Authored By: Nav Pannu, BAX Securities Law

Nav” Pannu is “of counsel”* with BAX Securities Law. Nav is a securities corporate finance lawyer who has experience capital raising in the Toronto and Vancouver markets. Nav’s experience includes assisting US and Canadian start-ups, venture capital and private equity funds and small and medium size companies in the mining and medical marijuana industries with their capital raising, going pubic (IPO and CPC’s), TSXV and CSE listing process, TSXV compliance, M&A, public offerings and on going public company filings requirements and corporate needs.

For more information, please call: Barbara Hendrickson or Nav Pannu at BAX Securities Law 416.601.1004.

BAX Securities Law 181 University Ave, Suite 2200 Toronto, Ontario M5H 3M7
T: 416.601.1004
F: 416.363.7875
E: info@baxsecuritieslaw.com

www.baxsecuritieslaw.com

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.

——————————————————————————————

The main topics covered by the regulations include: (1) licensing & permitting, (2) security clearances, (3) cannabis tracking, (4) cannabis products, (5) packaging and labelling, (6) cannabis for medical purposes, and (7) health and cosmetic products with cannabis. The following is a summary of the released regulations.

(1) Licenses, Permits and Authorizations

Under the proposed regulations, a multitude of cannabis related activities are planned to enable a diverse and competitive cannabis industry with quality-controlled products that maintains the fundamental goals of ensuring the illicit market and organized crime in cannabis are reduced.4

For example, the following authorizations are outlined under the proposed regulations:
Cultivation: Standard cultivation, micro-cultivation, industrial hemp, and nurseries;

Processing: Standard processing, and micro-processing;

Sale (federal level): Sale for medical purposes, and sale for non-medical purposes to adults in provinces and territories that have not yet enacted a retail framework;

Analytical testing: Authorizing the possession of cannabis by independent, third-party labs for analytical testing of cannabis to verify it meets safety and quality standards;

Import / Export: Authorizing import or export of cannabis for medical or scientific purposes, or in respect of industrial hemp; and

Research: Authorizing activities with cannabis for research and/or development purposes by persons who are not otherwise permitted to do so under another licence or permit under the Cannabis Act.5
The above guidelines highlight and open the door for smaller cultivators, processors and nurseries, essentially craft and micro-businesses, who would be permitted to sell to those licensed and permitted to purchase cannabis products for retail-sale, or directly to the public.6
Health Canada released a chart, available here, summarizing the different licenses and possible relationships between licensees.7
Under the proposed Regulations, there are no restrictions on conducting multiple activities per site, for example, cultivating, processing and selling on the same property appears to be permitted;8 each proposed license issued would be valid for no more than five years, and then likely be required to be renewed;9 there is a prohibition against a licensed activity in a dwelling-house;10 the record keeping requirement to ensure compliance and for potential product recalls;11 Import and export permits for industrial hemp are proposed to be amended to a maximum of six months time period from three months, and the List of Countries Approved for the Importation of Viable Grain be removed (permitting Canadian importers to import hemp seed or grain from more countries).12

(2) Security

With respect to Application Requirements, the regulations propose that certain individuals associated with certain licences issued under the proposed Cannabis Act hold a valid security clearance issued by the Minister of Health, who may refuse to issue a license or permit based on the applicant being under the age of 18, not ordinarily a citizen of Canada, or the applicant fails to receive the required security clearance.13

Notably, the regulations seek feedback on whether individuals with “histories of non-violent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants)” should be permitted to receive security clearance to participate in the legal cannabis industry.14 Federal Health Minister Ginette Petitpas Taylor told reporter “[w]e have over 500,000 Canadian with minor drug offences on their criminal records…We’re just asking the question: should these people with a small amount of personal possession…be excluded from the market or should we consider them.”15

(3) Cannabis Tracking

Similar to US states that have legalized cannabis, medicinal and/or recreational, the proposed Cannabis Act authorizes the Minister to create a national Cannabis Tracking System (“CTS”), with the obvious intent to prevent diversion into and out of the legalized market.16 The required information in the CTS would include by lot/batch on, on a monthly basis17:
Cannabis sown, propagated and harvested;
Cannabis obtained, returned, ordered, delivered, sent, and sold;
Cannabis destroyed;
Cannabis used at each stage of production (such as when it is transformed from one product class or form into another, or when it is chemically synthesized);
Cannabis used in research and development; and
Loss and theft (which would need to be reported within 10 days of detection).18
With respect to industrial hemp, those licence holders would only be required to report transactions involving the transfer of leaves, flowers and branches to another licence holder.19 The destruction of any industrial hemp would not need to be reported.20

Health Canada released another chart, available here, summarizing the proposed requirements to apply for and maintaining cannabis cultivation, processing and sale licences.21

(4) Cannabis Products

Under Schedule 4 of the proposed Cannabis Act, the following five classes of cannabis are permitted: (1) dried cannabis, (2) cannabis oil, (3) fresh cannabis, (4) cannabis plants, and (5) cannabis seeds.22 The proposed regulations would allow the Minister to amend Schedule 4 through additional regulations to incorporate additional classes of consumable cannabis, and as recent dialogue on the Canadian cannabis landscape has already revealed, edibles and concentrates are already being pencilled in and automatically be included one year after the Cannabis Act is enacted.23

At the other end, the proposed Cannabis Act prohibits the sale of any mixture of substances that contain cannabis and prohibited substances listed in Schedule 5, which include nicotine, caffeine and ethyl alcohol.24 The proposed regulations would permit the Minister of Health to include additional prohibited items on the Schedule 5 list or permit the use of those prohibited substances.25 The Governor in Council would also have the authority to make regulations regarding the composition of cannabis or any class of cannabis.26

(5) Packaging and Labelling

With respect to packaging and labelling of cannabis products, the regulations plan to offer substance and guidelines that will allow consumers to make informed decisions and safely handle and transport cannabis, in particular, in tamper-evident and child-resistant packaging.27 Industrial Hemp would remain subject to packaging and labelling requirements currently in place under the Industrial Hemp Regulations.28

Although the proposed Cannabis Act prohibits cannabis packaging appealing to youth or that which promote the consumption of cannabis, the regulations will outline details on packaging and labelling of the different classes of cannabis authorized for sale, meaning dried cannabis, fresh cannabis, oils, plants and seed-specific guidance.29

Under the regulations, all cannabis products are required to be packaged in tamper-evident, child-resistant packaging in order to prevent contamination and to ensure the product remains dry.30 The regulations also propose inner and outer packaging to accommodate new product forms.31 Each package may contain a maximum of 30 grams of dried cannabis, or its equivalent for other classes of cannabis, in opaque packaging, as required per Schedule 3 of the proposed Cannabis Act.32

Although medical and recreational products are to be packaged the same, additional labelling requirements are outlined for medical cannabis products, per the ACMPR. The information listed on cannabis packaging will need to be provided in the official languages, with the following information:
Name and contact information of the processor who packaged the product;
Product description;
Product lot number;
Product weight or volume, depending on the product class;
Packaging date (and expiry date, if one has been set);
Recommended storage conditions;
THC / CBD content (expressed as the percentage of THC / CBD the product could yield, and by unit or dose, if applicable); and
Inclusion of the statement: “KEEP OUT OF THE REACH OF CHILDREN”.33
According to the proposed regulations, each product will be required to be accompanied by additional consumer information regarding health and safety provided by Health Canada.34

The regulations also propose, rotating mandatory health warnings, similar to the tobacco warning system, on all cannabis product labels.35

The regulations outline that all cannabis products for ingestion with more than 10 parts per millions (10 ppm) (which is equivalent to 0.001%) of THC to include a standardized cannabis symbol.36
Any use of colour, graphics, and font size on product packaging and labelling is to be strictly regulated, with possible measures including:
Limiting the use of colours on packaging;
Standard font type, size, and colour for brand elements relative to other information displayed on the package; and/or
Restrictions on the use of brand elements, including relative size, colour, and place on the package.
The Federal Health Minister said with respect to the labelling and packaging proposals, these are the standards they want to see once the Cannabis Act is enacted, but would consider input on how to best implement the guidelines.37

(6) Cannabis for Medical Purposes

The regulations outline the current medical program will largely remain the same as the current system if and when the Cannabis Act receives Royal Assent, but the medical framework will be aligned with rules outlined for non-medical use, improve access to medical cannabis for patients by permitting easier access for patient to switch from licensed sellers,38 and reduce the risk of abuse.39

(7) Health Products and Cosmetics with Cannabis

Prior to authorizing any health or cosmetic products containing cannabis, Health Canada has proposed a scientific, evidence-based approach, and any such products, before receiving the requisite approval, would be subject to the Food and Drug Act, and applicable regulations for safety, efficacy and quality.40 The regulations outline the process involved for authorizing new prescription and non-prescription health products, natural health products, medical devices, and veterinary drugs and health products.41

 

1 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html
2 Ibid; https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis.html
3 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html.
4 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html#a13
5 Ibid.
6 Ibid at Section 2.2.
7 https://www.canada.ca/content/dam/hc-sc/documents/services/health/campaigns/marijuana-cannabis/supply-chain-commercial-production-sale-cannabis/supply-chain-commercial-production-sale-cannabis.pdf
8 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html#a13.
9 Ibid at Section 2.3.2.
10 Ibid at 2.3.3.
11 Ibid at 2.3.7.
12 Ibid at 2.4.1.
13 Ibid at 2.5.2 & Section 3.1.
14 Ibid at Section 3.
15 http://www.cbc.ca/news/politics/pot-regulations-1.4412015
16 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html#a13 at Section 4.
17 Ibid at Section 4.4.
18 Ibid at Section 4.3 and 4.4.
19 Ibid at Section 4.3.
20 Ibid at Section 4.3.
21 https://www.canada.ca/content/dam/hc-sc/documents/services/health/campaigns/marijuana-cannabis/proposed-requirements-cultivation-processing-federal-sale-licences/proposed-requirements-cultivation-processing-federal-sale-licences.pdf
22 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html#a13 at Section 5.2.
23 Ibid.
24 Ibid at Section 5.4.
25 Ibid.
26 Ibid.
27 Ibid at Section 6.
28 Ibid at Section 6.1.
29 Ibid.
30 Ibid at Section 6.2.
31 Ibid.
32 Ibid.
33 Ibid at Section 6.3.
34 Ibid.
35 Ibid at Section 6.4.
36 Ibid at Section 6.5.
37 http://www.cbc.ca/news/politics/pot-regulations-1.4412015
38 https://www.canada.ca/en/health-canada/programs/consultation-proposed-approach-regulation-cannabis/proposed-approach-regulation-cannabis.html#a13 at Section 7.2.1
39 Ibid at Section 7.
40 Ibid at Section 8.3.
41 Ibid at Section 8 to 8.10.