Health Canada’s proposed approach to the regulation of cannabis

As we reported here, Canada has introduced legislation providing a framework for regulated access to legal cannabis for recreational use. The proposed Cannabis Act provides for overlapping oversight of the legal cannabis industry, with the federal government establishing licensing and authorization requirements for production, packaging, and labelling, and provincial/territorial governments overseeing distribution and retail sales. 

Over the past several months we have seen proposals from some of the provinces, and on November 21, 2017, Health Canada released its Proposed Approach to the Regulation of Cannabis (the Proposed Approach) for public consultation. This consultation is open until January 18, 2018. It is important that industry recognize this is likely the only time it will be able to comment on the proposed regime, as Health Canada has advised that draft regulations will not be published.

Overview of the proposed approach

Health Canada proposes a risk-based approach to overseeing the cannabis industry, whereby different requirements will apply to different operations, depending on the level of risk associated with the operation’s activities. The goal: a diverse, competitive legal cannabis industry with both large and small players across Canada. Licences are activity based and applicants can seek a licence for more than one activity at a single site.

Four types of cultivation licences have been proposed:

• Standard cultivation licences will authorize the large-scale growing and harvesting of cannabis plants and the production of cannabis seeds, cannabis plants, fresh cannabis and dried cannabis. Standard cultivators will only be permitted to sell to others in the industry, i.e., other licence holders, and to federally or provincially authorized distributors. Standard cultivators will not be allowed to package or label cannabis for sale to the public, or to sell directly to the public.

• Micro-cultivation licences will authorize all of the same activities as the standard cultivation licence, but on a smaller scale.

  Thus, we may see a robust artisanal legal cannabis market in Canada. We query whether this model will work across the country, especially given the proposed distribution models announced by some provinces, such as Ontario. Instead, what we may see is a concentration of micro-cultivators in certain provinces, such as British Columbia. Health Canada is seeking input on how to set the threshold for a “micro”-cultivator and is considering making it dependent on plant count, size of growing area, total production and/or gross revenue.

• Nursery licences will authorize the growing of cannabis plants to produce starting material (seed and seedlings) for commercial and personal cultivation (where permitted), and to enable the development of new varieties of high-quality cannabis. Nursery licence holders will be permitted to sell live plants and seeds to licenced cultivators, licenced producers and research authorization holders.

• Industrial hemp licences will authorize the cultivation of industrial hemp plants (those containing 0.3% THC or less) and the production and sale of seeds and grains. Additionally, it is proposed that industrial hemp licences would authorize the use of whole hemp plants, including the leaves, flowers and branches, which cannot be used under the current regime and contain high levels of CBD. This is something the Canadian industrial hemp industry has been advocating for a number of years.

Similarly, Health Canada has proposed two types of processing licences:

• Standard processing licences will authorize the production, packaging and labelling of cannabis products for public consumption. Authorized activities will include manufacturing cannabis oil (and intermediary products such as cannabis resin), synthesizing phytocannabinoids, manufacturing other authorized products (e.g., pre-filled cannabis oil capsules or oral sprays) and/or packaging and labelling of products for sale to the public.

• Micro-cultivation licences will authorize all of the same activities as the standard processing licence, but on a smaller scale.

Additional proposed licences/authorizations include:

• Federal sale licences, which will authorize sales of for medical purposes (similar to the current system under the ACMPR) and sales of cannabis for non-medical purposes to adults in provinces/territories that have not established a retail framework.

• Analytical testing licences will authorize the possession of cannabis by independent, third-party laboratories for the purpose of analytical testing.

• Import and export licences will authorize the import or export of cannabis for medical or scientific purposes.

• Research licences will authorize activities with cannabis for research and/or development by persons who are not otherwise permitted to conduct such activities under another licence or permit. This licence will not permit sales, except to enable commercialization of novel research and development, i.e., the sale of new plant genetics.

Specific requirements for each class of licence will be set out by regulation; however the Proposed Approach provides some information about what we’re likely to see in the regulations, including: requirements to notify local authorities; licence terms of up to five years; security requirements; and rules for packaging (tamper- and child-resistant) and labelling (similar to current label requirements for cannabis for medical purposes).

Notably missing from the federal proposal is the provision of licences for distribution and warehousing. It remains unclear how, if at all, companies will be able to participate exclusively in these activities.  

Status and next steps

To meet the government’s commitment to bringing the proposed Cannabis Act into force by July 2018, final regulations will be published in Canada Gazette Part II as soon as possible after the act receives royal assent.