By February 06 2017
Business Law

Marijuana in Canada – Federal Regulatory System

It's been a very exciting year for the marijuana industry in Canada. Medical producers have benefited from incredibly bullish investment, while stakeholders and observers more interested in the possibility of legalization have been flooded with news of raids on illegal dispensaries, concerns about impaired driving and uncertainty about what impact legalization will have on the workplace – to name just a few. The most significant industry development in 2016, however, came in the form of the report issued by the Canadian federal government's Task Force on Cannabis Legalization and Regulation (the "Task Force").

The report, titled "A Framework for the Legalization and Regulation of Cannabis in Canada" (the "Report"), sets out the Task Force's recommendations on myriad aspects of marijuana legalization. Over the course of a number of posts, we will review the Report and discuss aspects of marijuana legalization that are particularly important to the cannabis market, both medical and recreational. We will also share some of the challenges and questions facing those actively engaged in entering the medical marijuana market.

Before delving into the Report's recommendations in this blog series, we will provide a brief recap of the existing medical industry and highlight a key aspect of the government's rationale for legalization; both of which will aid our examination of the Report's recommendations.

The Current Regulatory Regime

The Access to Cannabis for Medical Purposes Regulations ("ACMPR") are the set of rules governing the legal medical marijuana industry in Canada. They allow for the production, supply, transportation and delivery of medical marijuana by those who are licensed by Health Canada. Applicants can seek a license for any of these activities; but in practice, licensed producers can be categorized as those who are engaged in research or strain production, and those who produce and supply marijuana to patients for consumption.

There are alternatives to purchasing from licensed producers – patients can grow a limited number plants themselves or have a designated person do so on their behalf – but Canada’s regime currently favours large-scale, sophisticated operations. The production and sale of cannabis derivatives by licensed producers is also permitted under the ACMPR.

As of the date of this post there are 38 licensed producers in Canada, with the vast majority located in Ontario and British Columbia. The licensed producers who sell to patients all operate in a similar fashion: they produce various cannabis-based products for sale to the patients who order from them. Under the ACMPR, mailing medical marijuana directly to patients is the only legal method of distribution. This means that dispensaries and other storefront operations that sell or distribute cannabis or their derivatives remain illegal. Despite their illegality, some cities have opted out of strict enforcement, in part due to their limited resources as well as the uncertainty surrounding the legality of such operations in the future.

The Foundation for a Federal Regulatory System

Amidst all of the buzz and excitement about billion dollar valuations and the opportunities presented by the pending "green rush", the government's legal foundation on which they are building a (primarily) federally-regulated marijuana industry is very seldom discussed. Understanding the government's narrative, though, is very important to interpreting the recommendations set forth in the Report as well as crafting an informed opinion of when, and how, legalization will occur.

Arguably one of the most important aspects of the government's objectives for federally regulated legalization is that doing so will prevent or reduce harm to Canadians. The government has been consistently vocal in stating that a legal recreational marijuana industry will achieve this purpose. Now, you might ask why this objective is more important than the elimination of a black market or reducing strain on the criminal justice system for something that, according to a poll in 2016, seven of ten Canadians support. Its importance lies in how it bolsters the legality of a federal regime. In short, in order to survive a challenge to the legality of a federal regulatory regime, the government has to ensure that their system can be seen as preventing or reducing harm to Canadians.

Understanding the legal foundation on which a federal system will be built will allow us to more effectively explain the sometimes-vague recommendations in the Report. It will also allow you to more effectively predict what the regulatory landscape will look like upon legalization.

Invitation for Discussion

If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.

Disclaimer

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

Related Insights

  • Canadian Companies Need to Assess Their “Foreign Private Issuer” Status for SEC Reporting Purposes
  • CSA Staff Says Most Coin/Token Offerings Are Securities
  • Letter of Credit Security and the “Autonomy Principle”
  • OSC Provides Guidance on Hostile Take-Over Bids
  • Trust Residency Post-Fundy
  • Coming Soon – Mandatory Privacy Breach Reporting and Record-Keeping
  • A Reminder for D&O’s re: Civil Liability for Secondary Market Disclosure
  • Canadian Disclosure Requirements for US Marijuana Issuers