Cannabis Legalization and Regulation- a comprehensive look at the Cannabis Act

Following the final reading and passage of the Cannabis Act, cannabis products are set to become legal for purchase, possession, and consumption by the general public in Canada. While the Act has been passed, the actual legalization of cannabis and all related changes will not take effect until October 17, 2018. With mere months until an entire market and industry opens up in Canada, companies across the country will be scrambling to prepare to seize new business opportunities, or to adapt to the incoming changes. Whether you plan to be a provider or a purchaser in this new market, you will want to familiarize yourself with some of the key aspects of the ground-breaking legislation that is making it possible. 

The Basics

As of October 17th, 2018, subject to provincial or territorial restrictions, adults who are 18 years of age or older will be legally able to:

  • possess up to 30 grams of legal dried cannabis, or an equivalent amount in a different form (see below for details)

  • share up to 30 grams of legal cannabis with other adults

  • buy dried or fresh cannabis and cannabis oil from a provincially-licensed or approved retailer

  • grow, from licensed seed or seedlings, up to 4 cannabis plants per residence for personal use

  • make cannabis products such as food and drinks at home for personal consumption

Don’t want to cook or bake cannabis infused foods for yourself? No worries – Edible products and concentrates containing cannabis will be legal for sale approximately one year after the Cannabis Act has come into force.
It is also worth noting that the permitted 30 grams refers specifically to dried cannabis, and that other forms of cannabis products will be subject to some quantity conversions for the purpose of possession limits. For conversion purposes, 1 gram of dried cannabis is equal to:

  • 5 grams of fresh cannabis

  • 15 grams of edible product

  • 70 grams of liquid product

  • 0.25 grams of concentrates (solid or liquid)

  • 1 cannabis plant seed

This would mean, for example, that an adult 18 years of age or older, can legally possess 150 grams of fresh cannabis.

It is very important to note that most of these rules establish minimum limits and requirements that will be subject to additional regulation by the provinces. For example, while the Act permits individuals to buy cannabis from approved retailers in some provinces, this may mean that individuals can make purchases at private retail locations with the appropriate zoning or permits. In Ontario, however the currently proposed regulations have stated that individuals will only be able to acquire cannabis products at designated “Ontario Cannabis Store” locations. As Ontario’s provincial regulations continue to take form, Momentum Business Law will release updated information and analysis.

The New Licensing Framework

Under the Act, the federal government will establish a new application processes and criteria for those individuals or entities who wish to become producers of legal cannabis in Canada. Up until the passage of the Act, parties were able to apply for a license to produce legal cannabis solely under the Access to Cannabis for Medical Purposes Regulations (ACMPR) and would submit applications to Health Canada as part of a thorough and sometimes lengthy review process. As part of the transition to the new Act, any organization licensed to produce and sell cannabis products under the ACMPR framework will be deemed to be licensed as the new framework comes into effect, though they may be subject to review or additional requirements.  The ACMPR framework as a whole will continue to exist after the Act comes into force in order to provide access to cannabis for individuals for medical purposes, and the government has stated that it will continue to monitor its efficacy and conduct a review of the framework within 5 years.

Under the Cannabis Act parties interested in obtaining a license to produce and sell cannabis will be able to apply through the ACMPR framework, or through a new and separate process. This new licensing process under the Cannabis Act has not been established yet, so it is uncertain how much it may differ from the ACMPR process at this time. One potentially positive difference is that the new dedicated licensing process may have additional staff and a faster application timeline than the previous framework operated by Health Canada. However, a potentially negative difference is that the Act notes that new applications will require specified information, which may include financial information that extends to a company’s shareholders and controlling interests. This additional transparency may be an issue for investors who value privacy, or cause delays for license applicants that are involved in financing or other fundraising that brings in additional shareholders. 

The new licensing application process will likely be unveiled soon, and when it is, Momentum Business Law will follow-up with an analysis of the relevant considerations and highlights. 

New Criminal Penalties In Connection With Youths

While the Act repeals the criminal penalties for cannabis possession and use within the designated limits, it also sets out a range of penalties for breaching these designated limits and other regulatory provisions of the Act. In particular, the Act establishes severe penalties targeted at any individuals or entities that commit cannabis-related crimes that involve youths under the age of 18.

No person may sell or provide cannabis to any person under the age of 18. The Act creates two new criminal offences, with maximum penalties of 14 years in jail for giving or selling cannabis to youth, or using a youth to commit a cannabis-related offence.
Given these targeted punitive measures and the extended liability of corporate personnel (see below), businesses operating in the industry will want to be certain about the identity and age of their advertising targets, customers, employees and anyone else interacting with their business or products. 

Corporate Liability of Officers and Directors

As an extension of the new penalties intending to enforce the relevant portions of the Act, there is a particular section which extends the personal liability of directors and officers of corporations that violate the law. Specifically, any director or officer “who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to the offence and is liable on conviction to the punishment provided for by this Act, even if the person is not prosecuted for the offence.” 

This part of the Act effectively states that the general due diligence defence available to corporate directors and officers cannot be relied upon in connection with any breach of the Act. While this change should not worry directors or officers of closely monitored and managed companies, the leadership of larger companies may want to take steps to ensure that they are fully informed on all decisions and operations going forward. Furthermore, passive directors or officers who leave day-to-day management to other personnel of their company should recognize the additional risk they will be incurring under this particular provision of the Act. 

Promotion, Packaging, Display

The Act has broadly adopted the highly-restrictive advertising rules proposed by Health Canada a few months ago. General promotion of cannabis products, accessories, and services to the public is strictly prohibited in a manner that is similar to the current restrictions on tobacco products, with a particular emphasis on prohibiting any marketing techniques that might be appealing to youth in any way.

This prohibition extends to communicating the price of cannabis products, testimonials, and any presentation of brand elements, as well as sponsorship of events, persons, and even facilities where any of this information would be communicated. Very specific exceptions are provided for the following situations:

  1. Direct promotion to individuals by name where the promoter can reasonably ensure that they are 18 years of age or older – effectively subscription newsletters and some limited digital advertising mediums;

  2. In-store promotion of product availability and price in locations authorized to sell cannabis products to the public; and

  3. Branding on non-cannabis products, like brand clothing or similar items, but with restrictions where these products might be appealing to youth or promoted as glamorous.

  4. Similarly, the actual packaging of any cannabis products must not contain misleading statements or false advertising like normal products, but must additionally not be appealing to youth and cannot evoke a positive image about cannabis use or consumption which includes “glamour, recreation, excitement, vitality, risk or daring.”

The limited means of promotion, and the further restriction that even those available means cannot appeal to youth or promote a positive image about cannabis use, is going to make product promotion and brand differentiation extremely challenging for market participants in the coming months. Product name and quality are going to be key factors, unless creative marketing strategies emerge or the rules are relaxed.

Import and Export

While the Act will open up the domestic market for cannabis products, it will not provide for international import or export of recreational cannabis products. The previous rules for importing or exporting cannabis products will continue to be in effect, and as such, permits to import or export cannabis products will only be granted for medical and scientific purposes that are approved by the government. However, with an industry of cannabis producers rapidly developing in Canada and with new recreational cannabis markets emerging globally, it seems likely that the international sale and trade of cannabis will be revisited in the years to come.