On June 27, Health Canada provided information on the regulations that will support the Cannabis Act (An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Act). These regulations (four in total) will be officially published in Canada Gazette II on July 11, 2018.
Cannabis will no longer be considered a narcotic, it will be removed form the Narcotic Control Regulations and the Access to Cannabis for Medical Purposes Regulations (ACMPR) will be repealed.
These new regulations are 390 pages, complex and detailed. They touch on everything from:
• the types of licenses allowed to cultivate, process, and sell cannabis (medical and recreational);
• how product will be tracked and traced;
• inventory management;
• quality assurance;
• security of personnel;
• secuirty at a cannabis facility;
• indoor and outdoor cultivation;
• financial reporting;
• THC limits; and
• industrial hemp.
The regulations appear to be as restrictive, if not more so, than the current ACMPR. While the single window approach for a license will have changed (e.g. more license types) theses new regulatory requirements still place a large regulatory burden on the licensee regardless if an applicant is seeking a micro or standard license.
For instance, companies will have to ensure more people undergo criminal and local law enforcement checks before they can oversee or participate in cannabis production. This will even extend to those individuals who are directors or officers in parent companies (e.g. a company that does not actually hold a license under the regulations).
Security of the facility and ensuring product is not diverted to the illegal market or into the legal market is still a key component of these regulations. Other than ensuring the storage of cannabis does not have to be in vault, the requirements of the Directive on Physical Security Requirements for Controlled Substances and Drugs Containing Cannabis remain in place even for a micro/standard grow or for an operation that cultivates product outdoors – that is unauthorized entry has to be prohibited by a robust security system. A head of security is now also required as part of a license but not required for a testing or research license.
Companies will also now have to provide an annual report regarding key investors that have an “ownership interest” in the company. However, the regulations are silent as to the amount that defines an “ownership interest.” Information required is the amount (dollar or good/services) and the benefit such an investment provided to the company.
In addition, if an applicant/licensee seeks to cultivate and process cannabis (as is the case with most licensee’s today) a master grower (cultivation) and a quality assurance (processing) will have to be designated and their credentials will have to be validated by Health Canada.
Information regarding the size of an outdoor operation appears in Part 14 of the Cannabis Regulations – Access to Cannabis for Medical Purposes. The interpretation then could be that the outdoor growing of cannabis is only allowed for medical purposes. This is important given the production area is based on a formula that determines how many plants will be produced (e.g. therefore, theoretically a limit is not placed on the number of plants). However, given the security requirements, such a large cultivation area would be cost prohibitive. Provinces and municipalities may choose to ban outdoor cultivation, however, doing so may make them vulnerable to potential court challenges.
Health Canada is also instituting a Cannabis Tracking and Licensing System. This means Health Canada will require all licensees to report into their online system monthly. Exact details to be provided at a later date.
The entirety of the hemp plant (flower, stock, seed) will now be able to be produced if the cultivar is under 0.3 per cent THC. Hemp producers and licensees will now be able to sell and buy from one another.
With all four regulations being released, Cannabis Regulations, the new Industrial Hemp Regulations, Qualifications for Designation as Analyst Regulations (Cannabis) and Cannabis Act (Police Enforcement) Regulations, the industry will have to adapt to a regime that demands more information to ensure complete compliance.
Over the coming days and months (before October 17, 2018) additional guidance should be provided by Health Canada to clarify aspects of the regulations that remain unclear (e.g. the period a license is valid before renewal is required).
H+K Strategies will continue to review and examine the regulations in detail, seek guidance over the coming weeks and months from Health Canada and will continue to share our insights as they become available.
Co-authored by: Rahmat Kassam