Licensed cannabis producers currently don’t have the genetic variety that is available to suppliers in the illicit market. As of August 7, there are 114 licensed producers in Canada and only 289 dried cannabis products are being sold in the Canadian medicinal market. Health Canada's current rules impose strict restrictions on the acquisition of cannabis genetics by federal licensed producers with the effect that newly licensed producers have largely been forced to purchase genetics from their competitors. Industry participants have expressed frustration with this scenario given that the black market offers an incredibly wide variety of strains.
The new federal Cannabis Act and its regulations will address that problem by giving cultivators the ability to bring illicit materials under the legal umbrella at the time of their licence application. In particular, the Cannabis Act regulations contain a one-time exemption allowing applicants for a cultivation licence to bring in “black market” starting materials at the time they apply for a licence. Once these plants and seeds have been brought into the legal framework, they can subsequently be sold/transferred between LPs (subject to the regulations, of course) and developed, crossbred, etc. Industry participants are of the view that this should dramatically increase the diversity of genomic materials available to cultivators.
In addition, once the Cannabis Act is in force, licensees may also acquire or develop new genetics as follows:
1. New cultivation license classes
The Cannabis Act introduces two new types of cultivation licenses - craft licenses and nursery licences. Craft licenses (or micro-cultivation licenses) are intended to allow small private growers to enter the market. Nursery licence holders will only be permitted to sell plants and seeds. They will also be permitted to alter the chemical and physical properties of cannabis for testing purposes.
Under the one-time exemption referred to above, applicants for cultivation licences (whether standard cultivation licences, craft licences or nursery licences) will be required to submit to Health Canada a declaration of any illicit genetics they possess. The declaration must be submitted at the same time as the licence application. Once the declaration is submitted and the licence application is approved, the (formerly) illicit plants and seeds will be considered compliant with the law.
Once the formerly-illicit genetic materials have entered the legal cannabis ecosystem, they can be transferred to other licensees through intra-industry sales.
2. Intra-industry sales
Licensed producers will be able to sell plants and seeds to each other, although the specific types of intra-industry sales that will be permitted will depend on the class of licence held. However, all types of licence holders will be permitted to purchase plants and seeds from craft and nursery licence holders.
3. Research laboratories
Holders of research licences will be permitted to produce cannabis for research purposes, and may be authorized to sell cannabis plants and seeds to holders of a cultivation licence. This should also enable the development and distribution of new genetics.
4. Import permits
The Cannabis Act allows for issuance of import permits to licensees, as long as the importation is done for medical or scientific purposes. This may allow licensees - for example, holders of a research licence - to import genetics from non-Canadian jurisdictions for the purpose of developing new strains.
It will be important for licensees to be aware of protected plant varieties in order to reduce their risk of intellectual property infringement. In addition, licensees will have the ability to obtain protection for any new varieties that they create lawfully, whether that be from genetic modification in a laboratory setting or from traditional cross-breeding. For example, new plants can be protected in Canada by patents and/or by plant breeders’ rights certificates. These two regimes provide distinct and potentially overlapping protection for new plant varieties, methods of making the plants and products of the plants, such as oils with specific cannabinoid profiles.