Canada: High Times for Recreational Cannabis in Canada – The Proposed Cannabis Act (Bill C-45)

Thursday, April 27, 2017On April 13, 2017, the federal government released the much anticipated proposed Cannabis Act (Bill C-45 – An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts) (the “Cannabis Act”) to introduce the framework for recreational cannabis in Canada. The Cannabis Act was introduced concurrently with Bill C-46 – An Act to amend the Criminal Code (offences relating to conveyances) and to make consequential amendments to other Acts. The Cannabis Act generally follows the recommendations laid out by the Task Force on Cannabis Legalization and Regulation in its final report published on December 13, 2016 (the “Task Force Report”) about which we have previously written (Task Force on Cannabis Legalization and Regulation Delivers Report to Federal Government). The overarching theme of the Cannabis Act is to prevent youth from accessing cannabis, promote and protect public health and safety and deter cannabis-related criminal activity. The Cannabis Act provides the federal government with significant authority to regulate the possession, production, distribution and sale of cannabis for recreational purposes. The Cannabis Act will require the individual provinces and territories to enact legislation that contains minimum conditions to address public health and safety objectives across the country. Provinces and territories will also have the ability to increase the minimum age requirements, lower the possession limit, impose additional requirements on personal cultivation and set additional restrictions and local requirements related to cannabis, including zoning and additional public consumption restrictions. The federal government has indicated that it expects the Cannabis Act to be brought into force, as it may be amended, by July 1, 2018. Much of the interpretation of the Cannabis Act, including many of the commercial aspects of the recreational regime, will depend on the regulations that will be released at a later date and will provide additional clarity in significant areas. Several of the key provisions of the Cannabis Act are summarized below: Types of Cannabis The Cannabis Act contemplates the sale of a variety of forms of cannabis including dried cannabis, cannabis oils, fresh cannabis, cannabis plants and cannabis plant seeds. With respect to cannabis-infused foods, commonly referred to as ‘edibles’, which have been widely discussed in the media, the government has indicated that following the coming into force of the Cannabis Act, the government will develop regulations to permit the sale of edible products. We would expect that such regulations will address the appropriate levels of THC (or tetrahydrocannabinol), the psychoactive ingredient in cannabis, in edibles, among other limitations within the regulations aimed at ensuring only safe edible products are permitted in Canada. Substances containing nicotine, caffeine or ethyl alcohol are prohibited from also containing dried cannabis, cannabis oil or fresh cannabis. Sale and Possession As expected following the Task Force Report, the Cannabis Act will prohibit anyone from selling cannabis or cannabis accessories to any person under the age of 18. Each province and territory may raise the minimum age at its discretion. Adults will be permitted to possess up to 30 grams of dried cannabis in a public place, which includes any place to which the public has access as of right or by invitation, any motor vehicle located in a public place or in any place open to public view. Adults will also be permitted to cultivate up to four cannabis plants that do not exceed 100 centimeters in height each. The four plant maximum is limited to a “dwelling-house” and applies irrespective of the number of adults residing in such dwelling-house. Possession of a cannabis plant in public is prohibited. There are currently no restrictions within the Cannabis Act as to whether cannabis plants may be cultivated indoors or outdoors within the definition of “dwelling-house”. Young persons between the ages of 12 and 18 are prohibited from possessing or distributing more than 5 grams of dried cannabis (or its equivalent). Provinces and territories will be provided with the ability to prohibit the possession of any amount of cannabis by youth. Promotion, Packaging and Labelling The Cannabis Act contains promotion and packaging restrictions that are intended to protect youth from being persuaded through marketing or advertising to purchase and consume cannabis. The depiction of persons, characters or animals or the use of testimonial or endorsement will be prohibited under the Cannabis Act. While the Cannabis Act contemplates the promotion of cannabis at the point of sale, such promotion will be limited to the availability and/or price of cannabis and cannabis accessories or services. Similar to the restrictions on “lifestyle advertising” in the Tobacco Act, the Cannabis Act places broad prohibitions on the use of a brand element in promoting cannabis, cannabis accessories or services related to cannabis if such brand element is presented in a manner that associates it with or evokes a positive or negative emotion about or image of a way of life that includes glamour, recreation, excitement, vitality, risk or daring. The Cannabis Act defines “brand element” as a brand name, trademark, tradename, distinguishing guise, logo, graphic arrangement, design or slogan. We expect the regulations of the Cannabis Act will provide further clarity on what will be permitted but, generally speaking, promotion will be severely limited. It appears that business-to-business promotion between licensed producers (“LPs”) not directed at consumers will not be subject to the strict promotion restrictions. The Cannabis Act does provide an exception for the promotion of cannabis, cannabis accessories or cannabis-related services by means of informational promotion (i.e., promotion of the THC or cannabidiol content or other ingredients for the consumer’s knowledge and potentially the emotive effects of one strain versus another) or brand-preference promotion (i.e., promotion of characteristics of a brand). The intent is to provide consumers with factual, accurate information on which informed decisions can be made with respect to recreational cannabis. Informational promotion and brand-preference promotion of cannabis or cannabis accessories and services are only permitted if the promotion is presented as follows:

• in a communication that is individually addressed and sent to a person 18 years of age or older and is identified by name in such communication;
• in a place where young persons are not permitted by law;
• by means of telecommunication where the person responsible for the content has taken reasonable steps to ensure that the promotion cannot be accessed by a young person; or
• as prescribed by the Cannabis Act, in regulations to be developed.

The regulations will also address the prohibition of certain terms, expressions, logos, symbols or illustrations in the promotion of cannabis, accessories or services. Whether this spells the end of the use of the ever-prevalent marijuana leaf or pseudonyms for cannabis, such as “weed”, on marketing materials or cannabis products remains to be seen. Further, the sponsorship of a person, entity, event, activity or facility with any brand element or name of a person that sells, produces or distributes cannabis or a cannabis accessory or cannabis-related service is expressly prohibited. This removes any potential for cannabis or its related accessories and services to be advertised at a sporting or cultural event. It is unclear whether these restrictions will apply to both the medicinal and recreational regime. It will be prohibited to promote cannabis in a false, misleading or deceptive way, including promotion that may create an erroneous impression about its characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks. We expect the marketing and advertising rules to evolve as the regulations of the Cannabis Act are promulgated. Recently, a group of seven LPs wrote a joint letter to the federal government requesting more leeway to develop and promote brand identity, in order to differentiate themselves from illicit producers. While the Cannabis Act appears to preclude the cannabis industry’s version of “Joe Camel”, we expect there will be some leeway for branding and/or promotion to differentiate companies and their products or services. We also expect to see more detail on the packaging and labelling requirements in the regulations of the Cannabis Act. Licensing The Cannabis Act will provide for the issuance of licences and permits, based on applications received, by the Minister of Health (the “Minister”) that authorize the importation, exportation, production, testing, packaging, labelling, sending, delivery, transportation, sale, possession and/or disposal of cannabis. An applicant for a licence under the Cannabis Act must be at least 18 years of age or older and cannot be a non-resident in Canada or an organization incorporated or otherwise organized outside of Canada. An application for a licence may be refused if the applicant has contravened the Controlled Drugs and Substances Act or the Food and Drugs Act or contravened a condition in another licence in the past ten years. This prohibition may be targeted at unlawful dispensaries and their owners which have been operating outside of the law in anticipation of cannabis legalization. The Access to Cannabis for Medical Purposes Regulations (“ACMPR”), which currently regulates the medical cannabis regime and the existing LPs, will continue to govern the production, distribution and sale of cannabis for medical purposes. The Cannabis Act provides that existing LPs under the ACMPR will be grandfathered as licensees under the recreational regime and will also grandfather in applications in respect of which no final decision has been made by the Minister. This is a significant win for the existing LPs and those that are part way through the licensing process under the ACMPR regime. Further, it will remain illegal to import or export cannabis and cannabis products without a permit issued by the federal government. The Cannabis Act provides for licences and permits to be issued only for the importation or exportation of cannabis for medical or scientific purposes or in respect of industrial hemp. Cannabis Tracking System The Cannabis Act proposes the establishment of a cannabis tracking system to control the distribution of cannabis within the legal regime and prevent cannabis that was sold, produced or distributed by a person prohibited from doing so under the Cannabis Act from being a source of supply in the legal market. Such cannabis is defined in the Cannabis Act as “illicit cannabis”. The cannabis tracking system would also allow the government to collect information about cannabis products from LPs, distributors and retailers. This aligns with the Task Force Report’s recommendation for the federal government to control the quality of cannabis throughout the entire supply chain. Confidential Information The Cannabis Act enables the Minister to disclose “personal information” (as such term is defined in the Privacy Act (Canada)) that is obtained under the Cannabis Act if such disclosure is necessary to protect public health or public safety. Moreover, the Minister is empowered to disclose confidential business information obtained under the Cannabis Act to protect public health or safety. These disclosures can be made without the consent of the person to whom the information relates and without notifying such person. The Cannabis Act defines “confidential business information” as business information that is not publicly available and that has actual or potential economic value to the person or its competitors because it is not publicly available (with such disclosure resulting in material financial loss to the person or material financial gain to its competitors). Criminal Prohibitions and Penalties The Cannabis Act contains a range of criminal offences and significant criminal penalties for the commission of an offence, including the following offences:

• providing or selling cannabis to youth;
• using youth to commit a cannabis-related offence;
• possession by an adult over the personal possession limit or of illicit cannabis;
• possession of any amount by an “organization” which includes a public body, body corporate, society, company, firm, partnership, trade union or municipality;
• distribution, sales, imports or exports in contravention of the Cannabis Act; and
• production or cultivation of cannabis that is not authorized by the Cannabis Act.

If a corporation commits a violation of any provision under the Cannabis Act, any of the directors, officers or agents or mandataries who direct, authorize, assent to, acquiesce in or otherwise participate in the commission of such violation will be liable on conviction for the violation, irrespective of whether such person is prosecuted for the offence. Bill C-46, introduced concurrently with the Cannabis Act, mainly addresses the implementation of a drug-impaired driving regime with respect to cannabis. This legislation will create new offences for driving while under the influence of cannabis, specifically with respect to levels of THC in the blood within two hours of driving. Conclusion The Cannabis Act, if enacted in its current form, will impose rigorous and continuing obligations on prospective licensees and cannabis-industry participants to ensure compliance and adherence to the new laws. We expect further changes and clarity to be provided between now and July 2018 as the Cannabis Act moves its way through the legislative process, as regulations are released and as stakeholders provide their comments. We will also pay close attention to the provincial governments as they begin to develop their approach to the recreational regime, including any differences in approaches to distribution and sale among the provinces and territories. It is imperative that current and prospective industry participants take heed of the detailed regulatory requirements of the federal government in the provisions of the Cannabis Act. Entrance to the industry will require a comprehensive understanding of the new recreational cannabis regime. Wildeboer Dellelce LLP represents a variety of industry participants, including licensed producers, licensed producer applicants, investment banks and various service providers to the industry and has acted on numerous related transactions and mandates. For more information on how we can assist you in this sector, please contact Charlie Malone (cmalone@wildlaw.ca), Jeff Hergott (jhergott@wildlaw.ca), Danny Kharazmi (dkharazmi@wildlaw.ca) or Amir Torabi (atorabi@wildlaw.ca). This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.