Cannabis Legalization One Step Closer With Regulations Finalized

Canada has now, for the most part, arrived at legalization. Canada's Cannabis Act (Act) received Royal Assent on June 21 and the Regulations under that Act (Regulations) are being published in final form—without opportunity for comment—on July 11.¹ Other than the October 17 "coming into force" date for the Act and the Regulations, Canada has arrived at legalization for recreational use of cannabis.

What You Need To Know

• The Regulations establish the rules and standards on production, distribution, sale, importation, and exportation of cannabis for recreational use by licence holders.
• For the most part, the Regulations are consistent with the federal government's proposed cannabis regulatory framework that was released on November 21, 2017.
• Health Canada will require reporting of investments in cannabis companies, and will provide guidance on when reporting requirements are triggered.
• Security clearance must be obtained for any individual, or director or officer, who exercises, or is in a position to exercise, direct control over a corporation that holds a licence for cultivation, processing or sale.
• Import and export of cannabis is limited to import or export for medical or scientific purposes and requires a certificate.
• Some additional framework provided by Health Canada include classification and types of cannabis products, regulatory oversight, outdoor cultivation, pesticides and microbial contaminants, and packaging and labelling.

The Details

In further detail, the key aspects of the federal government's cannabis regulatory framework are listed below.

Law and Timing

The Cannabis Act received Royal Assent on June 21 and is now law.² The Regulations will become law on July 11, when published in the Canada Gazette, Part II. Together, the Cannabis Act and the Regulations will come into force on October 17. The Regulations include:

• Cannabis Regulations
• The new Industrial Hemp Regulations
• Qualifications for Designation as Analyst Regulations (Cannabis)
• Cannabis Act (Police Enforcement) Regulations

Until October 17, cannabis will continue to be regulated under the Controlled Drugs and Substances Act, Access to Cannabis for Medical Purposes Regulations (ACMPR) and Industrial Hemp Regulations.

Licensed producers under the ACMPR and Industrial Hemp Regulations may continue to possess, sell or conduct other activities with cannabis, as indicated in their licence.³ Licensed producers will be known as license holders under the Regulations.⁴

Other authorized activities include shipping and transporting of cannabis products⁵ to designated retailers⁶ in preparation for the public sale of cannabis for recreational use.⁷ However retailers will not be permitted to sell cannabis for recreational use until October 17.

The ACMPR and the current Industrial Hemp Regulations will be repealed on October 17. The Regulations contain provisions that will apply to the sale of cannabis for medical use under a physician's authorization and, as such, the Regulations will address the sale of cannabis for recreational use and for medical use.

Classification and Regulatory Pathways

The Cannabis Act and Regulations apply to "cannabis products," including fresh and dried cannabis, cannabis oil, and cannabis plants or seeds, or a cannabis accessory if that accessory contains such forms of cannabis.

A cannabis product excludes a drug containing cannabis as an active pharmaceutical ingredient,⁸ or a drug that is manufactured or sold for use in a clinical trial.⁹ Drugs containing cannabis will be reviewed, approved, and regulated through Health Canada's current drug regulatory pathways. Drugs containing cannabis must be issued a drug identification number (DIN)¹⁰ before they can be sold. Cannabis products that make therapeutic claims are also classified as drugs containing cannabis.¹¹

Natural Health Products (NHP) containing cannabis will be reviewed, approved, and regulated under the Natural Health Products Regulations. The interface between "drugs containing cannabis" and NHPs containing cannabis is not entirely clear. An NHP containing cannabis must not include more than 10 ug/g THC, an isolated or concentrate phytocannabinoid or a synthetic duplicate of that phytocannabinoid.

Industrial hemp is cannabis that contains 0.3% tetrahydrocannabinol (THC) or less in the flowering heads and leaves, and is regulated under the Industrial Hemp Regulations.

Foods and cosmetics containing hemp will be regulated by the food regulatory and cosmetic regulatory pathways.¹²

Edibles and Concentrates

Edibles that only contains derivatives of cannabis (e.g., hemp) will be regulated as a food under the Food and Drugs Act and edibles containing cannabis (i.e., higher than 10 ug/g THC) will be regulated under the Regulations. For both edibles containing cannabis and for concentrates, an amendment to Schedule 4 to the Act—which sets out the classes of cannabis, which are currently plants, seeds, fresh, dried, oil—will be required. The Regulations will also need to be amended.

The proposed approach to regulation of cannabis provides that the "edibles containing cannabis" class would include edible products, such as foods or beverages that contain cannabis, and that a precise definition would be set out in a subsequent regulatory proposal.

Import and Export

With a permit, cannabis may be imported or exported, but only for medical or scientific purposes. The Regulations do not impose limits on the amount of cannabis that may be imported or exported. However, each application for an import or export permit must specify the quantity of cannabis to be imported or exported under that permit.

Types of Cannabis Products

As of October 17, the types of cannabis products authorized for sale for recreational use will be fresh and dried cannabis, cannabis oil, and cannabis plants or seeds, or a cannabis accessory if that accessory contains such forms of cannabis.

• The maximum limits on yield quantity or cannabis products are listed below.
  • Each discrete unit of a cannabis product intended to be taken by a user must not exceed a maximum yield quantity of 10 mg of THC.
  • Dried cannabis in each discrete unit of a cannabis product intended to be inhaled by a user must not exceed 1.0 g.
  • Cannabis oil must not exceed a maximum yield quantity of 30 mg of THC.
  • There is no THC limit for dried cannabis.
  • For determining compliance to the limits on personal use of cannabis, one cannabis plant will be considered equivalent to three cannabis seeds.

Methods of administration of cannabis contemplated by the Regulations include administration through oral, rectal, vaginal, topical routes. However cannabis products intended to be used in the human eye, or administered by disrupting the skin barrier are prohibited.

Cannabis accessories are also regulated by the Regulations.¹³ Some regulatory requirements include:

• THC or THCA cannot be added to dried or fresh cannabis that will become a cannabis product, or that will be contained in a cannabis accessory that will become a cannabis product.
• For cannabis oil, any accessory that dispenses cannabis oil, and is packaged with cannabis oil or a cannabis accessory that contains the oil, that is intended to be ingested, must not dispense more than 10 mg of THC.
• A cannabis accessory must not impart a characterizing flavour to the cannabis.
• A cannabis accessory packaged with the cannabis product must not alter or enhance the effects of the phytocannabinoids.¹⁴
• Same packaging and labelling requirements that applies to cannabis products applies to cannabis accessories.
• A licence holder must maintain a list of the names and types of cannabis accessories that they sell and must retain each version of the list for at least two years after being replaced by a new version, or at least two years after the licence expires or is revoked.

For every new cannabis product that has not previously been sold in Canada, a notice must be provided to Health Canada 60 days before the sale date. Information in the notice should include:

• the class of cannabis under the Act, to which the cannabis product belongs;
• a description of the cannabis product, including the brand name; and
• the date on which the cannabis product is expected to be made available for sale.

Regulatory Oversight

The regulator which oversees the application of the Act and Regulations is Health Canada.

The different classes of licences available under the Regulations include cultivation (micro, standard, nursery), processing (micro, standard), analytical testing, sale, research, and a cannabis drug licence. There is no limit on how many licences an individual or a corporation may hold. A licence issued under the ACMPR is deemed to be a licence for cultivation, processing, or sale, and a subclass of licences if requirements are met.¹⁵

An individual, corporation, partnership or a cooperative can hold a licence to cultivate, process, sell, perform analytical testing and research on cannabis. The entities may also hold a cannabis drug licence.

The overall regulatory scheme for licence holders is similar to that of other regulated products, such as foods, drugs, medical devices and natural health products, but with more emphasis on security of the site, security clearances and maintaining and reporting ownership interests and investors to Health Canada. For example, as for other regulated products:

• Health Canada may require a document or information be provided on an urgent basis, if there is an issue of public health or public safety;
• a licence holder must notify Health Canada before commencing a voluntary recall of a cannabis product; and.
• Health Canada can suspend a licence for failure to hold the necessary security clearance, failure to pay necessary fees, and for incompliance with the Excise Act, 2001.

The Regulations expressly state a patient's medical document may be transferred to another licence holder if requested by the patient—this concept was not expressed in the ACMPR.

Outdoor Cultivation, Pesticides and Microbial Contaminants

Cannabis may be cultivated indoors or outdoors so long as physical security requirements have been met. However it's important to note that as provinces and territories have the ability to create additional rules on the regulation of cannabis for recreational use, municipal zoning bylaws will provide guidelines on how they intend to manage indoor and outdoor cultivation and whether they intend to prohibit outdoor cultivation.

Outdoor cultivation of cannabis does not require additional security measures from indoor cultivation.

Only pesticides approved under the Pest Control Products Act may be used to treat cannabis, and the pesticides must not exceed any maximum residue limit, in relation to cannabis, specified for a particular pest control product.

Cannabis products may contain microbial or chemical contaminants if they are within tolerance limits for herbal medicines for human consumption, referred to in Schedule B to the Food and Drugs Act.

Security Clearance

For a corporation that holds a licence for cultivation, processing and sale of cannabis, security clearance is required for the following individuals.

• All directors and officers.
• Any individual, director or officer of any corporation, who exercises, or is in a position to exercise, direct control over the corporation.
• Any individual, director or officer of any corporation, that is a partner in a partnership that exercises, or is in a position to exercise, direct control over the corporation.

Security clearance for the person responsible, head of security, master grower, quality assurance person, and alternates of each of the preceding positions is required, as applicable.

There are a number of factors considered in granting security clearance, including whether an applicant poses a risk to public health or public safety, and whether there is a risk of cannabis being diverted to an illicit market or for an illicit activity. A person with a previous conviction will not automatically be excluded from obtaining a security clearance as Health Canada will make these assessments on case-by-case basis. If security clearance is refused or suspended, an applicant may appeal within 20 days and may reapply in five years (or sooner, if circumstances change).

By January 17, 2019, all individuals associated with a licence holder required to hold a security clearance under the Act must have submitted an application.

Key Investors

Licence holders must maintain a record of key investors and provide a report to Health Canada on an annual basis. A key investor is a person who exercises, or is in a position to exercise, direct or indirect control over the licence holder. Health Canada will provide guidance on determining the type of investor who would trigger the reporting requirement.

A licence holder's records must include transactions involving money, goods and services, benefits received as a result, and whether the ownership interest, or other right or interest held by the key investor has been assigned, pledged, hypothecated or sold.

For licences issued under the ACMPR, the licence holder is not required to provide information on transactions involving a key investor that occur before October 17.

Packaging and Labelling

The packaging and labelling requirements mirror the details set out in the consultation paper on the Proposed Approach to the Regulation of Cannabis.¹⁶ The packaging and labelling requirements are prescriptive with little flexibility provided.

Licence holders authorized under the ACMPR must comply with packaging and labelling requirements under the Regulations by April 17, 2019.

Informational Promotion and Brand Preference Promotion

Similar to packaging and labelling, the ways in which cannabis companies can promote themselves are prescriptive. Under the Cannabis Act, licence holders may promote cannabis products and cannabis accessories by informational promotion¹⁷ and brand preference promotion. However, they may only do so if the promotion is in a communication addressed and sent to an adult and is identified by name, in a place where young persons are not permitted by law, or communicated by means of telecommunication, in a prescribed place and done in a prescribed manner.¹⁸

Licence holders authorized to sell cannabis or a cannabis accessory may promote it at the point of sale if the promotion only indicates its availability and/or its price.

Licence holders are prohibited from promoting cannabis, a cannabis accessory or any service related to cannabis by means of a testimonial or endorsement. They're also prohibited from depicting a person, character or animal, whether real or fictional, or by presenting it or any of its brand elements in a manner that associates it or the brand element with glamour, recreation, excitement, vitality, risk or daring.¹⁹

Licence holders are also prohibited from sponsoring a person, entity, event, activity or facility, if the facility is used for a sports or cultural event or activity.²⁰

Reasonable steps must also be taken by the licence holders to ensure the promotion cannot be accessed by a young person. However, cannabis products and cannabis accessories may be promoted by informational promotion and brand-preference promotion to young persons for medical reasons. Each year, licence holders must provide the total amount of money spent in a given calendar year to Health Canada on promotion a) directed at consumers who purchase cannabis at the retail level; and b) directed at consumers who do not purchase cannabis at the retail level. Description of the types of promotion must also be included.

No product inserts or leaflets may be included in a container in which a cannabis product is packaged.

What's Next?

The Regulations will be published in the Canada Gazette, Part II, on July 11. Together with the Cannabis Act, the Regulations will come into force on October 17.

Torys lawyers have written extensively on cannabis. 

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¹ While Regulations will be published in final form on July 11, an advance copy of the Regulations is available. The Regulations accord, for the most part, with the Government's publication of its proposed cannabis regulatory framework. See "Government of Canada Releases Proposed Cannabis Regulatory Framework."

² The last step in the process is the date that the Act and Regulations "come into force." That date is October 17.

³ Cannabis Act, s. 160.1.

⁴ Under the ACMPR, the term "licensed producer" was used for those who held a licence under s 35 of the ACMPR. However, the Regulations refer to holders of a licence, rather than licensed producers.

⁵ Including fresh marihuana, dried marihuana, cannabis oil and marihuana plants or seeds that are cannabis and that are indicated, and authorized in their licence issued under section 35 of the ACMPR.

⁶ Every province or territory has the authority to determine the retail framework in their own province or territory.

⁷ However, provincial/territorial authorizations is required in order to possess, sell, provide, send, deliver or transport cannabis or offer to perform any of those activities. See Cannabis Act, s. 160.1(5).

⁸ As defined in Food and Drug Regulations, C.01A.001(1).

⁹ As defined in Food and Drug Regulations, C.05.001.

¹⁰ Pursuant to Food and Drug Regulations, C.01.014.2(1).

¹¹ Therapeutic claims arise when products are represented for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings; or restoring, correcting or modifying organic functions in human beings.

¹² Food and Drugs Regulations, and Cosmetics Regulations.

¹³ Defined in the Cannabis Act as a) a thing, including rolling papers or wraps, holders, pipes, water pipes, bongs and vaporizers, that is represented to be used in the consumption of cannabis; or b) a thing that is deemed to be represented to be used in the consumption of cannabis.

¹⁴ Same prohibition applies to any component of a cannabis product.

¹⁵ Subclass of licences include licence for standard, or micro, cultivation or processing, nursery, or sale for medical purposes.

¹⁶ See "Government of Canada Releases Proposed Cannabis Regulatory Framework" and "A Flower by Any Other Name: Cannabis Trademarks and Branding."

¹⁷ Cannabis Act, s. 2. Informational promotion means a promotion by which factual information is provided to the consumer about a) cannabis or its characteristics; b) a cannabis accessory or its characteristics; c) a service related to cannabis; or d) the availability or price of cannabis, a cannabis accessory or a service related to cannabis. Brand preference promotion means promotion of cannabis by means of its brand characteristics, promotion of a cannabis accessory by means of its brand characteristics or promotion of a service related to cannabis by means of the brand characteristics of the service.

¹⁸ See Cannabis Act, s. 17.

¹⁹ See ibid.

²⁰ Sponsorship includes displaying, referring to a brand element of cannabis, or cannabis accessory or a service related to cannabis; and the name of the person that produces, sells or distributes cannabis, sells or distributes a cannabis accessory, or provides a service related to cannabis. See Cannabis Act, s. 21-22.