Court File and Parties

COURT FILE NO.: CV-21-665331 MOTION HEARD: 20230501

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Tripsetter Inc., Plaintiff AND: 2161907 Alberta Ltd., Canopy Growth Corporation and Justin Farbstein, Defendants

BEFORE: Associate Justice Jolley

COUNSEL: Peter Smiley, counsel for the moving party defendants 2161907 Alberta Ltd. and Justin Farbstein Christopher Horkins, counsel for the moving party defendant Canopy Growth Corporation Adrienne Boudreau and Maria Robles (student at law), counsel for the responding party plaintiff

HEARD: 1 May 2023

Reasons for Decision

[1] The parties are engaged in a dispute over the nature of their former business relationship. The plaintiff operated a retail cannabis store under the Tokyo Smoke banner from July 2019 to 1 June 2021 when it served the defendant 2161907 Alberta Ltd. (“216”) with a Notice of Rescission and rebranded as Purple Moose Cannabis.

[2] In this action, the plaintiff claims that it was a franchisee of 216 and has sought rescission and damages under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3 (the “Wishart Act”) as a result of the defendants’ failure to provide it with the mandated statutory disclosure. 216 argues that its relationship with the plaintiff was one of licensor/licensee and was governed by License Agreement which the parties entered into on 7 June 2019 (the “License Agreement”). They plead that the plaintiff breached the License Agreement and have counterclaimed for damages.

[3] The defendants move on four categories of refusals and seek an order that the plaintiff’s representative reattend to answer the refused questions and any follow up question in person.

Category 1 – The plaintiff’s knowledge of the legality or acceptability of the alleged franchise to the AGCO structure when the License Agreement was negotiated and executed and its prior negotiations with other brands - Questions 61-62, 89, 160, 170 and 1221.

[4] Questions 61-62, 160, 170 and 1221 seek production of agreements in principle that the plaintiff entered into or was discussing with other companies (Tweed and Hobo or others) as well as an answer as to whether its lawyer was involved in negotiating a trademark licence agreement with MC Cannabis.

[5] The defendants argue that production of these agreements will demonstrate that the plaintiff was aware that franchise agreements were not permitted in the cannabis space at the relevant time and that its Notice of Rescission claiming a breach of the Wishart Act is specious and was delivered in bad faith.

[6] The plaintiff argues that its understanding or subjective view of the legal operating requirements of a cannabis store is irrelevant to the court’s determination of whether it and 216 were in a franchise relationship. The nature of the relationship will be determined based an objective assessment of the factors set out in the Wishart Act: was there (a) the payment of or commitment to pay money to commence operations or in the course of operating the business; (b) the grant by the franchisor of the right to sell goods under a trademark and (c) the exercise of significant control or offer of assistance with the operations by the franchisor.

[7] I agree with the plaintiff’s position. Given the determination of the relationship will be based on the factors set out above, what kind of arrangement others in the space were offering or what kind of other arrangements the plaintiff was entertaining will be of little relevance. (See Chavdarova v The Staffing Exchange 2016 ONSC 1822.) Similarly, answers to these questions will not assist the court in interpreting whether the Alcohol and Gaming Commission (“AGCO”) permitted franchises at the time the parties entered into the License Agreement or whether the parties could have or did enter into a franchise agreement, even if it were prohibited by the AGCO.

[8] The plaintiff is cautioned that, having refused to produce these draft or proposed agreements, it may be constrained at trial in making any suggestion that these were franchise agreements and that they were compliant with the Wishart Act requirements.

[9] Question 1221 concerns the scope of the plaintiff’s lawyer’s retainer and is privileged and need not be answered on that alternative basis. The answer is also not relevant unless the trademark licensing agreement is also disclosed, and that would clearly be subject to solicitor client privilege.

[10] The refusal on Question 89 is also upheld. The plaintiff was required to obtain an RSA (retail store authorization) to operate a retail cannabis store. There is no dispute that it met the requirements and obtained the authorization. The requirements that it had to meet are publicly available and it was clear from Mr. Stevens’ discovery on behalf of the plaintiff that he had no extra insight into what those requirements were – when asked if he knew what regulatory requirements the plaintiff had to meet to obtain the RSA, his answer was that he could not recall but he fulfilled them. (See Question 88).

Category 2 – Tripsetter’s bad faith conduct, breach of the License Agreement, deception and operation of a competitor retail cannabis business (Purple Moose Cannabis) from the Store Premises – Questions 787, 791, 793, 853 and 866.

[11] The defendants have counterclaimed for damages against the plaintiff, alleging that, without notifying them, it removed the Tokyo Smoke branding overnight on 1 June 2021, served its Notice of Rescission and opened the next day as a Purple Moose Cannabis store. The defendants argue they are entitled to know the details of the plaintiff’s planning, carrying out and reasoning for the change.

[12] Question 787 asks Mr. Stevens to confirm that Purple Moose is a competitor to Tokyo Smoke. I find Mr. Stevens’ interpretation or conclusion will not assist the court. If it is relevant, the court will look to factors such as products offered, location and price, rather than Mr. Stevens’ view. The defendants may still argue at trial on appropriate evidence that Purple Moose is a competitor. The question is not relevant and need not be answered.

[13] Question 791 asks when Mr. Stevens decided to open other Purple Moose stores. This question goes to the plaintiff’s actions after the switch in branding at the location in issue. I am not persuaded that the plaintiff’s opening of two additional stores after the termination of its relationship with the defendants is relevant to the issues pleaded in this action. The question need not be answered.

[14] Question 793 asks whether Mr. Stevens conducted any trademark searches before re-branding. Whether the plaintiff was prudent or reckless in the searches it did before it opened its store will not assist the court in determining the issues raised in this action. Similarly, whether Mr. Stevens thought about the move for a long time or decided on the spur of the moment to cease using the Tokyo Smoke brand does not address any issue in the pleadings. The question need not be answered.

[15] Question 853 asks whether the plaintiff is receiving bulk discounts on Purple Moose merchandise because it now operates three locations. While the defendants argued that this might be considered a windfall and would reduce any potential damages award, the Wishart Act calculates damages under four distinct headings without provision for an offset. As a purported windfall could not be considered under a damages heading, the question is not relevant for the purposes of this action and need not be answered.

[16] Question 866 seeks communications and anything related to the plaintiff’s application to the AGCO concerning the rebranding of its store as a Purple Moose. I am not satisfied that the timing of the plaintiff’s decision to rebrand or its application to the AGCO is relevant to the defendants’ breach of contract claim. Nor am I satisfied that the addition of the claim of bad faith makes this question relevant. The parties are agreed that if the relationship is found to have been a licence arrangement, the plaintiff will be found to have breached the License Agreement. If it is if found to have been a franchise arrangement, the defendants will be found to have breached the Wishart Act by failing to provide a Disclosure Document. Whether the steps the plaintiff took were in good faith or bad faith does not change that analysis in these circumstances. The question need not be answered.

Category 3 – Tripsetter’s financial situation at the time the License Agreement was executed and any projections related to the acquisition and operation of the Store and Tripsetter’s finances concerning the continued operation of the competitor retail cannabis business (Purple Moose Cannabis) – Questions 235 and 1247.

[17] The defendants argue that the amount of money in the plaintiff’s bank account in or around May 2019 (Question 235) is relevant to the potential applicability of the franchise disclosure exemptions. The defendants have pleaded that, in the event the plaintiff is found to have been a franchisee, they were exempt under the Wishart Act from providing it with a Disclosure Document because the plaintiff’s investment in the acquisition or operation of the franchise either did not exceed $15,000 or exceeded $5,000,000. (The parties use both $5,000 and $15,000 in their motion records and facta as the minimum threshold. I have used $15,000 but which number is correct is not material for the purpose of this motion or the plaintiff’s companion motion.)

[18] In my view, knowing how much money was in the plaintiff’s bank account at that point in time will not assist the court in determining whether the plaintiff paid certain costs from its own funds or from the branding fee the defendants paid the plaintiff upon signing the License Agreement. If the plaintiff had $1,000,000 in its bank account, it still could have used the branding fee to cover those costs. If it had $10,000 in its account, it could have obtained additional funds to cover the investment costs. The question need not be answered.

[19] Question 1247 seeks production of a detailed listing of the inventory the plaintiff had on hand as of 1 June 2021 and that is still in the possession of Tripsetter and available for repurchase. In answer to this question, the plaintiff provided an inventory listing as of March 2022 (the “accessory inventory”). During argument, counsel for the plaintiff confirmed that the items listed in the accessory inventory are those the plaintiff had on hand as of the date of rescission. Counsel will confirm that in writing so that the defendants may rely on that answer as part of the plaintiff’s evidence. The plaintiff will also answer what inventory on that list remains available for repurchase. This question is to be answered.

Category 4 – The negotiation of the License Agreement and the particulars that Tripsetter relies upon in respect of its allegation that 216 Alberta and Canopy exercised a significant degree of control over Tripsetter’s operations of the Store – Questions 810, 908 and 922.

[20] At question 810, the defendants asked for a copy of the opinion that the plaintiff received from its lawyer, Matt Maurer, concerning a “Click and Collect agreement”, that essentially allowed curbside pick up during COVID. The defendants agree that, in most cases, the opinion would be privileged, but they argue that the plaintiff waived their solicitor client privilege over the opinion by referencing it during its examination for discovery. When Mr. Stevens was asked to identify what provision in the License Agreement exempted the plaintiff from having to provide its consent to the Click and Collect agreement, he indicated that the defendants would have to ask his lawyer, Mr. Maurer as that was Mr. Maurer’s understanding of the License Agreement. He expanded on that answer to advise that the plaintiff was allowed to do business and the only way that business could operate during COVID was through curbside pick up or delivery. I do not find the plaintiff’s reference to a legal opinion it obtained to answer a question put to it on discovery constitutes a waiver of privilege over that opinion. Further, the question of whether it was the plaintiff or 216 that controlled the Click and Collect service is a live issue in determining whether the parties were in a franchise relationship, not the advice the plaintiff obtained from its lawyer about the service or the related agreement. The question need not be answered.

[21] The plaintiff was asked at question 908 whether, prior to delivering the Notice of Rescission, Mr. Stevens ever alleged that this was a franchise relationship. The defendants argue this goes to the plaintiff’s bad faith as well as demonstrating that the plaintiff knew this was not a franchise relationship and used the Notice of Rescission as a tactical position to escape the License Agreement. The plaintiff has answered the question on the record at question 920 when he was asked whether he referred to himself as a franchisee in any communications either to Canopy, to 216, or anyone else. His answer at questions 920 and 921 was “I don’t think so” and “Not that I recall”. The question has been answered.

[22] Lastly, at question 922, the plaintiff was asked to produce all documents where Mr. Stevens referred to the plaintiff as a franchisee. In his answer, noted above, he indicated that he did not recall referring to the plaintiff as a franchisee. His counsel confirmed that they had produced all relevant documents, so that if there was an instance of Mr. Stevens referring to the plaintiff as a franchisee, it would have been produced. If the defendants wish to test Mr. Stevens’ recollection of whether he ever referred to the plaintiff as a franchisee, it is open to them to review the productions themselves. The question has been answered.

[23] The plaintiff need not re-attend to provide the documents or information ordered produced.

Costs

[24] Canopy Growth seeks its costs of the motion in the all inclusive amount of $4,482.71 on a partial indemnity basis. 216 seeks its costs of the motion in the all inclusive amount of $10,000 on a partial indemnity basis. The plaintiff seeks its costs of defending the motion in the all inclusive amount of $10,926.99 on a partial indemnity basis. The plaintiff was largely successful in defending the motion, as only one part of one question was ordered to be answered. I find in all the circumstances, the defendants shall jointly and severally pay the plaintiff a portion of its partial indemnity costs which I fix at the all inclusive amount of $7,000.

Associate Justice Jolley Date: 23 May 2023