Canadian Government Executive - Volume 26 - Issue 05

January/February 2021 // Canadian Government Executive / 15 Regulations L icensed holders (LHs) have had the ability to produce and sell recreational cannabis since October 17th, 2018. How- ever, despite expectations of continued profit and bottomless pockets of investors, many producers, and their investors have suffered. The network of authorized cannabis retail stores has not grown quickly enough to reach consum- ers, meet demand, or completely curb the illicit market, yet. There is a fundamental disconnect between the federal, provin- cial, and municipal levels of government where cannabis rollout is concerned. It’s time to have a conversation about how legal cannabis sale transcends every level of government and why this looks much more like an argument than constructive discourse. Assessing the Challenges There are several key areas that illus- trate the difficulty in understanding the current rules and regulations surround- ing legal cannabis. To begin, the federal government allows for legal possession to persons aged 18 years or older, yet the provinces remain free to set their own minimum legal age for use. For example, Quebec, the second-most populous prov- ince, bans the sale of cannabis to those under 21 years of age. The rest of the provinces have set the minimum age to 19 years old. There are also the provincial canna- bis retail store licensing differences to consider. Most provinces in Canada only allow stores run by the province to sell cannabis, but in others, private owners are at times limited to acquiring property at inflated prices from a limited selection and to then upgrade their stores with the required security, which in some provinc- es are not clearly defined. Private owners in these provinces then must apply for licenses with costly application and re- newal fees — and this is in addition to the property taxes. As it happens, the latter case applies to Ontario, by far Canada’s most populous province with some 14.5 million inhabitants, and by far the largest cannabis market in terms of province. As of April 2020, there were only 25 shops in Ontario and the biggest competitor to the licensed cannabis retail stores (besides the illicit market) is the provincial whole- saler. The Ontario Cannabis Store can sell cannabis for less money than private re- tailers and they offer same-day/next-day delivery. Indeed, Health Canada has been effec- tive at ensuring consumers have access to the safest products, but safe is not syn- onymous with quality. The craft, micro- cultivators that produce the highest-qual- ity, small-batch products have struggled to get their products to market as they cannot obtain a sales amendment from Health Canada without first having ap- plied for and been issued a processing li- cense, and as a result often have to lean on many of the other big LHs to assist with the packaging process to get their flower to the adult-use market in the interim, which cuts into their margins consider- ably. This landscape so far has made mar- ket access for smaller cultivators more dif- ficult overall. Increasing Risk The cannabis industry has become amuch riskier proposition for new entrants, who will have to raise an estimated 1.5 mil- lion before they can even secure a Health Canada micro-cultivation license at a site that would be robust enough to mature a standard license one day. Planning with any less in the bank would typically mean cutting corners and potentially cre- ating unwanted compliance issues down the road during audits and inspections. To address such risks, cannabis market participants should either have supply agreements or letters of intent with exist- ing licensed holders or applicants, which can be difficult for companies that do not yet have a cannabis license from Health Canada in hand. The Goal Posts Are Moving We coasted through the pandemic to October 2020, and we hit the end of the 12-month mark transition period with five provisions in the Cannabis Regulations be- ing enacted. These changes include: 1. No “oil” produced in compliance with the previous regulations can be avail- able for sale to the public; 2. All microbial and contaminant testing must comply with intended use; 3. Cannabis sold by the license holder must comply with current label re- quirements and health warnings; 4. Only one immediate container can be used for cannabis products; and 5. Flower and seed products must include equivalency factors on the label. We coasted through the pandemic to October 2020, and we hit the end of the 12-month mark transition period with five provisions in the Cannabis Regulations being enacted.