Kevin Landry

Health Canada released the Cannabis Act Regulations (the “Regulations”) at a news conference on June 27, 2018. The Regulations will be published in final form in the July 11, 2018 version of in the Canada Gazette, Part II.

There will be four new sets of regulations in total:

• Cannabis Regulations;
• the new Industrial Hemp Regulations;
• Qualifications for Designation as Analyst Regulations (Cannabis);
• Cannabis Act (Police Enforcement) Regulations

However, for the purposes of this update we focus solely on the Cannabis Regulations.

On October 17, 2018 cannabis will cease to be governed under the Controlled Drugs and Substances Act and become governed under the Cannabis Act. Additionally, on that date, both the Access to Cannabis for Medical Purposes Regulations (the “ACMPR”), and the current Industrial Hemp Regulations will be repealed.

The Regulations were initially outlined in the consultation paper titled: Proposed Approach to the Regulation of Cannabis which we discussed in our previous article: Federal Government Desires Feedback on Proposed Cannabis Act Regulations and were amended after feedback was received during the 60-day public consultation launched on November 21, 2017 by Health Canada and republished as a report titled: Proposed Approach to the Regulation of Cannabis: Summary of Comments Received During the Public Consultation summarized in our previous article: Federal Cannabis Act Regulations Taking Shape: Consultation Feedback Revealed.

After the Cannabis Act was approved by Parliament and the Senate after minor amendments, the regulations are the final missing piece to the federal regulatory regime until edibles regulations, which are expected in the year following legalization, are released.

Contents of the Cannabis Regulations

Six classes of licenses

Six classes of license are included in the Regulations, some with sub-classes as set out below. The Regulations also make it clear that license holders can hold multiple licenses subject to some restrictions.

All licenses will require the appointment of key personnel (and optional alternates) such as a “Responsible Person” who can bind the license holder, and all license types except a license for Analytical Testing will have a “Head of Security” (responsible for ensuring security measures are met). Other licenses will have key personnel as described below. As a transitional provision, licensees will have three months from the date the Regulations come into force to appoint persons to these positions.

The Regulations only outline the rights of a license to sell for medical purposes. Adult-use sales are outside the jurisdiction of the Regulations and are the subject of Provincial laws save and except for the sale of medical cannabis.

The Regulations are sparse on the requirements for applications for new licenses under the Regulations, but Health Canada’s website indicates that “Health Canada will launch a new online cannabis tracking and licensing system. It will allow industry to submit and view the progress of applications online. It will also allow industry to submit inventory reports”. There is no timeline for the launch of this service at present.

<sup>1. Limited to cultivating up to 200sqm of canopy area
2. Nurseries activities are restricted to cannabis plants or cannabis seeds.
3. Limited to processing up to 600kg of dry cannabis per year, or processing the production from one micro-cultivator operating at the same site.
4. Adult-use sales licenses will fall under provincial laws and in some cases are limited to provincial corporations authorized to sell to adult-use market.</sup>

Transition of ACMPR and Narcotics Control Regulations Licenses

Holders of licenses issued under the “former Access to Cannabis for Medical Purposes Regulations“, as the Regulations call it, will be deemed to have licenses under the Regulations as follows:

Similarly, licenses issued under the Narcotics Control Regulations will be deemed to be licenses under the Regulations:

Increased security clearance requirements

Security clearance requirements have been expanded from those in the ACMPR for the new classes of licenses contemplated. These changes fix what was seen as a large hole in the security requirements in that key shareholders of license holders were not previously vetted by Health Canada.

In addition to the license holder (and directors, officers and key personnel, as applicable) being required to pass a security clearance, key shareholders are now required to pass security clearances as well. This includes:

• any “responsible person”, “head of security”, master grower”, “quality assurance person”, or alternates for these positions;
• any partners of a partnership that holds a license;
• any individuals who exercise, or are in a position to exercise, direct control over a corporate, or cooperative license holder. This includes:
  o directors and officers of the individual, if a corporation;
  o partners of the individual, if a partnership; and,
  o directors and officers of the individual if it is a corporate partner in a
  partnership.

As a transitional provision, licensees will have three months from the date the Regulations come into force to provide the Minister with names of additional persons requiring security clearances, and have those persons submit a security clearance application.

Recording of Key Investors

Although Parliament rejected the Senate’s suggestion to create a registry of shareholders of cannabis companies due to “significant operational challenges and privacy concerns” there will still be record-keeping requirements in the Regulations. These will require reporting a variety of metrics relating to Key Investors to the Minister yearly including: a description of the means by which a Key Investor exercises, or is in a position to exercise, control; details of the transaction by virtue of which the Key Investor became such an investor; details about the benefits the Key Investor receives by virtue of their position; and details about instances where money was paid by, or returned to Key Investors.

These records are to be updated and maintained by licensees even after a Key Investor ceases to be such an investor. There are limited exceptions to providing some of this information for Key Investors who invested before the license was issued, before the Regulations came into force (for licenses transferring from the ACMPR or NCR).

Ability to introduce new genetics

The Regulations allow for holders of cultivation licences to obtain and possess cannabis plants and seeds which were not obtained under the ACMPR provided a declaration from the applicant in prescribed form is provided. Currently, Licensed Producers under the ACMPR can only purchase cannabis genetics from other Licensed Producers, which has restricted variation in strains.

Outdoor cultivation

The Regulations provide that “cannabis may be obtained by cultivating, propagating or harvesting it outdoors”. The cannabis produced outdoors would still need to hold up to testing requirements for microbial and chemical contaminants and be secured in accordance with the Regulations.

Any standard cultivation or processing site, including one where growth takes place outdoors, must be designed in a manner that prevents unauthorized access, and which has a perimeter that is visually monitored at all times by recording devices which can detect any attempted or actual unauthorized access to the site.

The grow area- the part of the site where cannabis is cultivated, harvested, or propagated- will need to be surrounded by a physical barrier that prevents unauthorized access and would require monitoring only at the entry and exit points. Similarly, Micro-processors, Micro-cultivators, and nurseries all require physical barriers surrounding the site and any storage areas.

Even more stringent packaging requirements

In addition to the limits laid out in our last update, more restrictions on packaging were introduced:

• No hidden features designed to change appearance or surface area;
• Packaging cannot emit or produce scent or sound;
• Packaging cannot have no cut-out window;
• Barcodes must be rectangular and contain no image or design;
• Packaging must not have branding, or images on the interior of the package;
• Covering of any cannabis container must be transparent and colourless.