Ontario regulator fines Cannabis Xpress, alleges pay-to-play

Just Released! Get realistic market forecasts, state-by-state insights and benchmarks with the new 2024 MJBiz Factbook member program, now with quarterly updates. Make informed decisions.

Ontario’s cannabis retail regulator, the Alcohol and Gaming Commission of Ontario (AGCO), fined Cannabis Xpress 200,000 Canadian dollars ($147,000) for allegedly violating the province’s anti-inducement law for cannabis retailers.

The penalty marks the AGCO’s first fine under the inducement provisions of Ontario’s Cannabis Licence Act, the regulator confirmed.

Inducement agreements are akin to “slotting fees” in other retail sectors and involve product makers paying retailers for shelf space and preferential treatment.

Cannabis Xpress founder and CEO Chris Jones declined to comment when contacted Monday by MJBizDaily.

Revenue stream in question

The AGCO’s enforcement move calls into question a sometimes-controversial revenue stream for some retailers in Canada’s biggest adult-use cannabis market.

Ontario law and AGCO rules “prohibit Ontario cannabis retailers from asking for or accepting inducements from cannabis producers as a condition of selling or giving preferential treatment to products in their stores,” according to a Monday news release.

The AGCO said it does allow retailers to sell data to producers, in line with a clarification the agency issued in 2022.

Selling such data can be lucrative.

For example, retail operator Nova Cannabis recently reported CA$12.4 million in revenue from “proprietary data licensing arrangements” during its 2023 fiscal year.

On Monday, however, the AGCO alleged that Cannabis Xpress “attempted to disguise these illegal payments as agreements for the sale of data for business intelligence purposes.”

The regulator said its investigation into Cannabis Xpress began “after receiving information regarding inducement activity” and involved reviewing tens of thousands of documents.

It “found that Cannabis Xpress’ so-called ‘Data Services Program’ and/or other agreements, which it entered into with licensed cannabis producers (LPs) are, in fact, an inducement program.”

Cannabis Xpress “repeatedly sought the participation of over a dozen LPs” over at least 30 months, the AGCO wrote.

“These agreements were actually an indirect means of requesting and accepting prohibited inducements where, for a fee or a percentage of product sales, Cannabis Xpress gave preferential treatment to products from LPs that had executed such unlawful agreements to the disadvantage of those that had not,” the AGCO added.

“For example, (Cannabis Xpress) refused to stock an LP’s product unless they agreed to enter into prohibited inducement agreements and promoted the sale of cannabis products from producers who entered such inducement deals.”

Cannabis Xpress’ next steps

The AGCO noted that licensed retailers have the opportunity to appeal fines.

Fines for corporations violating the provincial cannabis retail legislation are capped at CA$250,000, while individuals can face fines of up to CA$100,000, imprisonment for up to one year, or both.

Cannabis Xpress CEO Jones told MJBizDaily in 2021 that the Cannabis Xpress retail concept was intended to be “very small and efficient,” focusing on compact stores in convenient locations.

The Toronto-headquartered retailer lists 16 locations on its website.

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.