[NOTE: This post references information and developments that may have changed since the time of publication. Please refer to the latest Momentum Law blog posts, or get in touch with our team to get up to date information on the cannabis industry and legal considerations.]

Passed after its second reading in the Senate,  Bill C-45 and the legalization of Cannabis in Canada continues to progress towards the summer deadline set by the Liberal government. While the bill continues through the process of review and feedback, other key elements of the cannabis regulatory framework are finally being clarified.

A critical update on the development of the regulatory framework arrived in the form of the Health Canada report on its finding from the public consultation on cannabis legalization and regulation, which was released on March 19, 2018. This report is based on its 60-day consultation with the public that was launched in November 2017, and which solicited feedback on a range of cannabis legalization and regulation issues, including advertising, licensing procedures, security, and alternative production methods. It is key to note that at this time this report outlines regulatory proposals based on public consultation and submissions. As such, these proposals and initial impressions may be subject to some change from ongoing feedback or the legislature.

Packaging

One element of key importance to licensed producers is the developing rules around packaging and advertising, as these will have a significant impact on their branding and market strategies. Industry participants have been speculating for months about how restrictive the marketing rules would be, and whether they would reflect the liberal rules that govern alcohol, or the restrictive limits placed on tobacco. From the report, Health Canada has proposed the following requirements, restrictions, and guidelines:

• Marijuana will be sold in plain packages with limited branding or differentiation

• All packages must bear a yellow health warning, and a marijuana health alert symbol which has been proposed by Health Canada

• The packaging must include a section that described the quantity of active ingredients in the marijuana, including THC and cannabidiol measurements

• In order to differentiate products the packaging may bear either a logo or a slogan representing the brand or producer, but the image must be smaller than the Health Canada alert symbol

• The displayed logo, slogan, or packaging, may not contain any metallic or fluorescent coloursInserts in the package are prohibited

• The rest of the packaging containing the marijuana must be opaque

• The packaging must also be designed in a manner that makes it child-resistant, and that can show signs of tampering

• These proposed packaging restrictions will apply to all marijuana product, including product sold as medical marijuana. However, medical marijuana products will have a 6 month period to implement the new standard.

The report notes that Health Canada is aware of the importance of finalizing these requirements as soon as possible in order to give producers the necessary lead time to develop their packaging and brand designs, and put them into production in time to be ready for the legal market.

Outdoor Production

The consultation process solicited feedback on outdoor cultivation of cannabis for commercial purposes. Notably, a majority of respondents to the consultation process were in favour of supporting regulations permitting outdoor cultivation, citing the importance of natural and environmentally-sustainable growing methods. Value was also attributed to allowing growers to take advantage of natural elements. The report notes concerns about higher incidences of theft of cannabis products in an outdoor environment, as well as concerns about the environmental impact of outdoor growing operations, including odour, impact on nearby crops, and these considerations will likely be incorporated into any regulatory proposals. Overall the tone of the report suggests that outdoor cultivation will be permitted in some form, though the details will require additional consultation and study.

Scrutiny for Major Shareholders

At this time the rules governing Licensed Producers require that the Directors and key persons operating the business are disclosed and hold a security clearance. In the consultation process Health Canada asked for feedback on a proposed regulation that would require security clearance for any shareholder who owned more than 25% of a Licensed Producer (or a parent company of one). This proposal was made to prevent organized crime from infiltrating the legal industry to use it as an extension of criminal activities. However, respondent feedback correctly pointed out that these requirements would be difficult to enforce and easy to work around through coordinated investment structures.

As such, the report notes that alternatives are being considered, including requiring Licensed Producers to submit financial information, including investor information, as part of the licensing application process, and to require ongoing reporting on these matters. As these alternatives are developed and recommended they may create additional required considerations for Licensed Producers, and their management teams as they solicit investment and strategic partnerships.

Micro-Cultivation and Micro-Processing

In an effort to make the cannabis industry accessible to small businesses Health Canada also solicited feedback on the idea of a micro-cultivation license and micro-processing license, each of which would permit small businesses to grow and process cannabis at small scales with reduced security and other regulatory requirements. Based on feedback and some observations from U.S. states with similar regulatory frameworks the following has been recommend as the parameters for these licences:

• Micro-cultivation licence: a licence-holder would be permitted to cultivate a plant canopy area of 200 square metres, or 2,150 square feet.

• Micro-processing licence: a licence-holder would be permitted to process no more than 600 kilograms of driver cannabis per year, or the output of a single micro-cultivation licence.

These small-scale licenses may provide opportunities for small businesses and innovative business models to develop in the industry, though their limitations may also reduce their viability to some degree. 

Security Clearance for Illegal Cannabis Market Participants

Health Canada asked consultation participants about their opinions on the general security clearance framework and its restrictions against individuals associated with organized crime, as well as for their opinions on granting security clearance to individuals with non-violent and low-risk criminal histories. Interestingly a significant portion of participants supported the current framework aimed to prevent organized crime from entering the marker, but also strongly supported permitting non-violent and low-risk criminal individuals to obtain security clearance and participate in the legal cannabis industry. Health Canada agrees with these findings and has recommended that these non-violent individuals who are not associated with organized crime should be permitted to obtain security clearance, as this will assist in the effort to displace and dismantle the illegal market.

This may also provide a source of skilled and experience labour to the market, while creating beneficial jobs for individuals who would otherwise have not had the opportunity. Licensed Producers hoping to employ skilled workers may also find themselves with a new talent pool to select from.

THC Concentrations

At this time the proposed rules and standards include a maximum THC concentration for cannabis oil of 30 milligrams of THC per millilitre of oil, which aligns with the current limit under the Access to Cannabis for Medical Purposes Regulations (ACMPR). In addition, there is a proposed a limit of 10 milligrams of THC per dose or unit for any cannabis product intended for ingestion. Even after consultation Health Canada has stuck to the above-noted concentration measurements, noting that no participants were able to provide scientific evidence or a strong policy position to support a variation of these regulations.

Seeds, Concentrates, and Edibles

As set out in the proposed Cannabis Act, dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds could be sold to the public upon coming into force of the proposed Act, and  the sale of edibles and other cannabis-based products, such as liquid concentrates suitable for vaping, will be permitted within the following year to allow time for the consultation and development of specific regulations. Health Canada notes in particular in its report that that it intends to consult broadly with a range of stakeholders, including the provinces and public health community, on the regulations that will govern edibles.

How Momentum Can Help:

Momentum works with ACMPR Applicants through the entire business cycle, from start-up to License and beyond. We help your company “Grow”!

Disclaimer:

The material and information in this article are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this article or its links, or the application of the information to your situation. No person should act or refrain from acting in reliance on any information found in this article. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or Momentum Business Law.