This weeks blog entries will be a three-part series. Blog posts for the week of January 8, 2018, are focused on questions posed by Health Canada’s consultation paper on their proposed approach to regulating cannabis. I encourage you to fill out the online questionnaire, email or write your responses before January 20, 2018.

Part 1 (Questions 1-4 of 12)

Canada’s Premier, Justin Trudeau (Liberal), has committed to legalize, strictly regulate and restrict access to cannabis. [emphasis added] Health Canada is soliciting feedback from interested parties who want to have their voice heard concerning the proposed regulations.

As much information as possible will be posted via the Canadian Gazette later this year.

  1. What do you think about the different types of proposed licenses (i.e., cultivation, processing, etc.)? Will they achieve the objective of enabling a diverse, competitive legal industry that is comprised of both large and small players in regions across the country?

The proposed licenses (6) types:

  • Cultivation (Standard & Micro)
  • Processing (Standard & Micro)
  • Nursery
  • Sale (federal level)
  • Analytical testing
  • Import/Export
  • Research

Standard cultivation involves the large-scale growing of cannabis. This is already in place with licensed producers (84 approved as of January 8, 2018)

Micro cultivation is Health Canada’s answer to small players who to take part in the industry. Prior to the release of this consultation paper, small players were not a consideration in the discussion surrounding legalization. This type of license has the potential to allow existing parties, who have interest and or experience in the cannabis space, a chance to participate in the industry, similar to craft beer in the alcohol market.

Offering standard processing separate from cultivation is a questionable choice;  I suspect many standard cultivators would also want to be a standard processor, whereas micro cultivators may focus on only growing plants.

The inclusion of nursery as a path to cultivation is refreshing, but not in the proposed form. One concern over the types of activities allowed would be that of nurseries growing cannabis to flower. This may be covered under the research aspect of but does not make it explicitly clear. In order to properly research and cultivate cannabis, it must be grown to harvest. The prevention of sales beyond intra-industry, in my opinion, does not help to promote innovation and growth of the industry. This is especially the case when Canada is (currently) moving forward with at home cultivation.

Sales to medical patients and non-medical patients are separate licenses under the proposed regulations. Limiting sales to intra-industry may not be a good incentive to bring new growers into the market if the process to obtain a sales license compares to the current Licensed Producer process has over 1,000 applicants waiting to be approved. Only 38 out of the approved 84 have been granted the authorization to sell cannabis for medical purposes.

Industrial Hemp is already legal in Canada under the Industrial Hemp Regulations (IHR). Hemp is a classification of cannabis that has low THC (0.3%) content. While hemp is cannabis, it is viewed with less scrutiny due to the low psychoactive of the cultivars.

The analytical testing license could be a step forward as far as cannabis research is concerned. Removing barrier to cannabis research is a change for good. However, standardized testing methods need to be developed, as cannabis testing is plagued with inconsistent or fake lab results. Licensed producers were left to police themselves on pesticides, and at least two were found to test positive for tainted cannabis, Organigram and Mettrum (now Spectrum).   The consultation proposes validated testing methodologies. Those methodologies should be transparent towards ensuring the safety of cannabis and consistent among laboratories.

Import and export, as described, permits for Health Canada to issue temporary licenses (6 month period) to import new varieties and to sell cannabis for scientific or medical purposes. This is an avenue to bring in new genetics from outside Canada, and for Canada to sell cannabis to the rest of the world. Expanding the genetics of cannabis in Canada and fostering new research is beneficial to the industry as a whole. Currently, cannabis sold by licensed producers is of limited genetic potential.

Research is final permit proposed by Health Canada. Included by default in cultivation and processing federal license, a research permit is designed for parties who do not possess any other cannabis license or permits. This may be an entry point for anyone interested in cannabis research but does not have access to significant financial investment. In order for this authorization be a promoter to new cannabis study, it must be relatively easy to obtain compared to other licenses.

  1. What do you think would be an appropriate threshold to distinguish between a micro-cultivator and a standard cultivator, taking into account the reduced physical security requirements for a micro-cultivator? Should the threshold be based on the number of plants, size of growing area, total production, gross revenue, or some other criteria? What should the threshold be?

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  1. What do you think would be an appropriate threshold to distinguish between a micro-processor and a standard processor, taking into account the reduced physical security requirements for a micro-processor? Should the threshold be based on total production, on-site inventory, gross revenue, or some other criteria? What should the threshold be?

A cultivation license would include producing seeds, plants, fresh & dried cannabis. Intra-industry sales only, the standard license would have no limit on the amount that can be grown, but there is a warning to producers not growing more than they can sell.

A processing license would allow for manufacturing cannabis oil (a form of edible), concentrates (resin, shatter, etc) and synthesizing phytocannabinoids (pharmaceutical cannabis under the names of Sativex and Nobilone are two examples). Packaging and labelling products for sale to the public carry heavy health warnings, akin to our cigarette package warnings, a processing license would be limited to selling intra-industry without also having separate sales license.

Parties can hold multiple licenses.

An appropriate threshold between micro and standard, in my opinion, would be one that involves significantly less financial outlay than currently licensed producers.

The threshold should not be based on a number of plants, which is the current system under the ACMPR for medical patients. They’re a number of issues if plants are the limiting criteria; it could stifle the genetic diversity of cannabis and developing new varieties. Growers would find a way to maximize their yields, as they do with medical grows, but at the sacrifice of beneficial compounds, certain genetic varieties and yield.

Size of growing area could be a simpler criterion of which to differentiate micro and standard cultivation and as of this writing is my choice for threshold criteria. The wording mentions grow area; I would assume this means a combination of vegetative and flowering areas. Both are needed for cultivators as a cannabis plant’s grown is tied to light cycles. A pair of twitter polls by Jonathan Page suggests between 2,500 and 5,000 square feet. Kevin, from Broken Coast, said that the cost for a 5,000 square foot growing area facility would cost between 2-3 million dollars (That is 200 lights at 1000 watts each), not including the cost of building or land. Allowing micro cultivation to be accessible without millions in funding is going to be a challenge.

Total production as a threshold would place a ceiling on the profitability of micro cultivators. If you can only sell your product for X$ per gram and you’re limited to how much you can produce/sell, you are incentivized to increase your prices and or cutting production costs at the sacrifice of quality. Total production threshold also raises questions about how it would be calculated and enforced. Is it a product that is ready and cleared for sale? How does cannabis in storage, waiting to be tested, or cannabis that is curing count? At what point does the cannabis count towards your production amount? What happens in the case of discovery of a tainted batch?

Gross revenue is the final criteria suggested and is similar to total production in the limiting of profitability; a revenue cap could discourage investment into micro cultivation.

  1. What do you think of the proposed rules and requirements (i.e., physical security, good production practices, etc.) for the different categories of authorized activity? Do you think that the requirements are proportional to the public health and safety risks posed by each category of activity?

While there is much discussion about the risks of cannabis and it’s diversion to the black market, the government is taking a harsh stance on a plant that has seen no overdoses in history. Security cameras covering all area non-grow areas of the facility would need to be kept for one year. The wording on physical barriers and intrusion detection systems lead me to believe an insurance-based security system could be mandatory. Recording identities could be as simple as a sign in sheet, but I would hazard a guess that recording identification like a driver’s license isn’t out of the question. Under the micro version, a system of physical barriers would encompass the security requirements along with keeping prying eyes out.

On the subject of personnel security, this seems more like a way to great work for law enforcement than it does to mitigate risk against organized crime to infiltrate the organization. If the cannabis tracking system is tracking everything from seed to sale, and there are appropriate deterrents (The proposed regulations give Health Canada the ability to grant, suspend and cancel licenses under vaguely worded terms) to ensure compliance, I don’t understand the need a second level of security in the form of personnel.

 

What do you think about Canada’s approach to cannabis in 2018? Please leave a comment below.

Be sure to come back Wednesday to read Part 2 where I will be discussing:

Requirements of individuals

Security Clearance

Prohibited Product Forms

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