Fair notice: Federal Court confirms need for disclosure of all factors in regulatory decision-making

Regulatory agencies must often adjust their existing policies and protocols to adapt to emerging markets. During this adjustment period, the stakeholders in the market will have to manage constantly shifting and sometimes vague expectations from these agencies.

In the recent decision in Organigram Inc v. Canada (Attorney General), 2023 FC 1075, the Federal Court considered whether Health Canada breached procedural fairness by failing to notify Organigram Inc. (Organigram), a licensed cannabis producer, about internal policy factors relied upon to reach a final regulatory decision in respect of the classification of Organigram’s cannabis products. The Court held that by failing to notify Organigram of part of the basis of the decision, Health Canada breached the requirements of procedural fairness. The result suggests that if a regulatory body is going to render a decision based on internal policies, then it must inform the relevant stakeholders of such policies or risk having its decision set aside.

What you need to know

• Relatively lower level of procedural fairness owed here. While the Court granted Organigram’s application for judicial review, it affirmed that regulatory decisions impacting commercial interests tend to require a lower level of procedural fairness than decisions affecting the lives of individuals. In addition, it noted that discretionary decisions pertaining to compliance also tend to engage the lower end of the procedural fairness spectrum.
• All major factors involved in decision making must still be disclosed. Notwithstanding the degree of fairness required, if a regulatory body puts weight on a particular factor in reaching its decision, the stakeholder must be informed about that factor to meet the requirements of procedural fairness.
• The role of notice in addressing procedural fairness. The purpose of notice is to provide the stakeholder with “sufficient information and opportunities to meet the case” against them. The Federal Court found that by not providing information about an important factor, Health Canada denied Organigram a meaningful opportunity to respond to the agency’s concerns.

Health Canada’s review of the Organigram products

Organigram is a licensed producer of cannabis and cannabis products in Canada. In 2021, it submitted to Health Canada notices for new cannabis products as required by Part 12 of the Cannabis Regulations: namely three flavours of its Jolts lozenges containing THC. The company classified their products as “cannabis extracts” rather than “edible cannabis”. Under the Cannabis Regulations, the permitted amount of THC per container is significantly higher for a cannabis extract than for edible cannabis.

Health Canada initially notified Organigram by letter of a concern that the Jolts products should properly be classified as “edible cannabis”, because in its view they were to be consumed in the same manner as a “food”. Health Canada undertook a classification determination and delivered a Notice of Non-Compliance to Organigram in respect of the Jolts line of products on the basis that they were assessed to be classified as edible cannabis and did not conform to the THC requirements for this product class. Health Canada’s reasoning for this determination was based on the fact that the products had a likeness to confectionery-like products, were being represented and marketed in a manner that highlights their taste and flavour, and may be perceived by consumers as intended for consumption in the same manner as both food products and other cannabis edibles. Health Canada requested that Organigram voluntarily stop the sale of the Jolts products. Organigram responded to each of Health Canada’s three concerns and expressed why in its view the products should properly be classified as cannabis extracts.

Health Canada then commenced a second classification process that considered Organigram’s responses, but also considered additional information and documents, including a then-unpublished internal Health Canada policy document that referenced a new factor—the sensory and physical characteristics of the products—which it considered relevant to the determination of how the Jolts products were intended to be consumed and which it had not clearly raised to Organigram. Following the second process, Health Canada issued a decision letter in which it maintained its position that the Jolts products were edible cannabis, and as such Health Canada ordered a phase-out of the products in their current format from the market.

Organigram commenced a judicial review of Health Canada’s decision.

The Federal Court’s decision

In reviewing the decision, the Federal Court first noted that the circumstances did not justify any elevated level of procedural fairness and that in this context—an administrative decision relating to regulatory compliance affecting only commercial interests—the level of procedural fairness owed was at the lower end of the spectrum.

However, despite that relatively lower bar in this context, the Court held that Health Canada had breached procedural fairness. Specifically, the Federal Court concluded that by failing to disclose its reliance upon “new and relevant information” that influenced its ultimate decision, Health Canada had deprived Organigram of a meaningful opportunity to respond to that concern. Having afforded Organigram an opportunity to respond through the Notice of Non-Compliance process, Health Canada had an obligation to disclose all factors that influenced its decision.

Why the decision matters

The Federal Court’s decision may open the door for further challenges of regulatory decisions that rely upon internal policy documents or protocols. While the use of these internal documents is within the administrative decision-making powers of an agency, stakeholders should have complete information about all relevant factors within these policies that are relied upon in making an administrative decision.

As one of the first cases where a licensed player in the cannabis market has applied for judicial review of a decision of Health Canada under the Cannabis Act or Regulations, this case illustrates that as regulatory agencies adapt and evolve internal policies to regulate new and emerging issues, they will have to be mindful of ensuring that stakeholders are adequately informed of relevant information and procedures that may be relied upon in making decisions.