Breaking Ground: Canada’s Cannabis Framework

On April 13, the federal government released the proposed Cannabis Act (Bill C-45)¹ to legalize the production, distribution and sale of cannabis for recreational purposes. Through this legislation, the federal government is focusing on protecting public health and safety, preventing young persons from accessing cannabis, and deterring criminal activity related to cannabis. The proposed Cannabis Act is not yet law, and interested parties may provide feedback to the federal government before the draft legislation is implemented by the target date of July 1, 2018.²

Until the Cannabis Act is law, production, distribution and sale of cannabis for recreational purposes continues to be illegal in Canada.³ Once passed, the Cannabis Act will move Canada from a regime where possession, production, distribution, sale, import and export of cannabis for recreational purposes are prohibited to a regime where these activities are permitted, but strictly regulated.

What You Need To Know

Forms of cannabis

• The draft legislation applies to various forms of cannabis. The Cannabis Act will apply to dried cannabis, fresh cannabis, solids containing cannabis, non-solids containing cannabis, cannabis solid concentrates, cannabis non-solid concentrates and cannabis plant seeds.⁴ However, the classes of cannabis that authorized persons will be allowed to sell are: dried cannabis, cannabis oil, fresh cannabis, cannabis plants and cannabis plant seeds.⁵
• The Act will apply to edibles, but further clarity will be provided in the draft regulations under the Act which are not yet published.
• Substances containing nicotine, caffeine or ethyl alcohol are prohibited from also containing dried cannabis, cannabis oil or fresh cannabis.⁶

Restrictions to sale, trade and personal cultivation

• Sales of cannabis and accessories to persons under the age of 18 are prohibited by the Cannabis Act, but provinces and territories can set higher age restrictions if they wish to do so. Certain municipalities and provincial governments have signaled that they will need time beyond July 1, 2018 to prepare themselves for their role in the oversight of the distribution and retail sale of cannabis.⁷
• Import and export of cannabis will be restricted to authorized purposes in relation to: (i) cannabis for medical purposes; (ii) cannabis for scientific purposes; and (iii) industrial hemp.
• Individuals will be entitled to cultivate, propagate, harvest and distribute four (4) plants⁸ per household, provided that the plant is from a seed or plant material that was obtained from federally authorized sources, and will be entitled to possess and distribute up to 30 grams of dried cannabis, or its equivalent, for personal use.

Licenses and permits required to produce or sell commercially

Grandfathering of Licensed Producers

Strict regulation of promotion, packaging and labelling

• Factual, accurate information (including ingredients, brand, strain, THC levels) will be permissible on packages, labels and promotions.
• Promotion of cannabis, cannabis accessories and services will be prohibited if it:
• is about price and distribution (except at point of sale);
• appeals to young persons;
• includes testimonials or endorsements;
• presents brand elements in a way that evokes glamour, recreation, excitement, vitality, risk or danger;
• involves the use of brand elements or names of persons authorized to produce, sell or distribute cannabis in the sponsorship of a person, entity, event, activity, or facility; or
• involves the display of brand elements or the names of persons authorized to produce, sell or distribute cannabis on a facility used for sports, or a cultural event or activity.
• Similar restrictions will apply to packaging and labelling of cannabis, cannabis-accessories and services.
• "Informational promotion"¹⁰ provided to adults will be allowed as long as it is compliant with the Act. Brand-preference promotion will also be allowed. Promotion, samples and inducements (games, draws, lotteries or contests) relating to cannabis and cannabis accessories in consideration of purchase of anything or service by persons authorized to produce, sell or distribute cannabis will not be allowed.

Criminal penalties and broad regulatory powers

• The proposed Cannabis Act contains significant criminal penalties intended to protect public health and safety; restrict youth access; and deter criminal activity. It will be prohibited for persons over the age of 18 to possess more than 30 grams of dried cannabis, or its equivalent, and for young persons between the ages of 12 and 18 years to possess or distribute more than 5 grams of dried cannabis, or its equivalent. Penalties and enforcement associated with impaired driving, including cannabis-impaired driving, will be strengthened. Further, the criminal law provisions in the proposed Cannabis Act apply to individuals and to officers, directors, agents, and mandataries of a corporation.
• The federal government will have broad inspection rights under the Act. The government will also establish a national cannabis tracking system. The Act will allow the disclosure of information in that tracking system and confidential business information to various governments or to protect public health or public safety.

What's Next? Opportunities and Risks

The government has been on target with its forecasted timeline to legalize cannabis for recreational purposes by July 1, 2018. Although the draft legislation provides significant detail on what the regulatory oversight will look like, there will be opportunities and risks associated with the new regulatory framework. Companies with experience operating in a regulated environment will have an advantage compared to companies that lack such experience: with the exception of distribution and retail sale,¹¹ the proposed Cannabis Act will regulate the entire supply chain, including regulatory applications, regulatory authorizations (licenses and permits), quality control, safety control, security, audits and inspections, provision of information to regulators, the conduct of tests and studies required by regulators, tracking and product recalls.

Opportunities

• Stakeholders will be able to provide comments to the federal government on the proposed Cannabis Act and draft regulations.
• "Informational promotion" and "brand-preference" of cannabis that are accurate and that meet other requirements in the Cannabis Act will be allowed. This will open up opportunities to give Act-compliant and regulation-compliant information and branded messages to adults.
• LPs licensed under the ACMPR or who have entered the queue for licensing with quality regulatory submissions will obtain rights to enter the supply chain for recreational cannabis before those who have not yet started the regulatory process. LPs will have additional advantages and opportunities:
• LPs with compliance policies and rigorous compliance programs will have lower risk of licenses being suspended or revoked than LPs with inadequate compliance policies and compliance programs.
• LPs who are engaged in research will have the ability, subject to applicable authorizations, to export and import cannabis for scientific purposes.
• LPs will have the ability, subject to applicable authorizations, to export and import cannabis for medical purposes.
• Trademarks can be registered in relation to cannabis, cannabis accessories and services, and are not to be held invalid just because of absence of use as a result of compliance with the Act.

Risks

• The Act may change throughout the legislative process before it becomes law. It is uncertain what the final law will look like.
• The draft regulations under the proposed Cannabis Act will contain significantly more detail about how the federal government will regulate the supply chain for cannabis than what is provided in the Act. However, the regulations have not yet been published and many features of the recreational cannabis market remain unknown. For example, it is unclear how cannabis will be taxed; it was not addressed in the proposed Cannabis Act and will likely be determined by the Ministry of Finance. It is also unclear how edibles of cannabis will be regulated.
• Distribution and retail sale of cannabis may differ among the provinces, territories and aboriginal governments, creating an uneven approach in distribution and retail sale across the nation.

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¹ Bill C-45, An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts, [Cannabis Act]. Online: http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Mode=1&DocId=8894959; online: https://www.canada.ca/en/health-canada/news/2017/04/canada_takes_actiontolegalizeandstrictlyregulatecannabis.html.

² Online: https://www.canada.ca/en/health-canada/news/2017/04/canada_takes_actiontolegalizeandstrictlyregulatecannabis.html [Health Canada News Release]

³ Currently, only production, distribution and sale of cannabis for medical purposes by producers who hold licenses (licensed producers or LPs) under the Access to Cannabis for Medical Purposes Regulations (ACMPR) and cultivation for personal medical use by registered individuals or their designated person is legal.

⁴ Ibid at Schedule 3.

⁵ Ibid at Schedule 4.

⁶ Ibid at Schedule 5.

⁷ Online: http://www.cbc.ca/news/canada/edmonton/alberta-municipality-marijuana-legalization-auma-1.4071693; online: https://www.thestar.com/news/canada/2017/04/13/provinces-bracing-for-impact-as-liberals-set-to-unveil-proposed-pot-bill.html.

⁸ Plants that are not budding or flowering. The plants cannot be more than 100 cm in height.

⁹ Produce means to obtain or offer to obtain cannabis by any method or process, including by manufacturing, by synthesis or by using any means of altering the chemical or physical properties of cannabis, or to alter or offer to alter the chemical or physical properties of cannabis by the use of an organic solvent.

¹⁰ Factual information about (a) cannabis or its characteristics, (b) a cannabis accessory or its characteristics, (c) a service related to cannabis; or the availability or price of cannabis, a cannabis accessory or a service related to cannabis.

¹¹ Distribution and sale of cannabis for recreational uses will be regulated by the provincial, territorial and Indigenous governments.