a result of an increase in cannabis-related employment, lower crime rates and demand for proximity to dispensaries. If the same trend holds true for Canada, restaurant owners with establishments located near dispensaries should brace themselves for an increase in rent.

Author

Chad Finkelstein is a franchise lawyer at Dale & Lessmann LLP (www.dalelessmann.com) in Toronto and can be reached at cfinkelstein@dalelessmann.com or (416) 369-7883.