Law and Practice
1. Legal/Regulatory Framework
1.1 Source of Regulations
There are both federal and provincial/territorial laws and regulations that govern the cannabis industry in
Federal
On
According to the federal government, the Cannabis Act's three stated objectives are to (i) keep cannabis out of the hands of young people, (ii) keep profits out of the pockets of criminals, and (iii) protect public health and safety by allowing adults to access legal cannabis.
To achieve these purposes, the statute creates a strict legal framework that encompasses both medical and non-medical cannabis in
Since its enactment, the federal government has continued to refine the Cannabis Actto reflect the changing demands of this novel regulatory environment.
While the Cannabis Act is the primary piece of legislation that governs cannabis within the country, there are additional federal laws and regulations that touch upon the industry in various ways. These include:
- the Food and Drugs Act;
- the Controlled Drugs and Substances Act;
- the Industrial Hemp Regulations;
- the Cannabis Exemption Regulations (SOR/2016-231); and
- the Cannabis Regulations (SOR/2018-144).
Provincial
To have a complete understanding of the regulatory framework of cannabis in
The following is a summary of the primary laws and regulations enacted by each province and territory.
Alberta
In Alberta, cannabis practices are governed by the Gaming, Liquor and Cannabis Act (GLCA), and the Gaming, Liquor and Cannabis Regulation (GLCR).
The Alberta regulatory authorities have also published additional manuals and guidelines to assist with the implementation and administration of their regulatory framework.
- Cannabis Distribution Act;
- Cannabis Control and Licensing Act;
- Cannabis Control Regulation; and
- Cannabis Licensing Regulation.
In addition to the above, the province has amended the Motor Vehicle Act to provide police with more tools to address and deter drug-affected driving.
In
Legal cannabis in
In addition,
To establish a governance structure for the distribution and possession in the province,
The province has also enacted the
The
- Cannabis Legalization and Regulation Implementation Act;
- Cannabis Products Act;
- Cannabis Products Regulations;
- Cannabis Smoking Control Act; and
- Cannabis Smoking Control Regulation.
In
- Cannabis Tax Act;
- Cannabis Retail Regulations;
- Smoke-free Places Act; and
- Motor Vehicle Act.
Cannabis practices in
- Cannabis Act;
- Cannabis Status Amendment Act; and
- Amendments to the Cannabis Act.
There are a number of pieces of legislation governing cannabis in
- Cannabis Control Act;
- Cannabis Licence Act; and
- Ontario Cannabis Retail Corporation Act, 2017.
The province has also enacted the following regulations:
- Ontario Regulation 30/18;
- Regulations to Cannabis Licence Act, 2018; and
- Ontario Regulation 268/18.
In
In addition, the Cannabis Control Regulations and Cannabis Management Corporation Regulations were enacted to assist in the administration and enforcement of the legal framework.
In
Cannabis production and distribution practices in
In the
- Cannabis Control and Regulation Act;
- General Regulation;
- Cannabis Licensing Regulation; and
- Tobaccos and Vaping Products Control and Regulation Act.
1.2 Regulatory Authorities
Due to the division of legislative powers and responsibility between federal and provincial/territorial governments under the Canadian Constitution, there are both federal and provincial regulatory authorities that have been charged with enforcing the laws and regulations governing the industry.
These regulatory bodies work in conjunction with each other, and collectively share the responsibility of overseeing cannabis regulation across
At the federal level, the regulatory authority is
Pursuant to the Cannabis Act,
At the provincial/territorial level, the primary responsibility for provinces and territories is to determine and regulate how non-medical cannabis will be consumed, distributed and sold within their jurisdiction.
Each province and territory has created and enlisted a specific regulatory body to enforce the laws and regulations governing cannabis. The following are the provincial regulatory authorities:
Alberta Gaming ,Liquor and Cannabis Commission ;- British Columbia Liquor and Cannabis Regulation Branch;
Manitoba Liquor & Lotteries Corporation ;New Brunswick Liquor Corporation ;Newfoundland andLabrador Liquor Corporation ;Northwest Territories Liquor Commission ;Nova Scotia Liquor Corporation ;Nunavut Liquor and Cannabis Commission ;Alcohol and Gaming Commission of Ontario ;Prince Edward Island Cannabis Management Corporation ;Regie de alcools, des courses et des jeux (Québec );Saskatchewan Liquor and Gaming Authority ; andYukon Liquor Corporation .
In addition to the regulatory authorities, most provinces and territories have created and/or designated an exclusive authorised wholesaler for their province. The following are the only authorised wholesalers of legal recreational cannabis in their respective province and territory:
- Alberta - Alberta Cannabis;
British Columbia -BC Cannabis Store ;Manitoba - Manitoba Liquor & Lotteries Corporation "Liquor Mart ";New Brunswick - Cannabis NB;Newfoundland andLabrador -Cannabis NL ;Nova Scotia - NSLC Cannabis;Nunavut - Nunavut Liquor;Northwest Territories - NWT Liquor;Ontario -Ontario Cannabis Store ;Québec - Société Québecoise du Cannabis (SQDC);Prince Edward Island - PEI Cannabis; andYukon - Cannabis Yukon.
At this time,
As noted earlier, the provincial and territorial authorities are responsible for the development, implementation and enforcement of systems to oversee the consumption, distribution and sale of cannabis. The scope of their responsibility includes setting rules around where cannabis can be consumed, the legal age of consumption, how cannabis can be sold, where stores may be located, how prices are set, how stores must be operated and who is allowed to sell cannabis.
In addition, the provincial authorities are permitted to set added restrictions to the industry-wide standards set by the federal government, such as increasing the minimum legal age over what has been mandated by the federal government, lowering the personal possession limit set by the federal government, creating additional rules for personal cultivation, and restricting areas of consumption.
1.3 Self-Regulation
All regulation is currently carried out by governmental agencies, at various levels of government, as set out in 1.2 Regulatory Authorities.
1.4 Key Challenges
Market participants face a number of challenges. The industry is heavily regulated both at the federal and provincial/territorial level. As a result, participants need to be well versed in the various pieces of legislation and regulations and also in how the regulatory regimes at the different governmental levels interact with each other.
The heavily regulated nature of the industry also means that the cost of participating in the industry is generally far higher than it would be in other industries, on account of things like additional licensing fees and taxes as well as the increased costs of having to ensure that businesses are compliant with the regulations (for example, implemented mandated physical security requirements).
Additionally, given that the industry is still relatively new (despite the fact that the Canadian market is now nearly three years old), industry participants face the challenge of dealing with regulators that are still finding their way themselves, as well as dealing with regulations that change and evolve in response to market conditions and political will as the industry continues to mature.
1.5 Level of Regulation
The regulatory regime at both the federal and provincial/territorial levels is highly developed and sophisticated. However, the industry is still evolving and the regulators are still finding their own way. As such, despite its level of sophistication, development of the regulatory regime is an ongoing process.
1.6 Legal Risks
Companies ought to be aware of the extensive regulatory regime and its requirements. Failure to adhere to the regulatory regime can lead to significant fines, penalties and even potentially imprisonment for individuals and officers and directors of corporations. Failure to adhere to the regulatory regime can come in a variety of forms, including:
- failure to obtain the necessary licences for the business in question;
- failure to obtain the necessary criminal background and/or security clearances that are required for stipulated individuals involved with certain business enterprises;
- failure to follow promotional and marketing regulations; and
- failure to ensure that the business complies with all physical, operational and/or record-keeping requirements.
Additionally, despite the fact that cannabis is legal in
1.7 Enforcement
At a high level,
The Cannabis Actcontains a number of enforcement tools that may be utilised to uphold the Act's primary intents and purposes.
First and foremost, the Cannabis Actsets out the offences and the monetary penalties that are applicable to both individuals and organisations who act outside of the legal framework. The key offences include:
- possession over the legal limits;
- the illegal distribution or sale of cannabis;
- the production of cannabis beyond personal cultivation limits (without a licence);
- the production of organic solvents;
- the sale or distribution of cannabis or cannabis accessories that have not been packaged or labelled in accordance with the regulations;
- the publication, broadcast or other dissemination of any prohibited or false promotional materials;
-
the transportation of cannabis across
Canada's borders or outside ofCanada ; - providing or selling cannabis or cannabis accessories to a person under the age of 18; and
- using a "youth" (ie, someone under the age of 18) to commit a cannabis-related offence.
The penalties for the above-noted offences are set in proportion to the seriousness of the offence. The range of penalties begins with warnings and tickets for minor offences, and can intensify to criminal prosecution, imprisonment of up to 14 years, and monetary penalties of up to
In addition, the Cannabis Actenables the regulatory authorities to impose administrative monetary penalties. These penalties are imposed through an administrative process rather than prosecution in a court of law and can range up to
As provinces and territories have enacted further restrictions on the use and sale of cannabis within their jurisdiction, a regulated party may be subject to further offences and penalties.
For the purposes of this article, it is not possible to specify the details of each province and territory's specific offences and penalties. However, on a general level, the penalty for these additional offences is a monetary fine.
It is imperative that every industry participant have a clear understanding of the regulatory restrictions that are in place within the jurisdiction or jurisdictions in which they participate.
2. Cross-Jurisdictional Issues
2.1 Cross-Jurisdictional Standards
As stated above, there are differences in law between the various provinces and territories. In some instances, the differences are minor. In other instances, the differences are quite significant.
Additionally, as stated in 1.7 Enforcement, carrying on business in the Canadian cannabis industry can have an impact on the business in other jurisdictions the business may operate where recreational-use cannabis is not legal.
3. Future Developments
3.1 Legal Elements Affecting Access to
As both medical and recreational cannabis are now legal in
Nevertheless, some commentators would argue that the current federal framework is too restrictive and is prohibitive to producers and consumers alike.
At the most basic level, the federal framework limits access through its stringent industry-wide rules and regulations. In addition, provinces and territories have set supplementary restrictions on the purchase, sale and consumption of cannabis. These restrictions have all had a direct impact on a producer's ability to reach their target consumer, and a consumer's ability to access the cannabis products that they want.
A prominent example is the price of cannabis products. The stringent licensing requirements, production and packaging regulations, the exclusivity of provincial wholesalers, and intensive capital investments that are required to enter the industry have driven up the price of the product over the past three years.
The reluctance of governments and their respective regulatory authorities to relinquish control in such a novel regulatory environment is arguably necessary to protect the integrity of the industry. However we have already begun to see modifications and relaxations to both federal and provincial regulatory frameworks. As the industry matures - in a similar way to the alcohol industry - it is likely that the Canadian cannabis industry will continue to see further relaxations of the rules and regulations.
In addition, the mandatory review provisions contained in the Cannabis Actmay also have an impact on future access to cannabis.
Pursuant to Subsection 151.1(1), three years following the enactment of the Act, there must be a review of the Act and its administration and operation. This review will consider the impact of the Act on public health and, in particular, the impact on the health and consumption habits of young people in respect of cannabis use, the impact on the indigenous communities of
Following the review, an official report is required to be published by the Minister of Health and must include both their findings and recommendations.
As the Cannabis Actis the legal impetus for the legalisation of cannabis in
3.2 Use of Non-controlled Cannabinoids in Food
All products containing ingredients derived from cannabis (or hemp) are heavily regulated. The federal Cannabis Act and the regulations enacted thereunder contain extensive provisions relating to how cannabinoids can be incorporated into food and other products.
In
3.3 Decriminalisation or Recreational Regulation
Cannabis in
The Cannabis Actwas enacted by the federal government and legalised recreational cannabis across
The legalisation of recreational cannabis has a similar (albeit stricter) legal framework to that of alcohol, with rigorous laws and regulations controlling the product, distribution, sale, possession and consumption of cannabis products across
Trends and Developments
Introduction
Recreational cannabis was legalised in
This article outlines how various legal and commercial factors have both accelerated and restrained the Canadian cannabis market since
The Gradual Growth of Drinkables and Edibles
Canadian market participants have shown enthusiasm for the seemingly endless possibilities of so-called cannabis 2.0 products (ie, products other than cannabis flower and pre-rolls). Of these cannabis 2.0 products, cannabis-infused beverages (otherwise known as drinkables) and edibles have sparked the most enthusiasm. This excitement is attributed to:
- the variety of potential benefits of drinkables and edibles, including the relative health benefits of the delivery system over other formats such as smoking or vaping;
- the potential of drawing non-cannabis consumers into the market; and
- the possibility of disrupting the alcohol industry by converting alcohol drinkers to cannabis drinkers.
For these reasons, among others, many industry stakeholders estimated that drinkables and edibles would be "the next big things" in the cannabis industry. Yet, more than one year since the Canadian government legalised these products, the drinkables and edibles market has not blossomed as many predicted it would. As a result of the gradual development of the drinkables and edibles market thus far, many people are questioning whether these products, and the market for these products, will live up to their high expectations.
Factors contributing to the slow development of drinkables and edibles
There are a number of factors that contributed to the initial poor and drawn-out performance of drinkable and edible cannabis products. One factor is the complicated regulatory framework in which these products are operating.
Although the Canadian government legalised recreational cannabis in October of 2018, it delayed the legalisation of drinkable and edible cannabis products by an additional year, primarily because they are more complicated products to regulate.
In regard to the Cannabis Act (S.C. 2018, c. 16) (the "Cannabis Act"), there are a number of provisions, and regulations promulgated thereunder, that are unique only to "edible cannabis". In addition, the Cannabis Act classifies cannabis-infused beverages as "edible cannabis". This means that edible and drinkable products are not only subject to the Cannabis Act but also to other legislation, such as the Food and Drugs Act (R.S.C., 1985, c. F-27). In addition, there are several other rules and regulations that will impact the future success or failure of the drinkable and edible sector.
First, with respect to licensing, the legalisation of drinkables and edibles brought with it new licensing requirements for producers of cannabis-infused products. These licences permit producers to process cannabis into various permitted forms of drinkables and edibles. Unfortunately, the process to obtain these licences is lengthy and capital-intensive, which hinders the ability of new participants to enter the market.
Additionally, the stringent rules and regulations for drinkables and edibles did not only impact new market participants. Existing food and beverage producers have not been much better off, particularly due to
In addition to the more complex regulatory regime and strict licensing and production requirements, packaging and labelling regulations also contribute to the slow development of the drinkable and edible market. While many people estimated that cannabis-infused beverages would directly compete with alcohol, or at least potentially disrupt the alcohol market, rigorous packaging, labelling and advertising regulations make it difficult for companies to differentiate their products and attract attention away from long-standing alcohol brands, which the government has regulated far less than the cannabis industry.
The relatively high price-point of edible and drinkable products also contributed to the initial low consumer demand for these types of cannabis products. These prices are partially attributable to the significant costs and barriers to obtaining a licence and producing drinkables and edibles, as well as the absence of a large number of market competitors that offer similar products at a substantially lower price-point.
In light of the strict rules and regulations that accompanied the legalisation of drinkables and edibles, along with the other unique features of this emerging market, it is not surprising that there is a longer runway before the drinkable and edible cannabis sector reaches its full potential.
Expected future growth of the drinkables and edibles market
Despite its gradual development, the drinkable and edible market is beginning to gain traction in the Canadian cannabis industry.
In the first quarter of 2020, drinkables and edibles accounted for only 2.6% of all legal Canadian cannabis revenue, but this percentage steadily improved each quarter and hit 5% for the fourth quarter of 2020. The optimism that comes with these increased revenue numbers is compounded by various reports that indicate that individuals that do not identify as cannabis users have an increased willingness to purchase and consume drinkable and edible cannabis. These products are therefore showing increased potential to draw both new and existing consumers into the cannabis market.
Looking forward, there are some additional emerging developments that many people expect will assist in further expanding the drinkables and edibles market in
As the growth of the drinkable and edible sector demands that brands differentiate themselves, licensed producers will continue to develop a variety of new edible and beverage products, including a wider array of cannabidiol (CBD) offerings.
Additionally, in an effort to address the relatively complex regulatory regime and high costs associated with constructing and outfitting a drinkables and/or edibles facility, the drinkables and edibles market is currently experiencing the emergence of "co-packing", which is a well-known solution in the food and beverage sector whereby a brand outsources the manufacturing and packaging of a product for a fee. Co-packing presents a viable alternative for brands looking for a work-around from some of the challenges that currently plague the edibles market, and has contributed to the steady growth of drinkables and edibles.
Conclusion
Similar to the overall Canadian cannabis market, cannabis-infused drinkables and edibles are still in their infancy. With just over a year of public availability, this market is expected to grow significantly, not only in the number of brands available, but also in the innovation of new products, reduced prices and improved quality and consistency.
Real-Life Monopoly - the Expansion of Retail Cannabis
For the first two years of recreational cannabis legalisation in
There are currently over 1,500 cannabis retail stores open for business across
The impact of COVID-19 on the industry
The COVID-19 pandemic has resulted in certain complications for the Canadian retail cannabis sector. Firstly, when COVID-19 first hit the country, regulators flip-flopped over how to categorise retail cannabis. At some points, and in some locations, regulators deemed the sector essential, while in other locations retail cannabis was not considered an essential business or was subsequently removed from the list of essential businesses. Secondly, the COVID-19 pandemic tightened budgets and reduced cash-flow for many cannabis companies. This resulted in less aggressive expansion strategies for many retail businesses. Finally, the pandemic created certain operational difficulties that reduced the efficiency with which certain regulators were able to issue new retail store licences.
Perhaps surprisingly, despite these challenges and concerns, the retail cannabis industry in
The market capacity of Canadian cannabis retail
The strength of the retail cannabis market and its ability to survive the pandemic, as demonstrated by the tremendous amount of activity and growth that the retail sector has seen across the country, leads many to wonder what the overall capacity of the Canadian retail market is, and whether the industry can sustain the expansive growth it is currently experiencing.
Some commentators suggest that the Canadian cannabis retail landscape has room for up to approximately 4,000 retail stores. If this is the case,
An important consideration in determining whether the Canadian cannabis retail market can continue to grow at its current rate is where each of these retail stores will ultimately be located. Major cities across the country are an illustration of the fact that the retail expansion has not been particularly proportionate. Instead,
Without more substantial historical data or certainty regarding where new retail stores will open, market capacity remains an outstanding topic for debate. Nevertheless, based on the continued changes and advancements in the regulatory environment and consumer trends, market capacity should be considered a moving target rather than a set number.
Key factors for future growth
Looking forward, as regional markets become saturated, retailers must be conscious of how they can differentiate themselves and remain competitive. Similar to coffee shops, key factors such as location, quality of service and a retailer's client base will be determinative of a retailer's success over its competitors.
Over the past year, we have seen cannabis retail adapt to its changing environment and, moving forward, the growth of retail appears to be accelerating further.
For example, increases in the number of retail store licences, and regulators fast-tracking their retail licensing programmes, have begun to enable larger retail brand operators to continue to expand their footprint nationwide.
In addition, innovative partnerships are developing between existing brands and large national retailers that have existing real estate assets and are looking to build-out cannabis retail stores next to or, in certain instances, as part of existing non-cannabis retail businesses. We are also starting to see certain retailers working in partnership with licensed producers to launch "private label" products. In such partnerships, the licensed producer manufactures the product and then labels and packages the product with the retailer's private label brand.
The industry as a whole has been known for its market disruption, and the retail sector has been no different. It is anticipated that the industry's growth and evolution will continue through the remainder of 2021 and into 2022.
Igniting the Public Market and Cross-Border Optimism
The legalisation of cannabis in
However, this unbridled optimism eventually began to decline and so too did the valuations of many Canadian cannabis companies. Within a relatively short period of time, there was a sharp decline:
- in the stock price of publicly traded cannabis companies;
- the number of new companies going public; and
- the ability of existing public companies to raise additional capital.
These issues were compounded by COVID-19's impact on the global financial market as a whole.
These dramatic changes quickly led to serious concerns throughout the Canadian cannabis industry and resulted in a further decrease in industry stakeholder (and retail investor) confidence in the cannabis public markets.
However, as 2021 has progressed there has been a resurgence in the Canadian cannabis public markets and this upward trajectory appears to be continuing. This resurgence can be attributed to a number of factors, most notably:
- the stabilisation of global financial markets as the initial panic of the COVID-19 pandemic has diminished;
- stronger performance and financial results from Canadian public cannabis companies through the tail-end of 2020; and
-
optimism surrounding cannabis legalisation and reform in the
USA .
These recent developments have further enticed investors back to the industry, with some Canadian companies positioning themselves to capitalise on the potential expansion of the US market.
Although the Canadian cannabis market has not exactly stabilised, it has started to mature and, with further opportunities for investment on the horizon, the long-term prospects remain high.
Conclusion
From budding innovative products, to new and expansive retail opportunities, to growing confidence in the public market and increased investment, the legal cannabis industry in
With the worst of the COVID-19 pandemic seeming to be in the rear-view mirror at this point, and as the Canadian cannabis market continues to evolve through 2021, and into 2022, there is a renewed sense of optimism amongst industry stakeholders. As the industry continues to develop, the expansion and growth of drinkable and edible cannabis products, and brick-and-mortar retail stores, along with the resurgence of the cannabis public market, will continue to be worth watching.
Originally Published by Chambers Medical Cannabis & Cannabinoid Regulation 2021 Global Practice Guide
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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