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A marijuana growth room at the new visitors' centre at Canopy Growths Tweed facility in Smiths Falls, Ont., on Aug. 23, 2018.

Sean Kilpatrick/The Canadian Press

Part of cannabis and investing

Canada’s biggest legal pot grower and the largest convenience store operator are joining forces to sell recreational cannabis in Ontario.

Canopy Growth and Alimentation Couche-Tard – parent of Circle K and Mac’s, among other brands – are expected to announce the details of their strategic partnership as early as Friday morning. Laval, Que.-based Couche-Tard will also announce Friday a “trademark licence agreement” with one of last month’s 25 Ontario retail cannabis lottery winners. The winner in turn is applying for one of the province’s first legal cannabis store permits to open a location with Canopy’s “Tweed” branding in London’s White Oaks neighbourhood on April 1.

Neither company would disclose which of the seven lottery winners from the province’s western region would be the official owner. The Alcohol and Gaming Commission of Ontario website, however, lists a numbered Ontario company as the applicant for a Tweed store in London

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Couche-Tard “is excited about taking a leadership role in the development of cannabis retailing excellence,” chief executive Brian Hannasch said in a release obtained by The Globe and Mail’s Cannabis Professional news service. “We believe the Ontario Cannabis Store and private retailers will co-exist under a tightly regulated framework with common goals to protect public health and safety.”

Bruce Linton, co-CEO of Canopy, said the deal with Couche-Tard has been in the works for more than three months, but because of provincial rules limiting licensed cannabis producers from owning more than 10 per cent of a retail operator, the company plans to have no direct involvement with the Tweed store proposed in London.

“We are trying to figure out how to collaborate, so this first one is just to lend [Couche-Tard] our brand in Ontario and if they have questions, they can call us but they’re under no obligation,” Mr. Linton said in an interview.

Most of Ontario’s 25 lottery winners are first-time business owners with no previous experience in the cannabis or retail industries, and many of them have attempted to strike multimillion-dollar deals with existing pot sellers to operate stores on their behalf. The AGCO already disqualified one winner earlier this month for violating a rule requiring lottery winners to maintain direct control over their stores.

Several other established retailers that are already selling recreational cannabis elsewhere in Canada have also struck agreements with lottery winners in hopes of gaining early access to the country’s largest consumer market. Alberta-based operators Fire and Flower, Spiritleaf-parent Inner Spirit and Canna Cabana-parent High Tide have all announced deals with lottery winners in recent weeks, as has Vancouver-based Choom Holdings.

While the AGCO is closely scrutinizing the structure of those deals to ensure compliance, Trina Fraser says the fact that the proposed Tweed-branded London store has made it to the 15-day public consultation phase means it has already cleared some regulatory hurdles.

“There is certainly nothing in the rules that says you cannot share a brand as a retailer, that is already used by a cultivator or a processor or a seller of cannabis,” said Ms. Fraser, co-managing partner at Ottawa-based Brazeau Seller Law and head of the firm’s cannabis practice.

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“[Ontario cannabis retail license applicants must] disclose, and the AGCO has been very specific about this, any details of any kind of material contract that you have with any third party, including any type of revenue-sharing. So if you have a trademark licence, for example, where you are paying a percentage of gross revenues for a trademark licence, that would have to be disclosed to the AGCO and they would have an opportunity to look at that and examine it for compliance with the lottery rules and the Cannabis Licence Act before they would move forward [with public consultations].

“If it has been posted for public notice, then the structure has clearly already received some type of vetting and approval by the AGCO,” Ms. Fraser said.

This is also not the first time Canopy has licensed its Tweed brand to another retailer. An independently owned Tweed store has been open in Regina since late 2018 and the company already operates 11 corporate-owned Tweed stores in Newfoundland and Manitoba. Canopy’s Mr. Linton declined to elaborate on the future potential of his company’s new arrangement with one of the world’s largest convenience store chains, other than to suggest that if the London store proves to be a success, other deals could be in the works.

“Couche-Tard is a global player and we are a global player and there is a lot of interesting overlap where they play and we play,” Mr. Linton said. “We are thinking about how we can work with these guys on a global basis in the geographies where we can by law.”

Asked whether the recent trend of lottery winners making deals with major corporations was in line with the province’s goal of encouraging sole proprietors to open Ontario’s first legal pot shops, spokespeople for Ontario Attorney-General Caroline Mulroney and Ontario Premier Doug Ford did not immediately reply.

“For a provincial framework that obviously went out of its way to try to really limit the involvement of [cannabis] producers in the retail market,” Ms. Fraser said, “they really didn’t do anything to prevent their use of brands on stores.”

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Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

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