July 10, 2018
By: Andrea Hill
I am pleased to bring you this instalment of my blog, rounding up what’s currently happening in the cannabis industry in Canada and abroad.
The Cannabis Regulations are here!
- The Cannabis Regulations have been circulated ahead of their publication tomorrow. Regulations typically provide meat on the bones of an act, and the Cannabis Regulations are no exception. Importantly, the Regulations include striking new security clearance and investor reporting requirements for corporate licenceholders – for example:
- The Regulations introduce a new security clearance requirement for all individuals who are in a position to exercise “direct control” over a corporate licenceholder.
- Corporate licenceholders must also begin keeping a register of “key investors” able to exercise direct or indirect control over a corporate licenceholder, with extensive details about the key investor’s relationship with the licenceholder.
- Details on each of these new requirements are below. All current ACMPR license holders and applicants need to carefully consider these new requirements for security clearance and reporting in order to comply with the Regulations when they come into force on October 17, 2018.
- Outdoor grows, a portal for acquisition of fresh genetics from outside existing LPs, and new hemp regulations allowing for the provision of hemp flower and other plant materials to cannabis licenceholders rounds out the list of key details we noticed. Here are the details:
- Classes of licences – Health Canada will be able to issue the following types of licences:
- cultivation (“standard” with no area limit, “micro” in which all cannabis plants must be contained within 200 square metres, and “nursery”, which allows for cultivation of plants and seeds with a 50-square-metre area limit);
- processing (“standard” with no quantity limit, and “micro”, limited to an aggregate of 600 kilograms of cannabis per year);
- analytical testing;
- sale (sale or sale for medical purposes);
- research; and
- cannabis drug licences.
- We’ll send out a separate post with more details about each licence type.
- Medical access continues – the Regulations substantively incorporate the current rules for access to cannabis for medical purposes as set out in the ACMPR, including allowances for registered persons to produce cannabis for themselves or have it produced for them by designated persons.
- Security clearance required for all individuals who “directly control” a licenceholder –certain individuals involved with a licenceholder must obtain security clearance, a fairly involved background check process which can stretch years into the past. In the case of a corporation that is a licenceholder, the Regulations provide that security clearance must be obtained by:
- each director and officer of the corporation,
- each individual who exercises, or is in a position to exercise, “direct control” over the corporation (see below);
- the directors and officers of any corporation or cooperative that exercises, or is in a position to exercise, “direct control” over the corporation (including any company which owns more than 50% of the corporation’s shares); and
- each individual partner, and the directors and officers of any corporate partner, of a partnership which exercises, or is in a position to exercise, “direct control” over the corporation.
- Notably, “direct control” is left undefined.In other documentation, Health Canada has interpreted “direct control” as including the ability to elect or “influence” the corporation’s board of directors.Health Canada has also stated in those documents that individuals who hold an “influential” amount of voting shares of a corporation may also require security clearance.It’s not clear just what proportion of shares comprises an “influential” amount, or which other factors may be taken into account.
For example, by means of a unanimous shareholders’ agreement, one or more shareholders may remove decision-making power from the directors and take it upon themselves.It’s not clear just how far a shareholder’s rights under a unanimous shareholders’ agreement may need to go to trigger the “influential” status and consequential security clearance requirement.
In general, these are major changes from the ACMPR, which only requires security clearance for directors, officers, the senior person in charge, and the responsible person in charge of a corporate licensed producer.
- Security clearance for Master Growers and Head of Security – security clearance is also required for each Head of Security and each Master Grower and their alternates.
- Security clearance criteria– factors that the government may take into account in determining whether security clearance should be granted include whether it is known or there are reasonable grounds to suspect that the applicant is or has been involved in an activity prohibited by the Cannabis Act or the Controlled Drugs and Substances Act.
- This may reduce the chances of security clearance being granted to anyone who has been involved with an illegal dispensary or other unregulated activities with cannabis or other controlled substances.
- Refusal of security clearance can lead to licence revocation – licenceholders be warned – refusal of a security clearance application is grounds for the government to revoke a licence entirely, so licenceholders will want to be very confident in the security clearance applications they submit.
- Annual reporting of “key investors” – a holder of a licence for cultivation, processing or sale must maintain a detailed record of about each “key investor” – that is, each person who exercises, or is in a position to exercise, direct or indirect control over the licenceholder, by virtue of either (a) having provided money, goods or services directly or indirectly to the licenceholder; or (b) holding an ownership interest or other right or interest in, or in respect of, the licenceholder or its business.
- This record must include details of each instance in which the key investor provides money, goods or services directly or indirectly to the licenceholder, including the amount and terms of any money, and the nature and fair value of any goods or services.The record must also disclose any benefit the key investor receives from the licenceholder as a result of such contributions, among other things.
The licenceholder must provide a copy of this record to the federal government every year.Public companies are exempt from this requirement.
- Outdoor grows are allowed – cannabis may be cultivated, propagated, and harvested outdoors, both for commercial and personal production purposes. The size of an outdoor grow would depend on whether the licenceholder held a standard or micro cultivation licence. For personal grows, the outdoor location must not be adjacent to a school, playground, daycare, or other location frequented mainly by people under 18.
- Fresh genetics to come online – in addition to acquiring cannabis from a licenceholder authorized to sell it to them, cultivation licenceholders will be able to possess plants and seeds not obtained through the ACMPR or in accordance with the Regulations if they submit with their application a declaration to the federal government indicating the quantity of plants and seeds they will have in their possession upon licensing.
- Thus far, the supply of cannabis plants and seeds has been a closed system: licensed producers may currently only obtain cannabis from other licensed producers, which has stymied genetic variety in the market.This provision seems designed to allow licenceholders access to fresh genetic material – perhaps, for example, from holders of designated person production licences.
- One security-cleared person per site, rather than per room – licenceholders will no longer need to have one security-cleared person in every area within a site where cannabis is present while other people are in those areas; rather, one security-cleared person for the entire site will suffice. This change ought to reduce personnel pressure on many licenceholders (as well as the number of people in line for security clearance).
- Limit of 1 gram of dried cannabis per joint – products which feature dried cannabis which is meant to be consumed by inhalation – think pre-packaged joints – can contain no more than one gram of dried cannabis per joint. Ergo: no cannabis cigars.
- Maximum 30 mg of THC per mL of cannabis oil – THC is considered the main psychoactive ingredient in cannabis. There does not appear to be a limit on CBD (cannabidiol) content (CBD is generally not considered to be psychoactive).
- Plain packaging – cannabis must be packaged in matte, child-resistant, uniformly-coloured packaging that is opaque or translucent, and which contains no than 30 grams of dried cannabis (or the equivalent). Packaging may not be metallic or fluorescent, and must provide a contrast with the government’s mandatory red and yellow symbols and warning messages. Packages may not contain any inserts or leaflets and may not have “any hidden feature that is designed to change the appearance of the container or covering, such as heat-activated ink or a feature that is visible only through electronic means,” perhaps dashing the hopes of some industry participants.
- Veterinary use – the Regulations allow a veterinarian to sell, deliver, and administer drugs containing cannabis in respect of animals under their care.
- New Industrial Hemp Regulations permit sale of hemp plants to cannabis licenceholders – Industrial hemp is cannabis that contains 0.3% THC or less in the flowering heads and leaves. Hemp is sometimes used in CBD production as there is no limit on the amount of CBD a hemp plant can contain.
- When the Cannabis Act takes effect on October 17, 2018, the existing Industrial Hemp Regulations, which set out the requirements for cultivators of industrial hemp, will be replaced with new Industrial Hemp Regulations under the Act. As is currently the case, cultivators hemp varieties approved for commercial cultivation
The new Industrial Hemp Regulations will have many similarities to the existing regulations, with an important change: the sale of hemp flowers, leaves and branches to cannabis licenceholders will be permitted, to provide a source of low-THC, high-CBD products to the cannabis market.
- We’ll keep you posted as we learn more about the Cannabis Regulations in the coming weeks. Stay tuned!
What’s Up in Weed is not legal or financial advice. It is a blog by SkyLaw which is made available for informational purposes only and should not be used as a substitute for professional advice from a lawyer. This blog is subject to copyright and may not be reproduced without our permission.
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