Update on Legalization

October 6, 2017 by Brian Wagner 1 Comment

Where We Are Today

It’s been a busy six months since CCI opened its doors – and there’s no mistake that this industry is exploding overnight. As a short primer, in Canada the federal government has been acting swiftly to legalize cannabis ahead of July 2018 for recreational use (aka “adult use”). This will mean that private enterprises will be licensed to cultivate and manufacture cannabis and cannabis derivatives for sale to the general public in 2018. Canada will be the first G7 country to legalize cannabis products nation-wide.

But there is still plenty of head scratching around what is actually happening. To the consumer, it must be even more confusing. Right now, the Standing Committee on Health (HESA) has been debating the Cannabis Act, which will be the main empowering Act behind new regulations (TBA) and also the Access to Cannabis for Medical Purposes Regulations (ACMPR). The Cannabis Act is a fairly broad piece of legislation, ultimately intended to be a foundation of what the federal and provincial governments will be allowed to write rules around. In Parliament, the Cannabis Act is known as Bill C-45.

HESA has been debating and voting on proposed changes to the Act for the last few months. Note that in Canada, Parliament will often send legislation to various “standing committees” (such as HESA) to refine the legislation and propose changes to anything missing. HESA has been interviewing many experts and stakeholders in the industry, and elected Members of Parliament comprise the HESA committee. Note that these discussions are all around the recreational market, whereas the medical cannabis program is not being specifically debated.

Out all of this, we anticipate having a revised Cannabis Act in the months ahead, as well as new federal Regulations surrounding the recreational market, though the Regulations are not expected to be overly detailed. The individual Canadian provinces (and potentially municipalities) are expected to draft their own legislation surrounding the distribution, retail sales and consumption over the upcoming months, though timeframes are not known at this time. With the anticipated legalization goal of on/before July 1, 2018, we suspect the provinces to have their legislation finalized by the Spring of 2018 to start accepting licensing applications for distribution and retail.

Edibles and Derivatives

One of the exciting areas of development in the last few days is around the legalization of cannabis edible products (“edibles”) and also various derivative forms. Although Parliament has not officially passed these recommended revisions to the Act, it is highly unlikely that they would not do so. The dosage forms and preparations expected to be included in the new recreational (and likely medical) system are: edibles, concentrates, creams, tinctures, and beverages. Although these are not specifically called out in this format, the revisions to the Act propose allowing for “solids containing cannabis”, “non-solids containing cannabis”, “cannabis solid concentrates”, and “cannabis non-solid concentrates” – which leaves a great deal of room for dosage forms and preparations. As with other types of consumer health products allowed without a prescription in Canada, we would expect the administration routes to be restricted to all forms with the exception of intravenous injection (similar to natural health products under the Natural Health Products Regulations), although time will well.

(Note that at present, some LP’s are selling what are called cannabis creams, but they are actually selling the base products plus the cannabis oil, to be mixed by the consumer before use. At present, no dosage forms or preparations other than dried/fresh/oil are permitted for sale.)

Regulatory Framework for Recreational Cannabis

It has been a consistent message from the federal government in the past year, that the recreational cannabis industry would be highly regulated with regards to security and quality assurance. They have repeated this message at every juncture, that the recreational framework would mirror the requirements for cultivating and manufacturing cannabis under the medical framework (under the Access to Cannabis for Medical Purposes).

Recreational cannabis will not be a free-for-all on the cultivation and manufacturing side. People or companies desiring to become licensed producers of recreational cannabis will be required (just as on the medical side) to demonstrate a full proficiency in quality management systems, security programs/protocols, and cultivation/pest proficiencies. There is no international regulatory body that currently requires the same level of expertise and detail for achieving a licence to cultivate and sell. CCI prepares countless applications under the ACMPR, working with entrepreneurs, capital venture groups, pharmaceutical companies, pharmacy groups and even government agencies, in providing the in-depth compliance solutions required to achieve such goals – and we are prepared to do the same on the recreational side.

It should be noted that any current licensed producer will almost definitively be allowed to cultivate product for the recreational market as well, switching gears or catering to both markets. Likely there will be new classes of licences to cover recreational vs medical production, but all in all we expect that ACMPR applicants and licences to be grandfathered into the new recreational-medical hybrid framework, providing late-stage ACMPR applicants with a strong first-mover advantage in producing for the recreational market.

At present, a Dealer’s Licence (DL) is a type of controlled substances licence from Health Canada achieved for the purpose of doing scientific research and development, in addition to quality testing and experimental manufacturing. While not intended for commercial product manufacturing, at present it has been used as a type of “back door” into the LP world for genetics and product refinement. The rumour mill is suggesting that the DL licence may no longer be the type of licence granted for these activities in the future framework, and that licensed producers (perhaps within certain new licence classes) would also be granted permission for these activities. However, this is not fully known at this time as to how the licences will be separated out.

Currently one of the major hurdles in starting out as a licensed producer is genetics. At present, a new LP has to purchase their genetics (live plants, tissue cultures, seeds) from either another licensed producer, or import them from a legal foreign exporter. There are very few legal exporters in the world, and of those these are mostly seeds. The current ACMPR regulatory framework forbids transferring genetics from the black market into their facility, which means that the gene pool of cannabis plants in Canada may continue to struggle. CCI is urging Health Canada to de-regulate the sale and distribution of cannabis seeds, both domestically and internationally, to level the playing field among licensed producers. After all, within the first year of the former regulations (MMPR) the LP’s were permitted to take genetics from the MMAR growers of the earlier regime, providing them with a strong first-mover advantage in offering a variety of strains.

Medical Cannabis: Left Behind?

In all the talks in the media, the attention is on recreational cannabis. Medical cannabis, however, almost seems to have been left behind in the discussions. What is not being talked about in the media, is that the federal government and Health Canada are actively discussing the retail and distribution models for medical cannabis as well.

The provinces will have the jurisdiction to control the distribution and retail channels of recreational product, but they will not have the same type jurisdiction with regards to medical product. The provinces have authority over pharmacies and their practices, as well as the current online sale of prescription therapeutic products. We may expect (though it is not necessarily true) this to be rolled out for medical cannabis as well.

But perhaps more importantly, medical cannabis – and potentially all of the medical dosage forms permitted for recreational use – is expected to also be sold at a retail level. It is doubtful that dispensaries would be permitted to sell medical product in their current business model; it is likely that independent medical dispensaries will be permitted to sell, but we suspect they will be required to have a pharmacist on staff. Something like a specialty pharmacy.

The issue of dispensing has been discussed at senior levels, though we have not heard of any movement on this file. Pharmacies, of course, have the capability of handling and filling prescriptions for narcotics (they already do), but dispensing cannabis is tricky. After all, it isn’t an approved “drug” with a Drug Identification Number (DIN). If it isn’t an approved drug, would a pharmacy be permitted (federally and provincially) to dispense cannabis? What indications would be permitted? Would it become prescription, or over-the-counter? It poses many difficult questions, which we suspect the different levels of government are not prepared to answer.

At minimum, however, we would suspect that the medical system under the ACMPR will continue as is, with very little (if any) revisions to the ACMPR. We also expect that licensed producers would be allowed to continue selling via online shipping direct to consumer, under the medical framework. It is possible that provincial pharmacy authorities may be involved on product distribution. The fact that the Ontario Government, for example, would be the sole reseller of cannabis online for recreational use, wouldn’t have an impact on a medical producer selling online to their clients.

It may also be noted that currently the provinces have inter-provincial restrictions in place for the sale and distribution of prescription drugs. It is certainly plausible that the provinces may impose similar restrictions with regards to medical cannabis. However, given the court cases in the previous years about “reasonable access” – and also the fact that medical cannabis is not (yet) an approved drug – it is very likely that the medical framework may not share all aspects with the provincial management of prescription drug sales. If we do see inter-provincial restrictions come into place for medical cannabis, it could mean that LP’s may have an advantage within the province they are located. Whatever the framework will look like, we suspect that at some point the LP’s will no longer be involved in the distribution of medical cannabis (e.g., between the LP and a pharmacy).

Would medical producers be permitted to manufacture dosage forms such as edibles, for medical consumption? We suspect so, and in fact we would suspect that all dosage forms permitted under the recreational framework would be permitted for medical. However, we suspect that the other way around may not be the case. After all, some dosage forms that are more pharmaceutical in nature (e.g., tablets, capsules, patches) may not, for appearances sake, be appropriate for recreational use. “Pill popping” has been a strong agenda for the federal government, as misuse of prescription drugs is dramatically increasing among youth; in 2014 Vanessa’s Law (Bill C-17) focused on this very issue.

But there are deep questions still to be answered around how the medical system will function alongside a recreational one. After all, there is no parallel or precedent for a product that is legalized both as a medicine, and as a recreational drug. One that comes to mind is kava kava, a relaxing herb used in Asia Pacific countries instead of alcohol, and today it is both a licensed natural health product and also consumed in kava bars. The comparison is weak, however, as the cannabis agenda will have a more far-reaching effect.

Future Boom in Finished Product Manufacturing

What all of this means, is that we are suddenly (very suddenly) moving from a restricted medical cannabis framework, into 20 different sub-industries with an exponentially larger customer base. At present, LP’s can manufacture dried cannabis, or cannabis oil, and only sell to consumers that go through the hassle of getting their doctor’s blessing, and then purchase it online.

Moving to brick/mortar retail facilities will draw in consumers who may discover cannabis for the first time, once legal. Also, many consumers are against smoking/vaping, but would be open to ingesting edibles. If legal and readily available for consumption, Canadians will soon begin to re-discover a product they used to know as “pot”.

Some provinces, notably in Western Canada, seem more open to allowing private retail stores for recreational product. If true, this would also invite a boom in private retail stores opening up across the landscape – and also inviting a new wave of entrepreneurs. This is most likely to happen in BC and Alberta, although we do not yet know definitively what the provinces’ plans are.

The real explosion in the industry, however, is going to be around the manufacturing of cannabis finished products – beverages, baked goods, candies, patches, tinctures, creams, sprays, gums, suppositories – this is where the tremendous opportunities will be. At some point, cultivating cannabis will be a race to the bottom, competing on price; it could take 10 years to get there, but it will get there. After all, it is more of a raw material (or pharmaceutical ingredient) than a finished product. The better opportunities will be around researching, developing and commercializing finished products – where they can stand out of the crowd. In California and Colorado, edibles comprise 10 to 20% of cannabis sales.

But developing and differentiating these products – medical or recreational – will require a tremendous amount of research and development. It also means specialized manufacturing equipment previously not used by the current legal industry in Canada. Companies with experience in this product development cycle will have a first advantage, such as pharmaceutical, health products, cosmetics and food manufacturers. After all, a major food manufacturer with an established business and quality management system, could adapt quickly into a cannabis line of products. Baked goods in particular should be in huge demand, requiring food manufacturers following HACCP quality standards to update their quality management system to adapt to cannabis requirements.

But “injecting cannabis” will bring strong growing pains as well. Established consumer packaged goods industries are not familiar with cannabis by and large. They will need education and training, to adapt.

Where We Can Help

For anyone in the cannabis industry these are great but somewhat confusing times. Different levels of government are trying to determine regulatory guidelines for this amazing opportunity, while at the same time, LPs, LDs and aspiring LPs are trying to build a successful business. To succeed, advanced preparation is key, and that’s where CCI can help.

We have the expertise, experience and knowledge to help you prepare and compliant once the rules have been finalized. Our in-house subject matter experts have deep knowledge of every aspect of the cannabis industry and what it takes to succeed.