Cannabis Legal Update Series – Where are we, where are we going, and how do we get there?

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This article has been updated as of April 6, 2018 to reflect further developments.

By now, most Canadians are aware that proposals are underway to legalize the recreational adult use of cannabis. However, many details of how this new industry will be controlled, regulated and licensed by various levels of government have remained murky until very recently.

The federal government has previously announced a target date of July 1, 2018 for legalization of adult recreational use of cannabis in Canada; however, they have since softened their language and extended the target date in light of the outstanding steps to implementation.

With the earliest date for declaration into force now expected to be in late Q3/early Q4 2018, currently licensed producers and prospective private retailers are all challenged to work diligently together with municipalities and the AGLC to have private retail options in place at the outset.

This article provides an overview of the current state of passage of proposed federal, provincial and municipal legislation/regulations applicable to the production and sale of cannabis in Alberta, including where gaps remain and what can be expected over the coming months.

This is the first in our Cannabis Legal Update Series intended to provide some clarity regarding the proposed new Canadian legal frameworks and how they can be expected to impact producers, retailers and consumers in the Alberta cannabis market as well as health care practitioners, businesses, property owners, employees and individuals across the economy.

Please subscribe to receive our latest updates on these and other legal topics of interest to Albertan businesses and individuals.

1.            Federal Legislation/Regulations

Cannabis, its preparations and derivatives are currently listed on Schedules II, VII and VIII to the Controlled Drugs and Substances Act (“CDSA”). As such, the production, import, export, possession and sale of cannabis is prohibited unless authorized under regulations or exemptions to the CDSA.

During the 2016 federal election campaign, the Liberals’ platform included a promise to “legalize, regulate and restrict access to marijuana.”  While a regime for legal access to cannabis for medical purposes has been in place in some forms and for some patients since 2001, the campaign commitment was widely understood to be a promise to introduce a regime for legalized non-medical use of regulated cannabis by adults.

Shortly after the June 2016 election, the Task Force on Cannabis Legalization and Regulation was formed.  Chaired by former Justice Minister Anne MacLennan, the Task Force issued its Final Report: A Framework for the Legalization and Regulation of Cannabis in Canada on November 30, 2016.

A brief history of medical cannabis access in Canada is available here.

(a)          Bill C-45, An act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (Cannabis Act)

On April 12, 2017, Bill C-45 was introduced to the House of Commons on April 12, 2017.  The Bill proposes to remove “cannabis, its preparations and derivatives”, from Schedules II, VII and VIII of the CDSA, and enact a new federal Cannabis Act governing the production, distribution, import, export, sale and possession of cannabis for both medical and non-medical adult use.

Bill C-45 was passed by the House of Commons on November 27, 2017.

It is currently being debated by the Senate. The Senate has referred the Bill to four Senate Committees, which are to deliver reports by May 1, 2018, with a further and final referral to Committee contemplated thereafter.[1]

UPDATE: The Senate adopted Bill C-45 at second reading on March 22, 2018 and referred it to the Senate Committee on Social Affairs, Science and Technology for further review.  Widely referred to as “approval in privilege”, adoption at second reading does not constitute final Senate approval or conclude the Senate’s deliberations or debate on Bill C-45.  Amendments may yet be proposed following delivery of the Senate Committee reports.

Senate Committees have completed several days of public hearings.  Video recordings and partial transcripts of the hearings are available online.  Preparation of their reports is underway.

A deadline has been set for holding a final vote on third reading of the Bill by June 7, 2018.

Please subscribe or contact us for a summary of highlights of Bill C-45.

(b)          Federal Cannabis Regulations

The Cannabis Act would establish the legislative framework for the legal possession by adults of cannabis produced by federally licensed producers and either sold directly to consumers (in the case of medical cannabis) or distributed and sold by provincially licensed distributors and retailers (in the case of non-medical cannabis).

The specific rules pertaining to licensed market participants, including qualifications and requirements of licensees, will be contained in Regulations made pursuant to the Cannabis Act. This is comparable to the current structure for rules governing the production and sale of cannabis for medical purposes contained in the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) to the CDSA, which would become obsolete once “cannabis, its preparations and derivatives”, are removed from Schedules II, VII and VIII to the CDSA.

The federal government has issued two documents containing key insights into the Regulations likely to be adopted following enactment of the Cannabis Act:

  1. Proposed Approach to the Regulation of Cannabis (November 2017);
  2. Summary of Comments Received during the Public Consultation (March 2018).

They contain many interesting details regarding intended changes to the current framework for licensed producers under the ACMPR, and potential new business models for market participants.

Please subscribe or contact us for a summary of highlights of these regulatory proposals.

(c)          Publication of Final Regulations Remains Outstanding

The actual Regulations to the Cannabis Act have not yet been issued, in draft or otherwise. The federal government has indicated that it “intends to publish final regulations in the Canada Gazette, Part II, as soon as possible following Royal Assent of the proposed Cannabis Act, in order to support timely implementation of the new legal framework.”[2]  The final Regulations will contain the actual legal details for this new framework, which will be important for market participants (and applicants) to adapt their businesses to the new regime.

The Cabinet Directive on Regulatory Management (the “CDRM”) requires publication of proposed regulations in the Canada Gazette, Part I, to allow for a public comment period, and to then take the comments received into consideration. The CDRM prescribes a standard comment period of 30 days which “can vary based on legislative requirements, international obligations, and other considerations”, and a minimum comment period of 75 days for proposals for “new and changed technical regulations that may affect international trade.” However, Cabinet may exempt proposals from publication in Part I of the Canada Gazette, unless pre-publication is required by statute.

It remains unclear whether Cabinet will exempt publication of the final proposed Regulations from publication in Part I of the Canada Gazette for a further consultation period, perhaps in reliance on the prior release and consultation on the regulatory framework documents.

The federal government has, however, announced that “a minimum period of 8 to 12 weeks is necessary for the orderly movement of cannabis products from federally-licensed producers to provincially- or territorially-authorized distributors and retailers”.

The earliest expected date for the coming into force of the Cannabis Act and its Regulations is therefore near the end of Q3 2018 or early Q4 2018, absent further delay in the Senate.

(d)          Regulatory Impact Analysis Statement

Also outstanding is a Regulatory Impact Analysis Statement (“RIAS”).  The CDRM requires publication of an RIAS in the Canada Gazette along with the final proposed Regulations, including a summary of the government’s consultation efforts, assessment of compliance with Canada’s international obligations and a cost-benefit analysis. Publications of both the 2013 Marihuana for Medical Purposes Regulations and the 2016 ACMPR were accompanied by detailed RIAS. The RIAS that accompanies the eventual publication of Regulations made under the Cannabis Act is expected to provide a very interesting insight into several remaining questions regarding the new cannabis regulatory regime.

(e)          Compliance with International Obligations

One of the most significant questions that remains outstanding is the federal government’s position in regards to its international obligations under three anti-drug trafficking treaties.[3]  The Task Force, federal government, and observers have identified compliance with international obligations as an outstanding issue, though the federal government has not yet publicly expressed its position on this topic.

The Senate has directed the Standing Senate Committee on Foreign Affairs and International Trade to review the issue of compliance with international obligations, and an analysis can be expected in the Committee’s report within the next six weeks.[4] The RIAS can also be expected to address Canada’s compliance with international obligations.

UPDATE: The Standing Senate Committee on Foreign Affairs and International Trade has heard from representatives of Global Affairs Canada including Assistant Deputy Minister, Mark Gwozdecky, who stated that Canada “will be in contravention of a subset of the provisions of the conventions” but also that “we believe that Canada’s approach is fully compliant with the overarching goals of these conventions, which is the health and safety of our citizens.” Mr. Gwozdecky also confirmed that “at this time, Canada does not intend to take any treaty actions.”

The Standing Senate Committee on Foreign Affairs and International Trade also heard from both Canadian and U.S. academics on the topic of compliance with international laws.  According to Steven Hoffman, Professor at York University and Osgoode Hall Law School, the main options open to the government include (1) justifying legalization of adult recreational use under available exemptions for “scientific purposes” as being “one big, natural experiment” to assess the “intergenerational effects of cannabis legalization on people”; (2) withdrawing from and re-acceding to the conventions with a reservation for cannabis; or (3) breaching its commitments.

For the first option to be feasible, “there would need to be major investments in research.” Withdrawal and re-accession would not legally take effect until after a notice period lapses – the earliest date for such an approach becoming legally effective would be July 1, 2019 if notice is given before January 1, 2019.

(f)           Excise Duties

On November 10, 2017, the federal government announced its Consultation on the Proposed Excise Duty Framework for Cannabis Products, including proposed amendments to the Excise Act, 2001, the Excise Tax Act and to related regulations.

The proposal includes an excise duty to be imposed on federally licensed producers of the higher of $1 per gram (or gram equivalent) of cannabis or 10% of a product price.  This will apply generally to cannabis products containing THC > 0.3%, whether sold through medical or non-medical distribution channels. Products containing < 0.3% THC (such as CBD oils used for certain medical conditions), and pharmaceutical products that been given a Drug Identification Number will be exempt from this excise duty. Payment of the cannabis excise duty would be evidenced by affixing a stamp to the product, similar to the current tobacco stamping program.[6]  Licensed producers will be required to obtain a separate cannabis license from the Canada Revenue Agency (“CRA”), with specific CRA-related criteria relating to the licensee’s financial resources and delivery of acceptable security.

The federal government has agreed to share the proceeds of this federally administered excise duty with provinces and territories on a 75/25 basis, and subject to a federal cap of $100 million annually for the first two years after implementation (excess proceeds would be provided to the provinces and territories).

In addition, the generally applicable GST/HST will also apply to sales of both medical and non-medical cannabis, paid by consumers at the point of sale in accordance with the applicable provincial GST/HST rate.  While the application of GST/HST to medical cannabis has been the subject of several disputes in the Tax Court of Canada and Federal Court of Appeal, legislative changes are intended to confirm the applicability of GST/HST to both medical and non-medical cannabis products, including edibles if and when they are made available. Lobbying activities remain underway to seek GST/HST treatment of medical cannabis on an equivalent basis to other medical products. As always, specific legal and tax advice should be sought if any questions or concerns arise in respect of the potential application of any tax.

UPDATE: Alberta has announced that an additional excise tax of 10% of the retail price will be collected by the federal government and paid to the provincial government. This is intended to reflect the difference in Alberta’s 5% GST rate and the highest provincial rate of HST (15%).

2.            Alberta Legislation/Regulations

Under the proposed federal Cannabis Act, provinces and territories are responsible for managing and licensing the distribution and retail sale of cannabis for non-medical purposes, as well as  setting and enforcing rules regarding the use of cannabis.

In Alberta, the legal and regulatory framework for retail non-medical sales is now in place, pending the coming into force of the federal Cannabis Act and its regulations.  However, municipalities will continue to play a key role in determining where cannabis businesses may be located and where cannabis may be consumed, and the state of their deliberations and enactments varies across the province.

(a)          Bill 26, An Act to Control and Regulate Cannabis

Bill 26 was introduced November 16, 2017 and passed November 30, 2017.  It amends the Gaming and Liquor Act, which is re-named the Gaming, Liquor and Cannabis Act.

As administrator of the Gaming, Cannabis and Liquor Act, the Alberta Gaming and Liquor Commission (“AGLC”) will be authorized to oversee the distribution and licensing of retail sales of cannabis for non-medical purposes in addition and parallel to its roles in respect of: regulating gaming and regulating and administrating liquor operations under the current Gaming and Liquor Act; investigation and enforcement under the Tobacco Tax Act, Fuel Tax and Tourism Levy Act; and in administration, regulation and enforcement of provincial anti-money laundering activities.

Supporting regulations to amend the Gaming and Liquor Regulation (re-named the Gaming, Liquor and Cannabis Regulation), were declared by Order in Council on February 16, 2018.

The Government of Alberta has consulted extensively on the legislative and regulatory enactments, including a public virtual town hall held on February 22, 2018 to discuss details and answer questions regarding the AGLC licensing process.  Applications for a license to operate a non-medical cannabis retail business in Alberta commenced March 6, 2018 and are now being accepted on an on-going basis.

According to the AGLC, applications are ordinarily expected to take approximately two to four months. However, further delay is expected in the near term while federal legislation and regulations and municipal land use regulations remain outstanding. An initial surge of applications, along with a lack of direct experience on the part of both applicants and the AGCL further add to the likelihood of the potential for delay.

Please subscribe or contact us for a summary of highlights of Bill 26, the Gaming, Liquor and Cannabis Regulation and AGLC positions.

3.            Municipal Oversight

Municipalities retain oversight over two key areas necessary for the implementation of the federal and provincial regulatory regimes: (i) land use and zoning by-laws and the issuance of development and business permits to federally licensed production businesses and provincially licensed retail businesses; and (ii) establishing restrictions on where cannabis may be used in accordance with and further to provincial legislation. Municipalities will also serve important roles in the monitoring and enforcement of compliance with both existing and new by-laws.

Some municipalities have already implemented amendments to their existing by-laws to address certain cannabis businesses, and have completed extensive consultation on further proposed amendments. Others are continuing to review and amend their existing by-laws to distinguish cannabis businesses from other forms of use, and conduct consultations regarding proposed amendments to address the location of retail businesses.

At least one business with plans to obtain private retail licenses, Fire and Flower, has identified the City of Edmonton as being “the most helpful and clear, reactive and proactive in dealing with the Issue” of private retail licensing. The City of Edmonton has amended its Zoning By-law to clarify which existing definitions do not include the production, sale or consumption of cannabis, and added definitions and use classes for “Cannabis Production and Distribution”, “Cannabis Retail Sales” and “Cannabis Lounges” (for future use pending provincial legalization).

Amendments identifying zones in which Cannabis Retail Sales would be permitted or discretionary uses, and proposing minimum separation distances of 200 metres from other Cannabis Retail Sales and 100 metres from Major or Minor Alcohol Sales have been released for consultation. Comments are now closed, and a Council vote is expected in June 2018.  The City of Edmonton is not yet accepting applications for cannabis retail stores, or to confirm potential store locations, while these amendments remain outstanding.

The City of Calgary’s Standing Policy Committee on Planning and Urban Development has proposed Land Use Bylaw amendments, which will be considered by City Council on April 5, 2018. The City anticipates accepting applications for Cannabis Stores in late April, with second and third reading of the proposed Land Use Bylaw amendments to allow Cannabis Store use in some land use districts targeted for Q3 2018.

Please subscribe or contact us for further information and updates regarding the status of other municipalities’ activities relating to cannabis throughout Alberta.

 

[1] Specifically, the Senate has referred Bill C-45 to the Standing Senate Committee on Legal and Constitutional Affairs, the Standing Senate Committee on Aboriginal Peoples, the Standing Senate Committee on Foreign Affairs and International Trade and the Standing Senate Committee on National Security and Defence.  If Bill C-45 is read a second time, it will be further referred to the Standing Senate Committee on Social Affairs.

[2] Summary of Comments Received during the Public Consultation (March 2018), s. 1: Introduction.

[3] Canada is a party to three United Nations conventions that regulate narcotic and psychotropic substances, including cannabis: the 1961 Single Convention on Narcotic Drugs, the 1971 Convention on Psychotropic Substances and the 1988 Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.  Canada has previously reported its compliance with these conventions by reference to the regulation of cannabis under the CDSA and the Food and Drugs Act.

[4] Senate Motion, adopted February 15, 2018.

[6] Proposed Excise Duty Framework for Cannabis Products.

 

This article is intended to give general information only. We recommend you contact a lawyer for specific legal advice.

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  2. May 1, 2018

    […] For background regarding the current status of federal, provincial and municipal legislative and regulatory proposals, please the first article in our series: Where are we, where are going, and how do we get there. […]