Cannabis Legalization in Canada: Seeds have sprouted, but the branches are still bare
April 20, 2017
By Daniel Watt, Partner at McInnes Cooper,
Elizabeth McIsaac, Associate at McInnes Cooper
On April 13, 2017, Canada’s federal government introduced legislation that, if passed into law, will legalize recreational cannabis in Canada. Bill C-45 An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (Cannabis Act) and Bill C-46 An Act to amend the Criminal Code (offences relating to conveyances) and to make consequential amendments to other Acts (Criminal Code Amendment Act) respond largely, though not completely, to the recommendations of the Task Force on Cannabis Legalization and Regulation’s Final Report, “A Framework for the Legalization and Regulation of Cannabis in Canada”. But while the seeds of cannabis legalization in Canada sown in the 2015 federal election have finally sprouted into proposed legislation, the branches are still bare: the proposed Acts address many details about “personal” cannabis use, but significant aspects of the regime – particularly the “commercial” aspects – are left to yet to be developed regulations and to provincial and municipal governments.
Here’s a look at what information the proposed legislation fills in, and what it leaves bare.
The federal government will oversee the recreational cannabis regime, but which components and how?
The Acts give the federal government significant powers to oversee and restrict activities related to cannabis, including licencing (and conditions on any licence), broad inspection powers, issuance of search warrants, recalling products, management and forfeiture orders. But the federal government will take charge only of the cultivation (and, eventually, production of cannabis-based products) quality control and (at least in part) taxation components of the regime, leaving the distribution and retail components primarily to provincial governments. And since no province has yet proposed any laws, there are lots of unknowns about the rest of the supply chain. However, it is clear that the current medical cannabis regime will stay intact: the new Acts adopt the Framework recommendation that the current medical cannabis regime continue as is, so the Access to Cannabis for Medical Purposes Regulations (ACMPRs) will continue as a parallel system (at least for the time being). The Acts do deem production licences and import and export permits issued under the ACMPRs before the Cannabis Act came into force to be a licence or permit issued under the Cannabis Act.
Licencing. The types of activities the federal government can licence include importation, exportation, production, testing, packaging, labelling, sending, delivery, transportation, sale, possession and disposal of cannabis. But although the Cannabis Act makes it clear that importation and exportation will be limited to cannabis for medical or scientific purposes and for industrial hemp, little else about the licensing process is yet known; the Minister will establish most aspects of licencing later. The Act also gives the Minister the authority to refuse an application for any type of licence for a broad range of reasons, and even once it’s issued a licence, the Minister can amend that licence on its own initiative, suspend it without notice or revoke it altogether, subject to some substantive and procedural protections.
Quality Control. The federal government will take charge of quality control, not just during cultivation, propagation and harvest, but from seed right through to smoke. The Cannabis Act authorizes the Minister to establish a national tracking system for cannabis, presumably for purposes of product recall if necessary, but also to prevent illicit cannabis from entering the legal market, and legal products from being diverted to criminal markets.
Taxation. The price of recreational cannabis is sure to include a hefty tax component, and could be influenced by minimum price restrictions – but this remains entirely up in the air. The Framework included a series of pricing and taxation recommendations to balance the goals of health protection and reduction of the illicit market, but noted this would require economic analysis and coordination with provincial governments. Consistent with the Framework, the Cannabis Act doesn’t wade into pricing (or explicitly enable regulation in respect of price) or taxation (the word “tax” doesn’t appear once in the Cannabis Act) – yet pricing and taxation regulations will be crucial to those seeking to enter the commercial cannabis market.
Cannabis can be cultivated, distributed and sold, but by whom?
The Cannabis Act doesn’t specifically outline out how the federal government will grant authorizations to participate in the supply chain in any capacity (as grower/producer, distributor, seller, or otherwise) though the proposed Acts do make it illegal to sell, or to possess cannabis for the purpose of selling, without an authorization to sell under the Cannabis Act. It’s contemplated the provinces will play a major role in regulating the possession, sale and distribution of cannabis, but also that if there’s no provincial regulatory regime, the federal regime will govern – and so far, there’s neither.
Foreign Participants. The Acts don’t absolutely prohibit foreign licence holdings or investment in authorized cannabis activities, but the Cannabis Act authorizes the Minister to refuse to issue a licence for many reasons – including the applicant’s status as a non-resident or foreign corporation. Since recreational cannabis is already legalized in varying degrees and manners elsewhere, including the Netherlands, Portugal, Uruguay and several U.S. states and districts (Alaska, Colorado, Oregon, Washington State and Washington D.C.), Canadian industry participants could likely benefit from partnering with “foreigners” with industry experience – or vice-versa. But whether the federal government will prohibit foreign industry participants completely, or to some degree, is still a big question mark.
Personal Cultivation. Despite the lack of commercial cultivation details, the Cannabis Act does permit personal cultivation at a person’s “dwelling-house” – with no current restriction on where (indoors or outdoors). There can be a maximum of four plants, of a maximum of 100 cm high, at a “dwelling house”, regardless of the number of adults who reside there (as long as there’s at least one). “Dwelling house” is defined as the building or structure where the individual is ordinarily resident, including “immediately contiguous” land, such as a yard or garden, and buildings or structures on that land. Provinces and municipalities may, and likely will, place additional restrictions on personal cultivation; for example, given the security risks and the accessibility to young people of a backyard “cannabis garden”, restrictions like fencing or placement, or even complete prohibition, seem plausible. In addition, the owners of multi-unit dwellings, like condominium owners and apartment buildings, will likely want to try to control the ability of residents to cultivate and use cannabis in public spaces and on balconies, through their applicable by-laws, restrictive covenants and leases, and should be reviewing those documents to ascertain whether current restrictions capture legalized cannabis.
Be Prepared to Share. Those that produce, sell or distribute cannabis must make certain information about cannabis available to the public, and must also provide to the Minister information about cannabis-related services, promotion or inducement activities. However, exactly what information will be required remains to be seen. In addition, as part of the federal government’s oversight of the cannabis industry, the Cannabis Act enables it to access sensitive information about industry participants – and in some cases, to disclose it. For example, the Minister can require industry participants to provide financial information, including information about their shareholders. The Minister can also disclose any confidential business information obtained under the Cannabis Act, without either the consent of or notice to the person to whose business or affairs the information relates, if the Minister considers the disclosure is necessary to protect public health or safety. This power, however, doesn’t really go much beyond the current powers under the federal Privacy Act, which already allow the Minister to disclose information when they consider it to be in the public interest to do so; it also bears a resemblance to the existing rules for operating casinos, which require an intrusive check to ensure there are no connections to organized crime – a concern the recreational cannabis and casino industries share.
And just what can be grown, distributed and sold, to whom and how?
It’s clear that “licensed” cultivators, distributors and sellers will, eventually, be able to grow, distribute and sell recreational cannabis and cannabis products, but there are some limits on what, to whom and how – some of which are known, and some of which are still up in the air.
Limited Forms. The proposed Cannabis Act permits only the sale of certain forms of cannabis: dried cannabis, cannabis oil, fresh cannabis, cannabis plants and cannabis plant seeds. The sale of edible cannabis products or concentrates other than cannabis oil is prohibited, though the Act does allow the preparation of edibles and concentrates for personal use and possession. This seems contradictory, since edible cannabis products avoid the harms associated with smoking cannabis. However, the federal government has indicated it intends to allow the sale of edible products in the future but requires more time to develop an appropriate regulatory scheme.
Unlimited THC Potency. A key recommendation of the Framework is to discourage the consumption of “high-potency” cannabis concentrates using tax measures rather than outright prohibition of products containing high levels of tetrahydrocannabinol (THC), the main psychoactive component of cannabis. The Cannabis Act is consistent with this recommendation, and doesn’t expressly limit THC potency, though it could later do so by regulation. Provinces will also be able to discourage or even prohibit high-potency products through tax schemes or direct regulation.
Absolute Ban on “Mixed drug” Products. The Framework recommends the prohibition of “mixed-drug” products. The Cannabis Act adopts this recommendation, prohibiting the sale of cannabis containing nicotine, alcohol or caffeine. Cannabis-tobacco blends will therefore be prohibited for sale, and alcoholic and caffeinated cannabis products will remain illegal when it becomes legal to sell edible or concentrate products. The Framework also recommended prohibition of the sale of alcohol and cannabis in the same store, but so far, the Acts leave the question of co-location to the provinces.
Age Limit. The Cannabis Act is clear about who can buy recreational cannabis: it adopts the Framework’s recommendation by prohibiting the sale of cannabis to anyone under 18 years of age – but provinces remain free to establish higher age limits.
No packaging limits – yet. The Framework recommended plain packaging allowing the package to display only the company name, strain name, price, THC and cannabidiol (CBD) amounts, warnings and other labelling requirements. However, aside from certain prohibitions on promotional statements or images on packaging, the Cannabis Act is completely silent on packaging and labelling requirements. The federal government says it will address these in regulations to be developed later. This information is critical for growers and producers; in particular, if packaging must disclose the product’s THC and CBD content (which is likely, since tobacco and alcohol products are required to indicate chemical and alcohol contents), industry participants will need access to reliable and authorized testing and analysis facilities. And securing such access might be difficult, particularly in the early days of legalization.
Limited promotion, advertising & marketing. The Cannabis Act adopts some of the restrictions, including those intended to prevent young people from exposure to cannabis marketing, the Framework recommended. Notable prohibitions include:
- Sponsorship of a person, entity, or event by a producer, seller or distributor of cannabis, cannabis accessories, or cannabis services.
- Testimonials, endorsements and promotions that evoke an image of glamour, recreation, excitement, vitality, risk or daring.
- Information promotion (providing factual information about products) under certain circumstances and branding are permitted, but the Cannabis Act has prohibitions that aim to prevent this type of promotion from reaching young people.
- False promotion.
- Inducements, such as a free bong with the purchase of dried cannabis (or vice versa) or a “Corona hat” equivalent.
- The display of cannabis where it’s visible to young people.
- Dispensing devices and any type of self-serve display.
People can use it, but where?
Adults will be able to legally consume cannabis, but that doesn’t mean they can consume it anywhere or anytime.
At Home. Although the Acts don’t expressly state it, presumably people can, generally, use (or permit the use of) cannabis in their own homes. Again, however, the owners of multi-unit dwellings, like condominium owners and apartment buildings, will likely want to try to control the ability of residents to use cannabis in units through their applicable by-laws, restrictive covenants and leases and should be reviewing those documents to ascertain whether current restrictions will capture legalized cannabis.
Workplaces. The Acts amend the federal Non-smokers’ Health Act to restrict smoking of cannabis in federally regulated workplaces. However, they don’t otherwise address workplace health and safety. This isn’t surprising because workplace health and safety is primarily legislated by the provinces for provincially regulated employers, rather than the federal laws that only apply to federally regulated employers. The health and safety and human rights impacts of alcohol and drug impairment (including medical cannabis) on workplace safety has long been an issue for employers. The Acts don’t directly change established workplace rules limiting workplace drug and alcohol use for either federally or provincially regulated employers, but employers are already feeling the workplace effects of the pending legalization and can – and should – act now to be prepared for cannabis legalization when it takes effect. And employers will want to watch closely for federal and/or provincial laws specifically addressing workplace health and safety in the future.
In Public. The Framework recommended extension of the current restrictions on public smoking of tobacco products to apply to public smoking of cannabis and cannabis-vaping products. However, the Cannabis Act doesn’t deal with the public consumption of cannabis, like around schools or daycares, on sidewalks or in public parks. That topic will largely be dealt with at the provincial and municipal levels – and provincial and municipal governments need to start thinking about whether existing provincial laws and/or municipal zoning and by-laws, depending on the location, cover legalized cannabis and if not, just how they will handle it.
On the Roads. The Criminal Code Amendment Act makes it a criminal offence for an individual to drive with a blood drug concentration exceeding the prescribed limit or to have a blood drug concentration exceeding the prescribed limit within two hours after ceasing to operate a motor vehicle or vessel, or ceasing to operate or to assist in the operation of an aircraft or railway equipment. That prescribed limit will only later be set by regulation.
The penalties for breaches can be significant, but how much for what?
The Acts make it clear that there will be significant consequences for failure to comply with the new laws – including personal liability exposure for corporate directors and officers – but what’s still hazy is what penalties apply to which breaches.
Administrative Monetary Penalty (AMPs). From the perspective of current and potential commercial industry participants, the Cannabis Act’s grant of authority to issue AMPs for non-compliance is important. AMPs are monetary penalties a regulator is authorized under the relevant legislation to impose on a party that breaches that legislation, and that don’t require that regulator to prosecute the breach in a court. Typically, AMPs are authorized in legislation relating to regulated activities, and are imposed on individuals and businesses licensed to undertake those regulated activities. They are usually intended as a compliance-promoting, as opposed to a punitive, measure and the imposition of an AMP doesn’t create a criminal record (as long as the imposed penalty is satisfied). The federal government is increasingly using AMPs as a means to enforce, or perhaps more accurately to encourage compliance with, legislation by commercial industry members; recent examples include Canada’s Anti-Spam Legislation (CASL) and the Energy Safety and Security Act (ESSA). Administrative penalties are determined on the balance of probabilities (greater than 50% likelihood) rather than the criminal standard of proof beyond a reasonable doubt, making them significantly less burdensome for the Crown compared to criminal charges. The typically available defences of due diligence and mistake of fact are, however, not available to those against whom an AMP is imposed under the Cannabis Act; in addition, since AMPs are not criminal matters, most Charter of Rights protections don’t apply to contest the imposition of an AMP.
The Cannabis Act authorizes the Minister or a person the Minister designates (which is likely to be the case, though the federal government hasn’t yet designated a person or agency for this purpose) to impose AMPs for violations of the Cannabis Act in an amount up to $1M, though other amounts may be set by regulation. AMPs apply to contravention of most provisions of the Cannabis Act, any of the regulations or any ministerial order in respect of the provision of information to the Crown, conducting tests on cannabis for verifying noncompliance with the Cannabis Act, taking measures necessary for public safety or cannabis recalls. They don’t apply to the activities to which criminal charges apply.
What isn’t yet known, however, is the particular AMP that applies to particular breaches and thus the liability exposure that commercial industry participants could face. Typically, these are detailed in regulations, and it’s likely this will be the case here as well … eventually.
Criminal Sanctions. Despite the legalization regime, certain prohibited cannabis-related activities will remain criminal, and even legitimate industry participants can be charged – and convicted. Criminal offences include: a number of forms of unauthorized possession, including possession by an adult of more than the personal possession limit or any amount they know is illicit, or possession of any amount by an “organization” (defined as a public body, body corporate, society, company, firm, partnership, trade union or municipality, or an association of persons that is created for a common purpose, has an operational structure, and holds itself out to the public as an association of persons); unauthorized distribution; unauthorized selling; unauthorized import or export; unauthorized production of cannabis products or cultivation, propagation or harvest of cannabis; and possession of cannabis with the intent to do any of these activities. The Cannabis Act makes these hybrid offences: they can be prosecuted as indictable offences with penalties ranging from five to 14 years in prison, or as summary conviction offences with penalties ranging from fines of $5,000 to $15,000 and between six and 18 months in prison, and guilty “organizations” are liable for fines of up to $100,000.
Consistent with the Framework’s recommendations and the government’s stated purpose of keeping cannabis out of the hands of youth, the Cannabis Act prohibits both the sale to persons under 18 years of age and possession for the purpose of doing so. A person’s belief the youth was 18 or older won’t be a defence unless they took reasonable steps to ascertain the youth’s age. The Act also creates a new offence: any use of a young person to commit criminal offences under the Cannabis Act is punishable by imprisonment of up to 14 years, or, if prosecuted as a summary conviction offence, by a fine of up to $15,000, up to 18 months in prison, or both, and organizations convicted of such offences are liable for fines up to $100,000.
“Miscellaneous” Offences. Perhaps the greater risk for existing and potential commercial industry participants is the inclusion of a “miscellaneous” offence provision in the Cannabis Act. This provision makes it an offence to violate: any provision of the Act for which a penalty is not stated; any provision of the regulations made under the Act; and any violation of a Ministerial Order requiring information, tests, product recall, or requiring disclosure of information for the purposes of the cannabis tracking system. If prosecuted as an indictable offence, punishment can be imprisonment of not more than three years or a fine of up to $5,000,000, or both; if prosecuted as a summary conviction offence, a first offence will garner a fine of not more than $250,000 or imprisonment for not more than six months, or both and any subsequent offence risks a fine of not more than $500,000 or imprisonment for not more than 18 months, or both.
Director & Officer Liability. Practically, the Cannabis Act makes regulatory compliance something that industry participants need to deal with at a corporate board level. Under the miscellaneous provision, the corporation’s directors, officers or agents or mandataries (the civil law equivalent of a power of attorney) or other non-natural “person” who directed, authorized, assented to, acquiesced in or participated in the corporation’s commission of an offence will be a party to the offence – and liable on conviction to the punishment provided for by the Act, even if the guilty corporation isn’t prosecuted for the offence. Further, the Crown will need only to establish that the offence was committed by any employee, agent or mandatary of the accused company, even if the employee, agent or mandatary isn’t identified or prosecuted for the offence.
Tickets. The Cannabis Act also authorizes the issuance of a ticket, rather than criminal prosecution, for certain offences. For example, a ticket can be issued to individuals who possess slightly more than the permitted amount of cannabis.
Please contact your McInnes Cooper lawyer or any member of the Energy & Natural Resources Team @ McInnes Cooper to discuss this topic or any other legal issue.
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