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Legalization of Cannabis for Recreational Use in Canada: Bill C-45

By Yvan Guy Larocque - April 20, 2017 under Business Advisory

Considerations for individuals and businesses

On April 13, 2017 the federal government tabled a bundle of new bills (Bills C-45 and C-46) with the aim of legalizing and regulating the recreational use of cannabis Canada-wide for adults aged 18 and over. The Liberal government, in keeping with their 2015 election promise, will now begin down the long road to implementing the legislation and subsequent regulations as amended, by July 1, 2018.

Though the production and use of cannabis for medical purposes is legal in Canada under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”), the use of cannabis for recreational purposes has been illegal since 1923. There are currently 20 countries where cannabis is legally available for medical purposes. However, if the legalization of cannabis for recreational use goes ahead as planned, Canada will be the first G7 country to legalize cannabis for recreational use state-wide and the second in the world (Uruguay being the first). Along with legalizing the use of cannabis for recreational purposes, the proposed bills also significantly increase the penalties associated with impaired driving, both while under the influence of cannabis and alcohol.

Highlights of Bill C-45 and C-46

  • Production of cannabis will be federally regulated by Health Canada but the provincial and territorial governments will be tasked with regulating its distribution and sale
  • Sales by mail or courier through a federally licensed producer (similar to the current medical cannabis system already in place) would be allowed in provinces and territories without a regulated retail system
  • The legislation will impose strict rules regarding the packaging, labelling and marketing of cannabis, including restrictions on several types of activities, such as:
    • promotion considered appealing to youth
    • promotion through sponsorship, testimonials, or endorsements (sorry Snoop!)
    • promotion using depictions of persons, characters, or animals
  • Sales would only be permitted to persons 18 and older. However, provinces would be able to increase this minimum age (similarly to the sale of alcohol across the provinces)
  • Persons selling to minors could face up to 14 years in jail
  • Adults would be allowed to possess up to 30 grams of dried cannabis or its equivalent in non-dried form, such as:
    • 150 grams of fresh cannabis
    • 75 grams of edible products
    • 350 grams of liquid products
    • 25 grams of concentrates (solid or liquid)
  • Adults would be allowed to grow up to 4 cannabis plants per household (under 1 meter tall) and would be allowed to produce derivative cannabis products for personal use (i.e. edibles)
  • Regulations concerning the production, sale and consumption of edible cannabis products will follow
  • The new legislation will impose new regulations concerning impaired driving, including:
    • stricter penalties for driving under the influence of alcohol
    • fines of up to $1,000 for those caught driving with small amounts (more than 2 nanograms) of THC (the psychoactive ingredient in cannabis) in their system
    • jail time of up to 10 years for those caught driving with large amounts (more than 5 nanograms) of THC (or those with alcohol and THC) in their system
    • allowing police to require a saliva sample from drivers where there’s reasonable suspicion to believe the driver is under the influence of drugs

The Path Forward

Although it appears there’s a “green” light ahead, the current landscape is still risky for those wishing to indulge in cannabis consumption and also for those hoping to capitalize on this “budding” industry.

Risks

The government has been adamant that the current cannabis laws will continue to be enforced despite calls to decriminalize the possession of cannabis until legalization and regulation. Proponents of decriminalization point to the costs of enforcement and the burden on the courts dealing with distribution and possession charges. It’s estimated that Canadian police forces spend approximately $3 billion a year fighting the use of cannabis.

Although some jurisdictions (Vancouver namely) have taken to regulating cannabis sales through dispensaries and “compassion clubs” instead of strictly enforcing federal cannabis laws, cannabis remains a Schedule II drug under the Controlled Drug and Substances Act (“CDSA”). Unless produced or distributed for medical purposes under the ACMPR, the production, distribution, sale and possession of cannabis remains an offence under the CDSA. The ACMPR system will continue in the interim and following the introduction of the proposed legislation. After the legalization and regulations have been instituted, any production, distribution, sale and possession falling outside of the ACMPR or the new legal framework will still be illegal under the CDSA.

The government has raised two major concerns regarding decriminalization in the interim: preventing access by minors and ensuring the safety and quality of cannabis and cannabis products. Because much of the production, distribution and sale of cannabis occurs primarily on the black market, and in many cases within organized crime, there is no way of ensuring the safety and quality of cannabis products, and no way of preventing the sale of cannabis to minors. In the government’s view, decriminalization would allow criminals to operate with impunity and therefore it is unlikely decriminalization measures will be instituted in the interim.

Rewards

Though there are considerable risks and legal pitfalls in the years ahead, there will no doubt also be significant opportunities. Current estimates show that the black market for cannabis generates approximately $7 to 8 billion dollars per year in Canada, and the market for legal cannabis (both for recreational and medicinal use) may balloon to $22 billion per year by 2020. There are currently 42 licensed federal producers of cannabis in Canada and for those producers and others wishing to enter the market, investment and expansion are on the horizon.

Growth opportunities will also abound for service companies that can tailor solutions for authorized cannabis producers and distributors, like those in the agrisoft, retail services, and security industries—of which a prime example is Microsoft’s 2013 partnership with KIND Financial to provide a suite of cloud-based tools geared towards monitoring cannabis from seed-to-sale. However, businesses should note that providing services to producers and distributors that are currently operating outside of the ACMPR regime exposes them to criminal liability. Furthermore, following implementation of a legal cannabis regime, due diligence will be critical to ensuring a business, and the cannabis producers and distributors it serves, are complying with the law.

For the risk averse wishing to capitalize on the growing cannabis industry in Canada and the United States, there are alternatives to engaging directly with cannabis producers and sellers. Many medical and other legal cannabis companies have listed their shares on major stock exchanges both here and south of the border, and the first medical cannabis ETF (exchange traded fund), trading under ticker HMMJ, appeared on the TSX in April of 2017.

Conclusion

Many legal issues will arise over the course of the next year, until the legislation is finalized, federal and provincial regulations are drafted, the laws are enacted and implemented, and beyond! Will pardons be granted for those with cannabis convictions? How will employers deal with workplace policies regarding cannabis? How will cannabis be taxed and priced? Will roadside drug testing withstand the Charter of Rights and Freedoms?

Please check back with us for updated information and analysis.

If you have any questions or would like to discuss issues related to the legalization and regulation of cannabis, and the cannabis (and related services) industry, please feel free to contact Yvan Guy Larocque.