How the Comeau Decision May Affect Inter-Provincial Distribution of Cannabis

A recent appeal regarding the inter-provincial importation of alcohol may have impact on the structure of provincial cannabis distribution in Canada. The appeal of R. v. Comeau (Comeau) is currently before the Supreme Court of Canada (SCC) and could significantly impact the fast-developing legislative and regulatory regimes for recreational cannabis.

Licences issued under the Access to Cannabis for Medical Purposes Regulations (ACMPR) are difficult to obtain and are, at present, generally site specific. Distribution under the ACMPR regime is done by mail, and most licensed distributors have had to invest heavily in e-commerce platforms.

There is still considerable uncertainty about what provincial distribution regulatory regimes will provide when recreational cannabis is legalized in July 2018. It is possible that some provincial regimes may include similar barriers to inter-provincial trade now being considered in Comeau.

In the present case, Gérald Comeau crossed the border between Quebec and New Brunswick to purchase alcohol. On his return to New Brunswick, Mr. Comeau was stopped by the RCMP, who found numerous cases of beer and bottles of liquor in Mr. Comeau’s vehicle and charged him with contravening, among other things, as per the New Brunswick Liquor Control Act (Act), which prohibits anyone in New Brunswick from possessing more than 12 pints of beer that were not purchased from a liquor store in the province.

Mr. Comeau successfully argued that the charge was of no force or effect because the sections of the provincial legislation were contrary to section 121 of the Constitution Act, 1867 (Constitution Act), which states: “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.” The New Brunswick Provincial Court determined that, contrary to long-standing jurisprudence, the reference to “admitted free” in section 121 should be interpreted broadly to include all trade barriers between provinces, including the imposition of charges and limitations or prohibitions on entry. The Crown’s appeal of Comeau to the New Brunswick Court of Appeal was denied. However, the SCC granted the Crown leave and the appeal is scheduled to be heard by the SCC on December 6–7, 2017. For more information on the Comeau case, see our May 2016 Blakes Bulletin: The Great Canadian Beer Run: New Brunswick Court Strikes Down Restrictions on Free Trade as Unconstitutional.

The growth of cannabis and the manufacture of derivative products falls within the definition of an article of “growth, produce and manufacture” contained in section 121 of the Constitution Act. Despite the prevalence of cannabis dispensaries, the current regulatory regime only allows the distribution of medical cannabis to patients from a licensed producer, typically through the mail system. As every patient must subscribe to a particular licensed producer, many licensed producers have customers across Canada. This arrangement involves the importation of medical cannabis by patients across provincial borders in many cases.

The distribution of medical cannabis is federally regulated, and so the national mail distribution system has not raised inter-provincial issues to date. However, the distribution of recreational cannabis will be provincially regulated, with the federal mail order regime applying where no provincial regulation is in place (production will continue to be federally regulated). This provincial jurisdiction over distribution of recreational cannabis raises inter-provincial trade issues.

It is unclear if the provinces are contemplating limitations or prohibitions in their recreational cannabis legislation, similar to those that have been imposed on the personal and commercial inter-provincial importation of alcohol. It is possible that certain provinces are also awaiting the outcome of Comeau prior to making a decision, as its effect would be broad. On September 8, 2017, Ontario unveiled its plan to give the existing Liquor Control Board of Ontario (LCBO) the oversight of retail sales of recreational cannabis in Ontario, upon its legalization in Canada. For further information, please see our September 2017 Blakes Bulletin: Ontario Unveils Cannabis Distribution Plans.

An affirmation of the Comeau decision by the SCC would create a broader supply base for recreational cannabis. If the SCC agrees with the Crown and overturns Comeau, it is possible that one or more provinces could impose restrictions on the extra-provincial importation of cannabis, which could artificially restrict supply, inflate prices and possibly incentivize the continued operation of the black market.

Compliance with such regime may see licensed distributors forced to adopt the approach necessarily found in the United States as a result of the inability to transport cannabis across many state lines. Each licensed distributor may then be required to have a licensed warehouse in each province in which they are authorized by permit to distribute. This could also significantly disrupt the online recreational market where a province has chosen to be the sole distributor of cannabis. In either case, the outcome of Comeau is likely to have a significant impact on the cannabis industry in Canada.

For further information, please contact:

Alexis Levine                 416-863-3089
Chris Nyberg                 403-260-9707

or any other member of our Cannabis group.

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