Introducing the Cannabis Act

April 13, 2017 by Brian Wagner 2 Comments

Today the Government of Canada announced and tabled the Cannabis Act, the long-awaited Bill that would set the groundwork for allowing the production and sale of recreational cannabis. The full text of the Bill can be found here.

So what were we expecting today? By and large, we were expecting an Act that would set the stage for incoming regulations to be drafted around how recreational cannabis would be produced and sold, as well as penalties for operating outside their new framework. Today we received exactly this, and there are some surprises as well as lingering questions.

First, some foundational points. “Cannabis” is now defined as any cannabis genus plant or derived therefrom, including any synthetic duplicate of a cannabis compound (e.g., synthetically manufactured CBD). But what some of you may have also picked up on, is that industrial hemp is included in the definition. This means that this new Cannabis Act will cover both marijuana and hemp.

The definition does not include non-viable seed, which means that hemp protein is not within the scope of this act (and which is covered under the Food and Drugs Act and Natural Health Products Regulations). It also doesn’t include hemp fibres or cannabis roots.

Second, it should be stressed that this Bill is the foundation of the future (TBA) regulations that will be empowered by this Act. The devil is always in the details, and the pending regulations will undoubtedly provide more clarity on the licensing, sale and distribution of cannabis businesses. Still, there are some great tidbits in today’s information.

Medical vs Recreational

Similar to the Task Force Report, in our reading of the new Act there are many lingering questions as to what the new Act means for the medical system. During the press conference there were questions asked as to how the medical would run in parallel with the new recreational model, and the short answer provided suggested they would run in parallel.

However, Section 158 clearly states that any licences (or applications for a licence) under the Access to Cannabis for Medical Purposes (ACMPR) are grandfathered into the new jurisdiction of the Act. From this we can assume that this new Act will therefore govern both medical and recreational. But what is not clear is what the pending Regulations will dictate. The Act clearly sets out provisions for retail sales (and online distribution/retail), but the Act does not specifically address any special provisions for medical cannabis production/sales separate from those of recreational production/sale. Even though the press conference speakers confirmed verbally that the ACMPR will remain in effect for some time (e.g., five years review period), there is little insight into whether the recreational model will differ from a medical model. It is certainly possible that any future Regulations will lay out a different licensing structure or requirements, for production or retail. The only thing we seem to know at this time is that both the ACMPR and the future recreational regulations will be empowered by this Cannabis Act. There is a lot of room for speculation.

It should also be noted that there does not seem to be any obvious prohibition against pharmacy dispensing per se. Although not mentioned specifically, the Act does not seem to specifically forbid this. It seems, therefore, that it will be up to the pending Regulations to lay this out.

Gearing Up

In a press release published on the Government of Canada’s website, they mentioned that “the Government will invest additional resources to make sure there is appropriate capacity … to license, inspect and enforce” the new legislation. We have heard from other channels as well, confirming this statement, that Health Canada is hiring more staff and prepared to issue more licences for cultivation. Again, very welcome to hear. No one wants a Harper backlog again.

Distribution and Sale

It was clear from both the live broadcast and the information received today, that the distribution and sale of cannabis would ultimately be up to the provinces. This means that each individual province will have the right to determine which types of storefronts will be allowed to sell recreational cannabis.

But the main take-away message here is that, by and large, the new legislation is following the advice of the Task Force. This means retail point of sale alongside online purchasing. CCI has already received information suggesting that Alberta will go the dispensary (non-liquor) model for retail, while BC and ON are likely poised to merge cannabis with alcohol sales; although it is not clear if additional cannabis specialty shops would be permitted. Again, this will be up to the provinces to decide.

Edibles and Dosage Forms

Absolutely yes. There is nothing in the Act that prohibits the sale of edibles, so long as they don’t include nicotine, caffeine or alcohol. The press release also confirmed verbally that edibles will be permitted. Considering the tremendous market share that edibles have in various established US states (e.g., Colorado), this is going to be a massive business opportunity for food manufacturers in Canada. Keep in mind, however, that, despite not knowing details yet, they will absolutely require HACCP/GMP for manufacturing such edibles, perhaps having joint jurisdiction with the CFIA and OMC.

Concentrates were not specifically mentioned, but again Schedule 1 indicates that any phytocannabinoid (extracted or synthetically produced) is covered under this Act. This would therefore include CBD and THC, as well as various concentrates, tinctures and extracts.

Grandfathering

We predicted this years ago, a big pat on our back for this. Section 158 lays out the groundwork for grandfathering any medical producer (or ACMPR applicant) automatically into the legislation. The exact grandfathering mechanism is unclear, but this would mean that any company in queue applying for a commercial medical cannabis licence would be grandfathered into any recreational production regime. Great news for applicants and licensees who have been waiting for this.

Branding

Pleasantly surprised by this – the Act lays out that logos and branding on packaging (etc) will be permitted, so long as they do not appeal to youth (or certain adventurous mindsets).

Plain packaging – this didn’t really happen. I do believe that there won’t be much room on a product label for marketing, but the fact that the logo would be permitted is sufficient for the industry to compete with the black market. We’re pleased with this.

However, we do find Section 26(d) too broad – packaging that “evokes a positive or negative emotion about or image of, a way of life such as one that includes glamour, recreation, excitement, vitality, risk or daring” seems overly broad and not likely to stand up to any constitutional challenge. Really? If Health Canada somehow thinks that a brand/logo evokes positive or negative feelings of “daring” they have the authority to stop sale? I feel this is excessive and far too broad to be tolerated in our democracy. I know their intentions are to keep marketing away from youth, but the way they’ve defined this seems excessively broad. And the unofficial legal definition of “broad” means constitutional challenge.

Sale of Cannabis

An interesting twist that we noticed was that cannabis cannot be given away as a prize or incentive for any reason – i.e., it has to be sold for a dollar amount (Section 24(1)). Now, keep in mind the Act does not stipulate a dollar amount … certainly room for grey, maybe a contestant winner has to pay a quarter to get the free pot?

Classes of Applications

Section 61 makes provision for future regulations to create different “classes” of licence applications (cultivation/retail), as well as empowering Health Canada to review files in a predetermined order. We found this interesting. Perhaps mirroring what California has done with classes of licences?

Import and Export

Not a chance, at least not for recreational use. There is no way on God’s green earth that Health Canada will allow the import/export of recreational cannabis.

However, import/export of medical cannabis is still going to be allowed (Section 62(2)) as is the current case. For example, a licensed producer in Canada under the ACMPR could import medical cannabis oil from Colombia pending security reviews.

But no importing/exporting of pot for recreational use. Duh.

Legacy Industry

What about people who have been advocates for reform but who are under investigation / convicted for violating laws prior to the new Act coming into force? Section 62(7) clearly states that the Minister has the right to refuse licensing (cultivation or retail) to any person or organization who has contravened laws related to cannabis in the last ten years. Jodie and Marc Emery come to mind, who wouldn’t be allowed to operate under the new framework. However, it is entirely within the Minister’s discretion to allow people/companies into the new system from the old (illegal) dispensary framework. But it is doubtful that Cannabis Culture would be allowed into the new system.

Cost Recovery

Something new (but not unexpected) is cost recovery. This means that the government will charge applicants for licences – cultivation and retail – based on actual costs for doing so (i.e., they can’t profit from the system). Section 142(2) states it cannot exceed the actual costs. Perhaps more interestingly, Section 148 states that the government will have the right to charge for inspections of facilities (cultivation and retail) and even recalls issued.

Dealer’s Licences

Of importance to companies that are keen on research & development, the Act states under Section 159 that licences (and applications therefor) for a dealer’s licence will be grandfathered into the new framework. This would imply that there will be an operational transfer of review / administration from the Office of Controlled Drugs and Substances to the Office of Medical Cannabis.

We believe this could be monumental change. It is a slow, cumbersome and tooth-pulling process to achieve a Dealer’s Licence to conduct research and development on medical cannabis. Let’s hope they devote additional resources to this area.

Industrial Hemp

So an interesting development, although not incredibly surprising, is that this new Act will also cover industrial hemp. Section 160 deals with this. However, we suspect that the Industrial Hemp Regulations, recently revised, would simply point to this new Act rather than the previous legislation. We don’t anticipate much change to how per se industrial hemp is regulated and licensed.

Isolates and Derivates

We know that many of our clients and blog readers are keen to find out what their plans are for isolated compounds from cannabis. However, Schedule 4 of this Act clearly lays out which types of cannabis product will be allowed for sale – dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis plant seeds. There is no provision for compounds such as isolated CBD. Having said this, Schedule 3 – a table outlining “equivalent amounts” of various cannabis products – does mention “cannabis solid concentrates” and “cannabis non-solid concentrates”, which may suggest that isolated compounds will be permitted. Time will tell. We will have to wait until the new Regulations are published, as well as any (hopeful) guidance documents issued by Health Canada.

Final Thoughts

There were no major surprises with this Bill – and to be clear, this is a good thing. We didn’t expect the Bill to lay specifics, just a foundation; the future Regulations will cover details.

Many of the sections in the Act discuss penalties and criminal offences for operating outside the new framework, including cannabis paraphernalia and advertising. Clearly the highest priority in the Act is to prohibit the promotion and sale to youth, which we feel is a positive.

It is also clear that the government intends to license cultivation facilities for both medical and recreational under the same standards. Cannabis Compliance Inc is the industry leader in preparing the necessary documentation to achieve a production licence, and we applaud Health Canada’s basic framework around this. No matter the location in Canada, a producer of cannabis (medical or recreational) will have to continue meeting stringent security and quality standards for production; no compromises. Also, the Act suggests that provinces may exact additional production requirements on a provincial level, above/beyond those on the federal level. Perhaps this will have a greater impact on edible manufacturing; food production is overseen both federally and provincially.

 

Retail will be an interesting play. The Act definitely lays out a few core requirements – record keeping, security and selling to minors. Ultimately it will be up to the individual provinces to decide how each will license retail facilities.

Celebrity endorsements and testimonials won’t be allowed. Sorry #snoopdog, say good-bye to Canada and Tweed. Hope you get a good severance package. Product at the retail level can’t be visible to youth … okay so, if an adult brings their son into a pot shop, the child can’t visibly see cannabis products? Interesting.

Inventory tracking – seems to be a huge priority for the feds. Not only will retailers and producers have to track inventory (with platforms such as Ample Organics), but these will have to integrate with a new (TBA) federal tracking system.

A huge aspect that was missing for us is outdoor cannabis farming. The Act really does not touch on production licensing at all, so there is no negative information about this. We find this actually very encouraging – the Act and subsequent Regulations will need to go through review and debate, and we will see if this is permitted. But the Task Force Report absolutely recommended this, and our interpretation of this not being mentioned in the Act is suggestive of this being permitted.

Overall, this Act is a foundational piece of legislation, covering criminal offences, basic licensing provisions, retail sales, and jurisdictional powers. There was nothing in this that surprised us, which we interpret as a positive sign. Cannabis in Canada will be a $20bn market within five years, not including any export potential (medically speaking). Canada is the only G7 country to create such legislation, and today we will go down in history.

Cannabis Compliance is a full service consulting firm for startup and existing licensed producers of cannabis in Canada – and the world. The Canadian standards for commercial cannabis production are world class, and we aim to provide the most turnkey solutions for any startup cannabis venture. Contact us today for more information on how we can help.