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Client Update: The Cannabis Act – Getting into the Weeds

Rick DunlopDavid RandellChristine PoundSadira Jan and Kevin Landry

The federal government’s introduction of the Cannabis Act, the first step in the legalization of marijuana (or cannabis), has understandably triggered a wide range of reactions in the Canadian business community. At one end of the spectrum, employers, particularly those in safety sensitive industries, are concerned with the impact legalization will have on safety and productivity. At the other end of the spectrum, entrepreneurs see opportunity as the cannabis industry is a growing one. Health Canada recently reported that as of January 31, 2017, there were nearly 142,541 clients registered with licensed producers of medical cannabis and that the medical cannabis program is growing by 10,000 clients per month.1

Entrepreneurs seeking to take advantage of marijuana legalization must, however, understand that the Cannabis Act will create a heavily regulated environment and much of this regulation is yet to be published. The Act itself is still in draft form but here is what we know so far.

What are the Act’s overarching themes?

In legalizing cannabis the Act is heavily focused on:

  • restricting young persons from accessing cannabis;
  • protecting health and public safety by establishing strict product safety and quality requirements;
  • deterring criminal activity by imposing serious criminal penalties for those operating outside the legal framework; and
  • reducing the burden on the criminal justice system in relation to cannabis.

What does the Act legalize?

  • possession, sale or distribution of cannabis pursuant to the Act and provincial legislation;
  • individuals who are 18 and older may possess up to 30 grams of cannabis;
  • persons may possess up to 4 marijuana plants in a non-public place; and
  • sale of marijuana for recreational use by licensed businesses.

What types of activities does the Act regulate?

The following cannabis associated activities require a license:

  • importation;
  • exportation;
  • production;
  • testing;
  • packaging;
  • labelling;
  • sending;
  • delivery;
  • transportation;
  • sale; and,
  • possession or disposal.

What are the specific requirements for each license?

  • The specific requirements will be outlined in the Regulations that have not yet been released.
  • The Act does provide that the Minister may require an applicant to provide “financial information” which “includes information about its shareholders or members and who controls it directly or indirectly.”

Can an applicant be denied a license, and if so, for what reasons?

Yes, the Minister may refuse to issue, renew or amend a license or permit for various reasons, including:

  • the applicant is “likely to create a risk to public health or safety, including the risk of cannabis being diverted to an illicit market or activity;”
  • the applicant is “an individual who is not ordinarily resident in Canada; or an organization that was incorporated, formed or otherwise organized outside Canada;”
  • the “Minister is of the opinion that it is in the public interest to do so.”

The Minister must, however, provide written reasons for the decision.

What role does provincial law play in marijuana regulation?

Provincial laws will play a significant role in marijuana regulation. No province, however, has passed any legislation.2 The federal government sets the minimum standards and provincial governments will license and regulate the sale and distribution of cannabis. For example, the minimum age for purchase and possession of cannabis under the Act is 18 years of age, but the provinces are permitted to impose a higher minimum age.

The Act permits a person to possess, sell or distribute cannabis if they are authorized to do so under a provincial law that:

  • ensures an authorized seller only sells cannabis that has been produced by a person who is authorized under the Act to produce cannabis for commercial purposes;
  • ensures the seller may not sell to young persons;
  • requires the seller to keep appropriate records in relation to the cannabis they possess for commercial purposes; and
  • requires sellers to take adequate measures to reduce the risk of cannabis being diverted to an illicit market or activity.

Does the Act say how marijuana can be priced and taxed?

No.

Does the Act restrict promotion?

Yes. The Act restricts the marketing and promotion of cannabis, by prohibiting:

  • the use of testimonials, or endorsements;
  • any promotion of cannabis that “could be appealing to young persons.” The Supreme Court of Canada found that a similar restriction in tobacco related legislation was not an unconstitutional infringement on expression.
  • any lifestyle marketing (i.e. the use of real or fictional persons, characters or animals) in the promotion of cannabis and related products is prohibited.
  • purveyors of marijuana from using foreign media to advertise in Canada.
  • sponsorship of people, entities, events, activities and facilities if the sponsorship results in the display of a brand element or name of a producer, seller or distributor of cannabis or related products or services.
  • a variety of approaches where the distributor would not technically be selling cannabis, but would be providing it to consumers: such as offering free cannabis with the purchase of a different product, or giving customers a chance at a sweepstakes with incredibly high odds to “win” some cannabis with the purchase of another product.

What does “could be appealing to young persons” mean?

It means that the product at issue is particularly attractive and of interest to young persons as distinguished from the general population.

How would a business promote cannabis?

  • The law allows the price and availability of the cannabis to be communicated to customers at a point of sale.
  • Brand elements may be displayed “on a thing that is not cannabis or a cannabis accessory” if it is not a:

• “thing associated with young persons”;

• “thing that there are reasonable grounds to believe could be appealing to young persons”; or “a thing that is associated with a way of life such as one that includes glamour, recreation, excitement, vitality, risk or daring”.

 

  •  Informational and brand-preference promotion are permitted in specified cases. This type of promotion is limited to factual characteristics (including price), or availability of the cannabis or related product. Informational and brand-preference promotion is only permitted:

• in a communication that is addressed and sent to an individual who is 18 years of age or older and is identified by name;

 

• in a place where young persons are not permitted by law;

 

• when communicated by means of a telecommunication, where the person responsible for the content of the promotion has taken reasonable steps to ensure that the promotion cannot be accessed by a young person;

 

• in a place prescribed by regulations; or

 

• if done in a manner prescribed by regulation.

What restrictions are there on packaging and display?

The restrictions on packaging and display of cannabis and cannabis accessories are similar to those for promotion, the main rules being that packaging cannot:

  • be appealing to young persons;
  • include testimonials;
  • include endorsements;
  • include depictions of persons, characters or animals;
  • utilize lifestyle marketing; or
  • contain false, deceptive or misleading information about the product.

The Act also prohibits display of any packaging or labeling for cannabis or an accessory that can be seen by a young person.


Does the Act create criminal offences and administrative penalties?

Consistent with the Act’s purpose of protecting young persons and reducing illicit cannabis related activities, the Act creates criminal offences for the possession, distribution, selling, importing, and exporting of cannabis that is contrary to the Act.

The Act also creates administrative monetary penalties for violating certain provisions of the Act.

What does the Act say about director and officer liability?

The Act provides that if a person other than an individual (e.g. corporation) commits an offence, “any of the person’s directors, officer or agents or mandataries who directed, authorized, assented to, acquiesced in or participated in the commission of the office is a party to the offence and is liable…to punishment provided for by [the] Act, even if the person is not prosecuted for the offence.”

The Act further provides that a person who is named in a notice of violation (issued pursuant to the monetary administrative penalties) that person “does not have a defence by reason that the person (a) exercised due diligence to prevent the violation; or (b) reasonably and honestly believed in the existence of facts that, if true, would exonerate that person.”

What next?

The Act has not yet been passed into law. The key components of the marijuana regulatory regime, namely, the Act’s regulations and the provincial legislative and regulatory response, are still being developed.

We are watching these developments closely and will continue to update you.


1 https://news.lift.co/canadas-medical-marijuana-program-growing-by-more-than-10000-a-month/
2 Some provincial governments have expressed concern that they have a lot of work to do in a limited amount of time: https://www.thestar.com/news/canada/2017/04/13/provinces-bracing-for-impact-as-liberals-set-to-unveil-proposed-pot-bill.html

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