Canadian Cannabis Proposed Licensing System Revealed

The Canadian Government recently released its proposal on what the Canadian cannabis regulatory regime could look like, including a fairly detailed account of what the business licensing system could entail.

Purpose of Licenses

The Government has indicated that its proposed system of licenses, permits and authorizations is intended to:

  • allow a range of different activities with cannabis (for example, cultivation, processing, research);
  • enable a diverse, competitive legal industry comprised of both large and small players in regions across the country;
  • reduce the risk that organized crime will infiltrate the legal industry; and
  • provide for cannabis products that meet high quality standards.

In order to achieve these objectives the Government is proposing to establish a number of different types of licenses, as well as sub-licenses within those classes. These classes include cultivation, processing, sale to public, analytical testing, import/export and research.

Cultivation Licenses

Standard Cultivation License

Under this proposed license the licensee would be permitted to cultivate any variety of cannabis and to produce cannabis seeds, plants, fresh and dried cannabis. Included in the license would be authorization for associated / supplemental activities related to the core cultivation activities. These associated / supplemental activities would include possession, transportation, research and development, storage and destruction.

Under this proposed license it would be permitted to sell seeds, plants and harvested materials to other licensees.

Interestingly, the Government is proposing that there would be no prescribed limit on the amount of cannabis that could be cultivated under a standard cultivation license. However, the Minister of Health could establish such a limit as a condition of a license if it felt it necessary to do so in certain circumstances.

A standard cultivation licensee would not be permitted to package or label cannabis the cannabis it grows for sale to the public. A separate license would be required in that regard.

Micro-Cultivation License

The Government has proposed to create a micro-cultivation license to enable small-scale growers in the legal cannabis industry. In short, the micro-cultivation license would authorize the same activities as a standard cultivation license but on a smaller scale.

The Government proposes that the regulations would set out a threshold to define what would constitute a micro-cultivator. The Government is looking at a number of metrics for this threshold such as plant count, size of growing area, total production, or gross revenue. The Government is hoping to solicit feedback as to the appropriate metric during its regulatory consultations.

Certain regulatory requirements for micro-cultivation would be reduced compared to regulatory requirements for a standard cultivation license. For example, it is proposed that micro-cultivation licensees would not need to meet the following requirements that standard cultivation licensees would have to meet:

  • visual monitoring of the entire perimeter at all times;
  • keep visual recordings for 1 year;
  • certain alarm or other intrusion detection systems; and
  • visual monitoring at all times of indoor areas on-site where cannabis is present.

Nursery

The intention of this category is to enable a legal source of staring materials, both for commercial and personal cultivation, and the development of new varieties of high quality cannabis. Under a nursery license, the licensee would be authorized to cultivate any variety of cannabis plants (including industrial hemp) and produce seeds and seedlings, including clones.

Nurseries would be permitted to sell live plants and seeds to other licensed cultivators, licensed processors and holders of a research authorization. However, nurseries would not be able to sell directly to the public or to federally-licensed or provincially/territorially-authorized sellers.

Industrial Hemp

It is proposed that industrial hemp will be defined as “cannabis plants whose leaves and flowering heads do not contain more than 0.3% THC”. A specific license for industrial hemp would authorize the cultivation of industrial hemp plants and the production and sale of seeds and grains (and their derivatives).

As with the micro-cultivation license, certain regulatory requirements would be reduced as compared with the regulatory requirements for standard cultivation, reflecting differences in the level of risk related to the scale of the operation.

Processing Licenses

Standard Processing

A standard processing license would authorize the production and packaging and labeling of a range of cannabis products destined for sale to the public. Authorized activities would include manufacturing cannabis oil (and intermediary products such as cannabis resin), synthesizing phytocannabinoids, the manufacturing of other authorized products (for example, pre-filled cannabis oil capsules or oral sprays), and/or the packaging and labeling of products for sale to the public.

A license for standard processing would also authorize related activities, such as possession, transportation, research and development, storage, destruction and the intra-industry sale of cannabis to other federal license holders or provincially/territorially-authorized sellers.

Micro-Processing

The intention of this license category is to enable participation of small-scale processors in the legal cannabis industry. The micro-processing license would authorize the same activities as the standard processing license but on a smaller scale.

Health Canada is still attempting to determine the metric which would be used to define a micro-processor. Options include limiting allowed activities to processing harvesting product from a maximum number of micro-cultivators and nurseries, total production, on-site inventory, or gross revenue.

Sales

The Government notes two types of sales licenses; one for medical and one for non-medical.

Medical sales licenses would authorize the sale of cannabis products obtained from a federally-licensed producer to registered clients in a manner consistent with the current system established under the ACMPR.

Given that the provinces and territories have jurisdiction over non-medical sales, non-medical sales licenses are contemplated by the Federal Government only in the event that a given province or territory fails to have a retail system in place by July, 2018.

Analytical Testing

Currently, licensed producers under the ACMPR and licensed dealers under the Narcotic Control Regulations are permitted to test cannabis. Although licensed producers would be permitted to conduct their own, in-house, analytical testing, Health Canada will require that mandatory testing for the presence of unauthorized pesticides be conducted by an independent third-party laboratory.

Import / Export

Nothing much new here. Permits will continue to be granted by the Government on a case by case basis, and only in respect of medical or scientific purposes, or in respect of industrial hemp.

Research

This is intended to be a special class of license which would enable activities for the purpose of research by persons who do not hold any other type of Cannabis Act license. Research license holders would not be allowed to sell cannabis and in fact would generally be required to destroy all cannabis once the research activities are complete and/or upon the expiration or revocation of the authorization. However, the Government notes exceptions could be granted by those wishing to commercialize novel products of research and development or for archival purposes.

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