Cannabis takes the next step: new federal regulations
July 25, 2018

By: Alice Tseng and Brandon Heard, with contributions from Malcolm Harvey

Canada continues the march towards legal recreational “adult use” cannabis, recently publishing federal regulations affecting producers and others within the thriving industry. These include the Cannabis Regulations, SOR/2018-144 (the Regulations) and new Industrial Hemp Regulations, SOR/2018-145, published on July 11, 2018. Their announcement follows royal assent to the Cannabis Act (the Act) on June 21, 2018.

The Regulations largely follow the Summary of Comments received During the Public Consultation (the Consultation) which Health Canada had released earlier in 2018, with some new developments.  The changes impact a variety of areas including: licensing, cannabis products, drugs containing cannabis, and industrial hemp; as well as packaging and labelling, advertising, and rules pertaining to key investors.

All of these will come into force with the Cannabis Act on October 17, 2018, and we have outlined the changes and impacts in each of these areas here:

Licensing

The Regulations provide for six classes of licenses: cultivation, processing, analytical testing, sale, research and cannabis drug licenses. In addition to standard cultivation and processing licenses, further license subclasses are defined in line with the Consultation’s stated intent of facilitating the participation of small-scale producers:

  • Cultivation:
    • Micro-cultivation license-holders are limited to a total surface area not exceeding 200 m2, in which all plants and plant parts must be contained and in which all cultivation, propagation and harvesting must occur.
    • Nursery license holders are authorized to sell only cannabis plants and seeds, since this class was introduced to enable legal sources of starting materials and the development of new cannabis varieties. These license-holders are required to contain all plants in a total surface area not exceeding 50 m2, possess no more than 5 kg of flowering heads (excluding seeds) from the contained plants, and destroy flowers (excluding seeds), leaves and branches within 30 days of harvesting.
  • Processing:
    • Micro-processing license-holders must, subject to a limited exception, not possess more than the equivalent of 600 kg of dried cannabis in a calendar year, outside of cannabis plants and seeds.

Standard cultivation and processing sites are subject to increased security measures compared to micro-cultivation, nursery and micro-processing sites, including: visual monitoring, record-keeping and intrusion detection for the site perimeter and operations and storage areas. Micro-cultivation, nursery and micro-processing sites are required only to (1) be designed in a manner that prevents unauthorized access, (2) possess physical barriers that restrict unauthorized access to storage areas and the site itself, and (3) restrict storage area access to individuals carrying out their work duties.

One of the contentious issues raised in the consultation process was the issue of outdoor cultivation, but outdoor cultivation is now expressly permitted by the Regulations.

The consultation process also raised the possibility of multiple licenses (e.g. of different classes) for a single site. The Regulations impose no restrictions on how many licenses an individual can possess or the total number of licenses available. The same site may seemingly possess multiple classes of licenses, allowing for vertical integration. However, the Minister may refuse to issue multiple licenses of the same class at the same site, which would help avoid a scenario where a person holds multiple micro-scale licences together at a single site to avoid the more onerous requirements associated with standard-scale licences. 

Consistent with the Consultation, the security clearance provisions are aimed at (1) enabling the Minister to refuse clearance to individuals associated with organized crime, corruption, drug trafficking or violent offenses; and (2) allowing individuals with histories of small-scale possession or cultivation of cannabis to still hold a security clearance.

For cultivation, processing and sale licenses, the Regulations require certain individuals, including the following, to hold a security clearance: (1) any individual license-holder; (2) any directors and officers of a corporate license-holder; (3) anyone who is able to exercise direct control over a corporate, co-operative or partnership license-holder; and (4) certain key individuals, including the master grower and head of security (the latter is a newly required position).

Key Investors

For private companies, a record of key investors must be maintained along with financial details of the relationship and the extent to which a given key investor can exercise control over the license-holder.

Cannabis Products

The Regulations stipulate the maximum THC content for cannabis oils and discrete units of products ingested orally, but not for dried or fresh cannabis products. Products intended to be administered orally have a maximum yield quantity of 10 mg of THC, while the THC limit for cannabis oils is 30 mg/ml. Accessories packaged with cannabis oil that dispense for ingestion must not dispense more than 10 mg of THC per activation. 

Although there is no such maximum for dried or fresh cannabis, extraneous THC and THCA must not be added to these products. For dried cannabis sold in discrete units and intended for consumption via inhalation, the net weight of dried cannabis in each unit must not exceed 1.0 g. Lastly, cannabis accessories must not impart a characterizing flavour, and products intended for use in the human eye or intended to be administered by disrupting the skin barrier are prohibited.

The 10 mg maximum THC yield for oral administration will presumably also apply to edibles, which will be permitted within 12 months of legalization of adult-use cannabis.

Packaging and Labelling

The Regulations set strict limits on the colour, appearance and physical characteristics of a cannabis product’s immediate container and outside covering. The interior and exterior surfaces of a product’s container must each be a uniform colour, although that colour can differ between the two surfaces. Moreover, metallic colours, fluorescent colours and colours that fail to contrast with the yellow health warning message and red standardized cannabis symbol are not permitted, with the exception that a metal interior surface may retain its natural colour. The exterior surface must have a matte finish. Both the interior and exterior surfaces must be smooth – raised features or other physical irregularities are not permitted, except those that assist the visually impaired or facilitate the opening and closing of the container. The immediate container for a cannabis product (other than plants or seeds) must be opaque or translucent, but the container’s covering must be transparent and colourless.

Regarding labelling, the Regulations impose mandatory health warning messages, the disclosure of THC/cannabidiol (CBD) content and strict branding requirements. A brand name and brand element (e.g. a logo) can each be displayed only once, on the product’s principal display panel. No other images or graphics are permitted. The brand name must be in a type size equal to or smaller than that of the health warning message, and if the brand element is an image, its surface area must be equal to or smaller than that of the standardized cannabis symbol. Fluorescent and metallic colours are not permitted for either.

Notably, the Regulations contain provisions aimed at preventing circumvention of the packaging and labelling requirements. These provisions were not discussed in the Consultation, but generally, they require that the interior and exterior surfaces be devoid of any feature that could change the appearance or surface area of the covering or emit a scent or sound. The examples given in the Regulations include heat-activated ink and fold-out panels; however, the wording is broad enough to catch anything that could alter the container’s appearance or physical shape. Furthermore, bar codes can be displayed only once and must be black and white with no additional image or design. These provisions will make it extremely difficult for license-holders to circumvent the labelling restrictions.

Advertising

The Cannabis Act permits informational promotion or brand-preference promotion in certain circumstances where young people will not be able to access such communication.  However, since this would result in young persons who require medical cannabis not being able to access such information, the Regulations now allow those who are licensed to sell cannabis or cannabis accessories to expand some of their informational promotion and brand-preference promotion activities to young persons authorized to use medical cannabis.

Drugs Containing Cannabis

The Regulations set out security and record-keeping requirements for producers, pharmacists, practitioners and hospitals with respect to drugs containing cannabis.

The health professions are in turn developing strategies to adapt to the new legislation.  For example, the Ontario College of Pharmacists has recently approved a new Cannabis Strategy which, among other things, makes it mandatory for practicing pharmacists to learn about cannabis.

The Consultation noted that promotional controls for prescription drugs containing cannabis were being considered. The Regulations clarify this and carve out exemptions from the promotional restrictions imposed by the Act, stating that it is permissible to promote prescription drugs via brand name and that they are exempt from the sponsorship restrictions in the Act.

Although the Act prohibits promoting cannabis products in a manner that could be appealing to young persons, the Regulations make an exception for prescription drugs that appeal by way of appearance, shape or other sensory attribute or function, in order to facilitate young persons consuming therapeutic products that have been prescribed for them. In the case of prescription drugs for veterinary use, the package or label may depict an animal corresponding to the product’s use.

Industrial Hemp Regulations

The new Industrial Hemp Regulations open a new avenue for CBD production. While the new regulations are very similar to the current framework, a key change is that hemp growers can now sell flowering heads, leaves and branches to another holder of an industrial hemp license or a holder of a license under the Cannabis Regulations.  This change will provide hemp growers with a new market for their crop and provide CBD producers with a new source of plant material. Because of the lower regulatory burden associated with hemp cultivation and the strong interest in CBD, some industry players have made strategic hemp investments in anticipation of the hemp regime becoming less strict.

Smart & Biggar will be closely monitoring the implementation of this historic new law, and will provide timely updates as this matter unfolds. If you have any questions about the above, please contact the Cannabis Practice Group.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

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