Health Canada Releases Proposed Regulatory Framework for Cannabis

On November 21, 2017, Health Canada launched a public consultation on the much-anticipated regulatory approach for the proposed Cannabis Act, which will legalize and regulate the use of cannabis for recreational purposes (see our April 2017 Blakes Bulletin: Federal Government Introduces Cannabis Legislation for more information). The consultation paper (Paper) outlines a regulatory approach that builds on the significant consultations already conducted by the Task Force on Cannabis Legalization and Regulation and on Canada’s existing regulatory framework for medical cannabis and industrial hemp.

The consultation period runs until January 20, 2018. Only the final regulations will be published (with no initial draft published), and accordingly, any and all comments relating to the regulations should be made before January 20, 2018. The Paper outlines seven general areas to be subject to the regulations: licensing, security, cannabis tracking, cannabis products, packaging and labelling, cannabis for medical purposes, and health products and cosmetics with cannabis.  

This bulletin summarizes the proposed regulations and discusses some of the notable changes proposed to the current regulatory framework.

1. LICENSING

The proposed regulations set out six different categories of licences:

  • Cultivation licences: only permit cultivation; they do not permit the licence-holder to sell directly to the public or to federally licenced or provincially or territorially authorized sellers. Four classes of cultivation licences are available, which aim to encourage a more diverse industry:
    • Standard cultivation – These licences are expected to be used for large-scale recreational cannabis producers, like those common in the medical cannabis industry today.
    • Micro-cultivation – Micro-cultivators will be roughly akin to craft beer producers in their production of boutique strains of cannabis. Health Canada is considering what the threshold setting out the difference between micro-cultivation and standard cultivation should be and whether it should be based on the number of plants, size of growing area, total production, gross revenue or some other criteria. This is one of the questions Health Canada is specifically seeking input on.
    • Nurseries – The nursery licences look to create a source for starting materials (seeds and seedlings) and encourage the development of new varieties of cannabis.
    • Industrial hemp – The proposed licensing regime for industrial hemp, defined as “cannabis plants whose leaves and flowering heads do not contain more than 0.3 per cent THC”, will include reduced regulatory requirements as compared to those for standard and micro-cultivators (reflecting the reduced level of risk). To improve upon the current regulatory requirements for industrial hemp producers, it is proposed that industrial hemp licences would authorize the intra-industry sale of leaves, flowers and branches (or the whole plant).
  • Processing licences: contemplate two classes: standard and micro processing. As with cultivation licences, Health Canada is seeking input on thresholds between these two classes.
  • Federal-level sale licences: allow the sale of cannabis for medical and non-medical purposes to adults in provinces and territories that do not yet have distribution frameworks.

Those wishing to sell recreational cannabis in provinces that do have a distribution framework, or to provincially or territorially authorized sellers, will need provincial licences where required under applicable provincial regimes.

  • Analytical testing licences: allow for possession and transport of cannabis by independent, third-party labs for the purposes of analytical testing.
  • Import/export licences: allow import or export of cannabis. As set out in the proposed Cannabis Act, the government is proposing to limit import and export to medical or scientific purposes only, or in respect of industrial hemp.
  • Research licences: allow research and/or development by persons who are not otherwise permitted to conduct these activities under other licences or permits under the Cannabis Act. New provisions will enable the commercialization of novel research and development (for example, the sale of new plant genetics).

The various authorizations will include a number of licensing requirements and details relating to, amongst other things: location, physical and personnel security, good production practices, and record keeping and reporting. Notable amongst these are the following (many of which will minimize regulatory and compliance costs for licensees):

  • Validity: The Paper proposes an increase in the licence validity period for up to five years.
  • Outdoor: The Paper proposes that all four classes of cultivation licences will permit both outdoor and indoor cultivation of cannabis. This is a significant development that could considerably reduce start-up capital required for new entrants, although those who choose to grow outside will face growing season limitations.
  • Physical security: The Paper proposes reduced security requirements, especially for micro-cultivation, nursery and micro-processing licences, further reducing the barriers to entry for craft or other smaller industry players. This will include some relaxation of both cannabis storage and security surveillance requirements, and removal of the requirement that the designated “responsible person in charge” or “alternate person in charge” (A/RPIC) be present at all times when other employees are in a room with cannabis. Instead, at least one individual holding a security clearance would need to be on site during normal business operations.
  • Personnel security: While physical security is reduced, personnel security is proposed to be increased, with an expansion of the individuals required to be identified and to have security clearances. Those requirements are proposed to now include: individuals occupying a key position in the organization; all directors and officers of the organization and any parent company; any shareholders who directly or indirectly own more than 25 per cent of the organization; the owner of the real property (if different than the licence applicant or holder); and any individual who is in a position to legally bind the licence applicant or holder.

Certain positions will be required (depending on the licence category) and persons holding such position will need security clearances. These include: a responsible individual for the licensed activities conducted by the organization; a chief of security; for processing licences, a quality assurance person; for cultivation licences, a master grower; and for licences to sell to the public, a head of client services.

  • Good production practices: Good production practices are to be followed for all classes of cultivation and processing licences, with the specific requirements similar to the good production practices already in place under the medical regime.
  • Record keeping and reporting: Additional requirements will include the provision of copies of standard operating procedures and records relating to age verification and geo-fencing (the prevention of sale to adult consumers in provinces and territories that have established their own systems).

The reduced licensing requirements in some of these areas reflect Health Canada’s assessment of the actual risks involved in the various licences and will likely be welcomed by existing industry participants.

2. SECURITY

The proposed regulations relating to security build on the current regulatory framework, and aim to mitigate the risk of individuals associated with organized crime infiltrating licensed organizations for the purpose of conducting illegal activities. The Paper proposes to enable the minister of health to refuse to grant security clearances to individuals with associations with organized crime or with past convictions or associations with drug trafficking, corruption or violent offences.

Health Canada is currently considering whether individuals convicted of non-violent or low-risk crimes, including possession or small-scale production of cannabis, will be permitted to participate in the legal cannabis industry, and is actively soliciting input on this point.

A proposed change to the current regulations concerns the portability of security clearances, such that individuals with existing security clearances will be able to maintain their security clearance when transferring employment between licensees. Given the time it can take to receive a security clearance under existing processes, this is a significant development.

3. CANNABIS TRACKING SYSTEM

The proposed Cannabis Act authorizes the minister of health to establish and maintain a national Cannabis Tracking System (CTS), which will enable the tracking of cannabis through the supply chain and assist in preventing the illegal diversion of cannabis. Further to the CTS, the Paper proposes that all individuals authorized to conduct activities with cannabis be required to report into the CTS.

Information required to be reported into the CTS would include details on cannabis at every stage in the production, processing and research process. The reporting mechanism suggested by the proposals would build on, and expand, the current monthly tracking system for current licensed producers, with changes in frequency, disclosure of information and other areas.

4. CANNABIS PRODUCTS

The Paper contemplates a number of rules and standards for the production of cannabis products, and initially would permit the sale to the public of dried and fresh cannabis, cannabis oil, plants and seeds, with the sale of edibles and concentrates to the public by July 2019.

Concentrates mentioned in the Paper include hashish, wax, shatter and vaping solutions. The existing cannabis industry had largely been anticipating that legal cannabis oil would mean that vaping solutions would be legal in July 2018. Given the market strength of these products in U.S. jurisdictions that have legalized cannabis, the one-year delay in the availability of vaping solutions will have an important impact on market development.  Separately, industry should also be aware of developments impacting vaping products in light of Bill S-5, which proposes to amend the federal Tobacco Act to the Tobacco and Vaping Products Act.  

The proposals include an expansion of permitted dosage forms from those in the current regulatory framework (and will include, for example, pre-rolled cannabis and vaporization cartridges manufactured with dried cannabis). The proposals also include maximum THC content per unit levels, which will be based on the consumption method of the product. The Paper suggests a general limit of 10 milligrams of THC per unit for cannabis products intended for ingestion. Proposed restrictions on processing include a ban on the manufacture of products containing more than one class of cannabis and the prohibition of additives for fresh and dried cannabis. Additives for cannabis oil are also proposed to be prohibited (outside of carrier oil and those required to preserve quality or stability).

5. PACKAGING AND LABELLING

The packaging and labelling regulations proposed in the Paper will be a source of significant discussion going forward. The proposals contemplate a packaging and labelling regime similar to tobacco, and will include clear, stark health warnings. A proposed requirement is that the packaging be tamper-evident and child-resistant, and that the use of colours, graphics and other special packaging characteristics be very limited. Packaging for products intended for ingestion containing more than 10 ppm THC will also need to be marked with a clearly recognizable cannabis symbol. The labelling will be bilingual and will include information such as the name and contact information of the packager, product description, the lot number, weight or volume, packaging date, recommended storage conditions, THC/CBD content, and child warnings. Although quite strict, the packaging and labelling requirements will allow for some branding, the details of which will be fleshed out further by Health Canada in the future.

The proposed labelling requirements will be the same for cannabis products sold for medical or non-medical purposes (except products for medical purposes would have additional patient-specific information), and will not apply to industrial hemp, which will be subject to requirements similar to those currently in place under the Industrial Hemp Regulations.

Industry will also need to ensure packaging complies with any excise stamping requirements (see our November 2017 Blakes Bulletin: Federal Government Proposes Excise Duties for Cannabis Producers for more information).   

6. CANNABIS FOR MEDICAL PURPOSES

The proposed regulations include a medical access regulatory framework that is largely similar to the current framework, with some limited changes that aim to improve consistency with non-medical use, improve patient access and prevent abuse within the medical access system. Amongst other proposed changes, medical documents could be transferred from one federally licensed seller to another, upon request by the patient or in the event of mergers and acquisitions (with patient consent). Further, the registration period would begin on the date of initial registration instead of the date the medical document was originally signed by the health care professional. There would also no longer be a restriction against filling multiple orders within a 30-day period that results in more than a 30-day supply being provided.

7. HEALTH PRODUCTS AND COSMETICS WITH CANNABIS

The proposed regulations recommend a significant expansion of the current health product regulatory framework to permit the use of cannabis in a wider range of products, including non-prescription drugs, natural health products, medical devices, veterinary drugs, veterinary health products and cosmetics.

Further, the Paper recommends ensuring ongoing access to existing health products with cannabis and the continuation of Health Canada’s scientific, evidence-based approach for health products with cannabis that are approved with health claims. For prescription drugs with cannabis, currently approved and future approved health products containing cannabis that require the oversight of a healthcare practitioner are to be added to the Prescription Drug List and will otherwise be generally reviewed as part of the same process for other prescription health products. Non-prescription drugs, natural health products, medical devices, veterinary drugs and veterinary health products are to be reviewed as part of Health Canada’s usual review processes for such products and will be, where applicable, subject to THC limits.

Since the health products are subject to Health Canada’s review, it is proposed that health products be exempt from some of the restrictions (including the type of class, form and package size of cannabis allowed) that would otherwise apply. For example, an exemption from the restriction against selling cannabis and its accessories with traits that appeal to youth is proposed to facilitate children consuming pediatric formulations of health products.

The use of cannabis-derived ingredients in cosmetics, which is currently prohibited, is proposed to be permitted and subject to the provisions of the Cannabis Act going forward.

OTHER DEVELOPMENTS IN CANNABIS

The release of the Paper follows several weeks of fast-paced developments in the cannabis sector, with recent news on regimes in New Brunswick and Manitoba, Alberta and Quebec (see our recent Blakes Bulletins: Ontario Unveils Cannabis Distribution Plans, Provincial Cannabis Regimes Come Into Focus, Alberta Introduces New Legislation to Regulate Recreational Cannabis and Quebec Introduces New Legislation to Regulate Recreational Cannabis).

In addition, the Government of Yukon released its proposed framework for legalized cannabis on November 20, 2017. The proposed framework includes a minimum age for possession, consumption and cultivation of 19. The Government of Yukon will have the sole authority to import, warehouse, transport and otherwise distribute recreational cannabis within Yukon for commercial purposes, except for the private retail noted below. The Government of Yukon proposes it will have ownership and operation of at least one retail store and will provide an e-commerce option for cannabis retail. Some private retail is to be permitted, which will be overseen through a controlled licensing regime. The consumption of cannabis will be restricted to privately owned residences and adjoining property, with the possibility of consumption in other spaces in the future.

The federal Cannabis Act is now at the report stage in the House of Commons and expected to pass third reading and head to the Senate shortly. A dialogue has begun about the time and process in the Senate, with a handful of senators expressing concern about rushing the legislation. Developments in the Senate will be carefully watched by the industry, with an eye on any impact it may have on the July 2018 timing.

For further information, please contact:

Alexis Levine                              416-863-3089
Alice Tseng                               416-863-3067
Matthew Mundy                         416-863-2191

or any other member of our Cannabis team.

Blakes periodically provides materials on our services and developments in the law to interested persons. For additional information on our privacy practices, please contact us at privacyofficer@blakes.com. Blakes Bulletin is intended for informational purposes only and does not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

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