Federal Government Introduces Cannabis Legislation

On April 13, 2017, the federal government introduced the Cannabis Act (Act), the much-anticipated legislation to legalize and regulate the use of cannabis for recreational purposes. The Act received first reading on April 13, 2017 and, if passed, is expected to take effect on or before July 2018. The two main policy objectives cited by the federal government in enacting the legislation are to restrict access to cannabis by children and youth and keep profits away from organized crime.

The Act largely conforms to the recommendations of the Task Force on Cannabis Legalization and Regulation (Task Force), creating a highly regulated landscape for businesses looking to produce, distribute or deal in cannabis products. However, the Act does not address in detail a number of key issues, including relating to labelling, transition, licensing requirements and taxes. These will need to be addressed by the federal government in regulations and rules over the next year or more, and the federal government will also need to work out issues with the provinces and municipalities.

Until the Act passes the House of Commons and the Senate and is declared in force, existing laws (including criminal sanctions) will continue to apply.

REGULATION OF PRODUCTION AND DISTRIBUTION

Production will continue to be regulated federally, with a safety licensing regime to be imposed on those seeking to produce cannabis for the recreational market. The licensing regime will be overseen by the federal department of health. The businesses already licensed to produce cannabis products under the medical regime (as of today, 42 such businesses) have a head-start, but since the federal government recognizes the importance of having craft producers, Health Canada has added staff and resources to accelerate the approval process for new producers.

A licensing regime will be put in place to govern the licensing of production, testing, packaging, transportation, sale, possession (above 30 grams, which is permitted for personal use) or disposal of cannabis products for the recreational market. Licence applications may be refused by the minister for a variety of reasons, including previous breaches of narcotics laws, or failure to obtain a security clearance.  As under the medical regime, foreign businesses and persons appear to be excluded from the licensing regime.

Production of alternatives to smoked cannabis (e.g., oils) will be permitted, but additional labelling and regulatory requirements are expected and restrictions are imposed on products deemed to be particularly appealing to children, such as products that look like candy. Edibles and more creative alternatives will likely not be permitted until a later date. Once permitted, those in the edibles business will need to ensure compliance not just with cannabis specific laws, but any applicable general food laws too.

Producers will be subject to a rigorous inspection, testing and disclosure regime, with strict quality standards. The regulations will detail the information required to be provided to the public and to regulators.

RETAIL DISTRIBUTION

As anticipated, provinces and territories will regulate the retail distribution of recreational cannabis. A minimum age of 18 is set federally, with the provinces able to set a higher age if they so choose. Machine dispensation will be prohibited, as will be the sale of cannabis produced other than through a licensed producer (e.g., the sale of homegrown, illegal or imported cannabis).

Under the medical regime, licensed producers can only ship product to patients (storefront sales are prohibited). With the recreational regime, the provinces and territories will determine whether storefront sales or mail-order or both are allowed. In provinces that have not implemented a regulated retail framework, individuals will be able to purchase cannabis online from a federally licensed producer with mail delivery.

Serious criminal penalties will be imposed on those who sell illicit cannabis, or sell cannabis to youth.

IMPACT ON MEDICAL CANNABIS

The current program for access to cannabis for medical purposes under the Controlled Drugs and Substances Act and the Access to Cannabis for Medical Purposes Regulations will be continued under the new Act. This will alleviate the concerns of some advocates who voiced concerns about difficulty accessing medical cannabis by those under the recreational use age limit, or access in the event of a shortage, were a separate system for medical cannabis not maintained.

One of the key factors impacting the success of the medical versus recreational regimes will depend on the extent to which public and private insurers reimburse cannabis for medical use. Although inclusion of cannabis as an insured medical benefit is not yet common, changes are afoot.

Another key point to watch in the coming months will be whether the medical and recreational products are taxed similarly. These details are not yet available.

MARKETING, ADVERTISING AND LABELLING

The extent to which the new legislation will restrict the marketing and branding of cannabis was one of the key unknowns. Industry’s position is cannabis should be regulated more like alcohol than tobacco, as the ability to brand products is essential to properly compete with the black market and make it harder to have counterfeit product. In contrast, many public health and youth experts believe strict controls (including plain packaging) are necessary to minimize the risks of cannabis promotion to youth, given the challenges with partial restrictions (e.g., only prohibiting advertising that targets youth). The latter position was recommended by the Task Force.

The Act’s restrictions on advertising, marketing and labelling presently fall in between that advocated by industry and that advocated by public health experts. The Act prohibits advertising and packaging directed at youth, which has testimonials or endorsements, which depicts a person, character or animal, as well as lifestyle advertising. Whether plain packaging will be required once regulations are introduced remains to be seen.

PERSONAL CONSUMPTION AND POSSESSION

The federal limits on smoking (e.g., in workplaces) will be extended to cover cannabis, but each province will be able to permit usage in designated places, such as lounges. Personal possession of cannabis will be limited to 30 grams and four cannabis plants per household. Illegal trafficking of cannabis, including possession above these limits, will continue to be subject to criminal sanctions.

EXPORT AND IMPORT

The Act restricts international export and import of otherwise legal cannabis except for medical and scientific purposes, and then only when a licence to import or export has been granted under the Act.

TAX

It is anticipated that amendments will be made to the Excise Tax Act to impose taxation on cannabis products. The Task Force recommended that taxation be based on the level of tetrahydrocannabinol (known as THC — the chemical responsible for most psychological effects of cannabis) in the product, in an effort to discourage high rates of THC in products. The details of taxation measures are not yet available. Setting the right tax level will be a balancing act — when set too high, the black market becomes appealing; when set too low, consumption may increase.

For more information, please contact:

Alexis Levine                 416-863-3089
Alice Tseng                   416-863-3067

or any other member of our Cannabis group.

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