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Marijuana Business in Canada - The Industry of Cannabis

Proposed Cannabis Licensing and Types of Licenses for Production and Sales

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There are many opportunities in the sector including cannabis production, cultivation, distribution, processing, sales, analytical testing, research and more.

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Licences, Permits and Authorizations

Health Canada is proposing a system of licences, permits, and authorizations that 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 legal cannabis products that meet high quality standards.

To this end, it is proposed that the regulations would establish different types of authorizations, based on the activity being undertaken, and in some cases, the scale of the activity.

The regulations would also establish rules and requirements for the different categories of authorized activities that would be proportional to the public health and safety risks posed by each category of activity.

The following types of authorizations are proposed:

  • Cultivation: Standard cultivation, micro-cultivation, industrial hemp, and nurseries;
  • Processing: Standard processing, and micro-processing;
  • Sale (federal level): Sale for medical purposes, and sale for non-medical purposes to adults in provinces and territories that have not yet enacted a retail framework;
  • Analytical testing;
  • Import / Export; and
  • Research.

Context

The proposed Cannabis Act sets out a general licensing and permitting scheme for the Minister of Health to authorize persons to conduct various activities with cannabis. The proposed Act would also enable wholesale distribution and retail sale of cannabis by persons authorized to sell cannabis under a provincial or territorial Act, subject to certain minimum legislative measures outlined in the proposed Act.

Under the proposed Act, the Minister of Health would have the authority to issue licences and permits to conduct certain activities involving cannabis, and to include any conditions on those licences and permits that the Minister considers appropriate.

These authorities would include the ability to amend, renew, suspend, or revoke licences or permits when warranted. The proposed Act would set out grounds for refusing to issue a licence or permit, as well as grounds for suspending or revoking a licence or permit.

The proposed Act would provide the Minister of Health with the authority to set out the application process for the issuance, renewal or amendment of licences and permits, including the form and manner in which applications would be made, and the information that an applicant would be required to submit, which may include financial information.

Finally, the proposed Act would provide the Minister of Health with the authority to make an order setting out procedures and conditions for the processing of applications to issue and renew licences and permits.

To complement and support the Minister's authorities set out in the Act, the Governor in Council would be able to make regulations respecting a broad range of aspects related to licences, permits and authorizations. These authorities would include, for example, establishing classes of licences or permits and setting legal requirements applicable to the different classes.

Licences, Permits, and Authorizations

The licensing and permitting framework established under the proposed Act and related regulations will strongly influence the type of legal cannabis industry that establishes itself in Canada. The regulatory proposals set out in this section are intended to achieve the following:

Enable a robust and responsible legal cannabis industry that is capable of outcompeting the entrenched illegal industry. To achieve this, the licensing and permitting framework is intended to:

  • Enable a diverse, competitive legal industry that is comprised of a range of market participants, including both small and large players in regions across the country.
  • Allow a range of different activities with cannabis, enabling innovation while at the same time protecting public health and public safety.
  • Reduce the risk that individuals associated with organized crime infiltrate the legal industry and use their position to benefit, financially or otherwise, criminal organizations.
  • Require that legal cannabis products meet high standards for quality, are produced in clean and sanitary environments and are tested for contaminants and the presence of unauthorized pesticides prior to sale to consumers.
  • Establish an appropriate regulatory framework for industrial hemp that is risk-based and that allows cultivators of industrial hemp to sell the whole hemp plant to certain persons licensed under the proposed Cannabis Act.
    Maintain continued access to cannabis for medical purposes by continuing to federally-license persons and organizations to sell cannabis directly to registered clients and hospitals.
  • Facilitate research and development by streamlining and rationalizing the process and requirements for cannabis-based research.

To achieve these objectives, it is proposed that the regulations set out the following categories of licensed activities:

Cultivation

Standard cultivation, which would authorize the large-scale growing of cannabis plants and harvesting material from those plants, as well as associated activities.

Micro-cultivation, which would authorize the small-scale growing of cannabis plants and harvesting material from those plants, as well as associated activities.

Industrial hemp, which would authorize the growing of industrial hemp plants (those containing 0.3% THC or less) and associated activities.

Nursery, which would authorize the growing of cannabis plants to produce starting material (seed and seedlings) and associated activities.

Processing

Standard processing, which would authorize the large-scale manufacturing, packaging and labelling of cannabis products destined for sale to consumers, and the intra-industry sale of these products, including to provincially/territorially authorized distributors, as well as associated activities.

Micro-processing, which would authorize the small-scale manufacturing, packaging and labelling of cannabis products destined for sale to consumers, and the intra-industry sale of these products, including to provincially/territorially authorized distributors, as well as associated activities.

Sale to the public

For medical purposes, which would authorize the sale of cannabis products to registered clients for medical purposes.

For non-medical purposes, which would authorize the sale of cannabis to adults in provinces/territories that have not yet enacted a framework for distribution and sale.

In addition, it is proposed that the regulations provide for the Minister to issue authorizations for the following additional activities:

Analytical Testing, which would authorize the possession of cannabis by independent, third-party laboratories for the purposes of analytical testing of cannabis to verify that it meets regulatory requirements for safety and quality.

Import/Export, which would authorize the import or export of cannabis for medical or scientific purposes, or in respect of industrial hemp.

Research, which would authorize activities with cannabis for the purposes of research and/or development by persons who are not otherwise permitted to conduct such activities under another licence or permit under the proposed Cannabis Act.

Additional details on each licensed activity are set out below. Each licensed activity would be subject to specific regulatory requirements tailored to the level of risk associated with the activity involved.

In general, licence holders would be authorized to conduct core activities (for example, cultivation) as well as related, supplemental activities (for example, research and development related to the cultivation of cannabis).

In general, there would be no restriction on the ability of a single person (either an individual or organization) to be authorized to conduct multiple activities per site.

For example, a person could be authorized to conduct one or more activities (for example, cultivation, processing and sale to the public).

This would allow flexibility in the administration of licences and reduce overall administrative burden on applicants.

Applicants would be free to choose whichever activity or combination of activities for which they wish to be licensed, and the licensing process would enable them to submit a single application should they wish to conduct multiple activities.

The regulations would set out general requirements for licensing and would be supported by guidance and policy documents that would provide more detail and clarity around specific requirements.

This would allow for flexibility and change over time based on lessons learned as the market evolves, specific risks are better understood, and the performance of the regulated industry is established.

Standard Cultivation

It is proposed that a licence for standard cultivation would authorize the cultivation of any variety of cannabis and to produce cannabis seeds, cannabis plants, fresh cannabis and dried cannabis.

A licence for standard cultivation would also authorize associated or supplemental activities related to these core activities, including possession, transportation, research and development, storage, and destruction.

The intra-industry sale of seeds, plants, and harvested materials (e.g., fresh and dried cannabis in bulk or unfinished form) to other cultivators, processors, and holders of a research authorization would be allowed.

The cultivation of industrial hemp plants would also be allowed. However, standard cultivators would not be able to package and label cannabis for sale to the public, nor to sell directly to the public or to federally licensed or provincially or territorially authorized sellers.

It is proposed that the regulations would not prescribe a limit on the amount of cannabis that could be cultivated under a standard cultivation licence.

However, the Minister of Health could establish a production limit as a condition of a licence if there were reasonable grounds to believe that a licensee was producing more cannabis than this licensee was able to sell, and that the excess inventory was at risk of being diverted to an illegal market or activity (for example, a licensed cultivator producing significantly more cannabis than this cultivator has supply arrangements to provide).

In addition to the amount of unsold inventory, this approach would take into account factors such as the licence holder's compliance history, financial status, and planned future sales, when determining if there was a risk of diversion.

Micro-cultivation

The intent of this licence category is to enable the participation of small-scale growers in the legal cannabis industry. It is proposed that a licence for micro-cultivation would authorize the same activities as a licence for standard cultivation, but at a smaller scale.

It is proposed that the regulations would set out a threshold to define a micro-cultivator. Health Canada is considering a number of options for this threshold, such as plant count, size of growing area, total production, or gross revenue.

Part of the purpose of this consultation is to solicit feedback from interested parties regarding the most appropriate basis for establishing this threshold, and what the threshold should be.

A micro-cultivation licence would authorize the cultivation of cannabis plants and to produce cannabis seeds, cannabis plants, fresh cannabis and dried cannabis.

A licence for micro-cultivation would also authorize associated or supplemental activities related to these core activities, including possession, transportation, research and development, storage and destruction.

The intra-industry sale of seeds, plants, and harvested materials (for example, fresh and dried cannabis) to other cultivators, processors, and holders of a research authorization would also be allowed. However, micro-cultivators would not be able to sell directly to the public or to federally-licensed or provincially- or territorially-authorized sellers.

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

Nursery

The intent of this licence category is to enable a legal source of starting materials (both for commercial and personal cultivation), and the development of new varieties of high quality cannabis.

It is proposed that a licence for a nursery would authorize the cultivation of any variety of cannabis plants (including industrial hemp), and to produce seeds and seedlings (including clones). A nursery licence would also authorize related activities, including possession, transportation, research and development, storage, and destruction.

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

The harvest of other plant material and production of any other class of cannabis would be prohibited under this class of licence. This material would need to be destroyed.

Certain regulatory requirements for nurseries would be reduced as compared with regulatory requirements for standard cultivation, reflecting differences in the level of risk related to the scale of the operation.

Industrial Hemp

It is proposed that a licence for industrial hemp would authorize the cultivation of industrial hemp plants and the production and sale of seeds and grains (and their derivatives). It is proposed that the regulations would define industrial hemp as “cannabis plants whose leaves and flowering heads do not contain more than 0.3% THC.”

It should be noted that any part of the plant identified in Schedule 2 of the proposed Cannabis Act, such as a non-viable seed or mature stalk without any leaf, flower, seed or branch, would fall outside the scope of the proposed Act. As such, activities related to these plant parts (such as their processing or sale) would not require a licence under the proposed Act.

Further, as is currently the case under the Industrial Hemp Regulations, a licence would not be required for the sale of derivatives of seed and grain that contain 10 micrograms per gram of THC or less.

An industrial hemp licence would also authorize related activities, including possession, transportation, research and development, consistent with other classes of licences.

To improve upon the current regulatory requirements for industrial hemp producers, it is proposed that industrial hemp licences would authorize the intra-industry sale of leaves, flowers and branches (or the whole plant).

As is currently the case under the Industrial Hemp Regulations, industrial hemp licences would authorize the cultivation of approved industrial hemp varieties from pedigreed seeds. Since the THC content of plants produced from these seeds is consistently 0.3% or less, it is proposed that the current THC testing requirements with respect to these varieties grown for grain and fibre would be eliminated except for production of seeds.

Requirements for THC testing would be maintained for the designation of new varieties of low THC cannabis (0.3% or less) as an approved cultivar of industrial hemp to be included in the List of Approved Cultivars.

Certain regulatory requirements for cultivators of industrial hemp would be reduced as compared with regulatory requirements for standard cultivation, reflecting differences in the level of risk related to the scale of the operation.

Standard Processing

It is proposed that a licence for standard processing would authorize the production and packaging and labelling 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 labelling of products for sale to the public.

A licence for standard processing would also authorize related activities, including possession, transportation, research and development, storage, destruction, and the intra-industry sale of cannabis to other federal licence holders or provincially or territorially authorized sellers. A separate authorization would be required for sales directly to the public.

Micro-processing

The intent of this licence category is to enable the participation of small-scale processors in the legal cannabis industry. It is proposed that a licence for micro-processing would authorize the same activities as a licence for standard processing, but at a smaller scale.

It is proposed that the regulations would set out a threshold to define a micro-processor. Health Canada is considering a number of options for this threshold, such as limiting allowed activities to processing harvested product from a maximum number of micro-cultivators and nurseries, total production, on-site inventory, or gross revenue.

As with a licence for standard processing, a licence for micro-processing would authorize related activities, including possession, transportation, research and development, storage, destruction, and the intra-industry sale of products to other federal licence holders or to provincially- or territorially-authorized sellers. A separate authorization would be required for sales directly to the public.

Sale of Cannabis for Medical Purposes

A licence for the sale of cannabis for medical purposes would authorize the sale of cannabis products obtained from a federally-licensed processor to registered clients (or to an individual who is responsible for a registered client) in a manner consistent with the current system established under the ACMPR (ordered over the phone, online or via written order, with secure delivery through the mail or by courier).

As with other licences, a licence for sale for medical purposes would authorize related activities, such as possession, transportation, research and development, storage, destruction, and the intra-industry sale of cannabis to other federal licence holders.

Sale of Cannabis for Non-Medical Purposes

Under the proposed Cannabis Act, provinces and territories could licence and oversee the distribution and sale to adult consumers of cannabis for non-medical purposes.

In the event that a province or territory has not established a retail environment with appropriate safeguards to enable the purchase of legal, regulated cannabis by July 2018, it is proposed that the regulations would enable the Minister to licence, potentially on a temporary basis, the sale of cannabis for non-medical purposes to adult consumers.

This class of licence would authorize the sale of cannabis products obtained from a licensed processor to adult consumers in Canada (ordered over the phone, online or via written order, with secure delivery through the mail or by courier).

As with other licences, a licence for sale for non-medical purposes would authorize related activities, such as possession, transportation, research and development, storage, destruction, and the intra-industry sale of cannabis to other federal licence holders.

It is proposed that the regulations set strict controls to prevent illegal sales to youth and to prevent online sales by federally-licensed sellers in provinces and territories that have established their own distribution and sales systems (which may include online sales authorized at the provincial or territorial level).

Analytical Testing

Under the ACMPR and Narcotic Control Regulations, respectively, both licensed producers and licensed dealers are authorized to test cannabis. Cannabis must be tested for microbial and chemical contaminants, residues of solvents, content of THC and CBD, and disintegration of capsules, using validated methods.

In addition, on May 5, 2017, Health Canada announced that it would require all licensed producers to conduct mandatory testing of all cannabis products destined for sale for the presence of unauthorized pesticides (for more information, please see the Statement from Health Canada on Mandatory Testing of Medical Cannabis for Unauthorized Pesticides).

Under the IHR, industrial hemp must be tested by a competent laboratory for THC content. Non-viable seeds must be tested by a laboratory accredited by the Canadian Food Inspection Agency.

It is proposed that licensed processors would be required to conduct mandatory analytical testing, including mandatory testing for the presence of unauthorized pesticides, to verify that the regulatory requirements are met prior to packaging and labelling.

For industrial hemp, it is proposed that mandatory testing only be required for production of seeds and development of new varieties for designation as an approved cultivar.

Licensed processors could conduct their own, in-house analytical testing, however they would be required to demonstrate that they were using validated testing methodologies. Health Canada would require mandatory testing for the presence of unauthorized pesticides to be conducted by an independent third-party laboratory.

In general, all independent third-party laboratories conducting analytical testing of cannabis, including testing of microbial and chemical contaminants, residues of solvents, content of THC and CBD, disintegration of capsules, and testing for the presence of unauthorized pesticides, would be required to hold an analytical testing licence under the Cannabis Act.

Such laboratories would also be required to demonstrate that they were using validated testing methodologies. With respect to industrial hemp, an analytical testing licence would not be required for private laboratories accredited by the Canadian Food Inspection Agency that conduct seed viability testing.

As with other licence types, a licence for analytical testing would authorize activities with cannabis such as possession, transportation, storage and destruction.

A licence for analytical testing would also authorize research and development related to the analytical testing of cannabis (in particular the development and validation of testing methodologies), including industrial hemp.

Licensed analytical testing laboratories would be required to destroy any cannabis or industrial hemp sent for analytical testing within 90 days of being tested.

Import and Export

As is currently the case, the import or export of cannabis would require a permit from the Minister of Health. As set out in the proposed Act, import or export permits would only be available for medical or scientific purposes, or in respect of industrial hemp.

Research

It is proposed that a research authorization would enable activities with cannabis for the purpose of research by persons who do not hold any other type of licence issued under the Cannabis Act and whose activities would otherwise be prohibited under the Act (for example, they are involved in the possession of 30 grams of dried cannabis or its equivalent in public or distribution of more than 30 grams of dried cannabis or its equivalent, or possession by an organization).

These activities would include possessing, cultivating, processing, storing, administering, and transporting cannabis. Authorized activities would not include the sale of cannabis - however, there would be provisions to enable the commercialization of novel research and development (for example, the sale of new plant genetics).

Research authorization holders 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, exceptions to this requirement could be sought by those wishing to commercialize novel products of research and development (for example, new plant genetics) or for archival purposes (for example, a seed bank).

As described above, persons holding a federal licence to conduct activities with cannabis, such as cultivation or processing, would be authorized to conduct research and development under their existing licence, provided that the research is related to the core activities authorized under the licence.

For example, an industrial hemp licence would authorize research with industrial hemp, but the holder of an industrial hemp licence would be required to seek a separate authorization to conduct research with other varieties of cannabis.

It should be noted that persons seeking to conduct clinical trials with cannabis would still be required to seek appropriate authorization under the FDA and its regulations.

 

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