Use the Lexology Getting The Deal Through tool to compare the answers in this article with those from other jurisdictions.
Trends and prospects
How would you describe the current state of the cannabis industry in your jurisdiction, including areas of growth, market prospects and trends, and M&A activity?
The cannabis industry in Ontario, as in much of the country, is exploding.
The new Ontario government policy shift from a government-only retail sales to a private/government hybrid model has created opportunities for businesses, both small and large, that wish to sell recreational cannabis to Ontarians. Once established, the retail industry will likely see a wave of business mergers and acquisitions, and perhaps the formation of franchise systems, as well-financed operators acquire prime locations and seek to become household names.
As of 20 November 2018 with respect to cannabis production, there are only 133 federal cannabis licence holders in Canada (more than half of which are in Ontario). However, there are thousands of applications in the queue, meaning inevitable substantial growth in the number of operating licensees. Mergers and acquisitions among such licensees have proceeded at a healthy pace, and this trend will likely continue.
Perhaps the single most anticipated trend will crystalise with the legalisation of cannabis edibles, slated for October 2019. This will be an exciting area of growth and federal licence-holders are already proactively entering into partnerships with food and beverage companies to take advantage of what – as various US states have proven – will be a leading product category.
An often overlooked aspect of Canada’s new legal cannabis industry are the number of cannabis businesses that are not involved in production or sale, but are necessary for the industry to flourish. These include, among others:
- pharmaceutical companies;
- research and testing companies;
- production equipment manufacturers;
- cannabis accessory suppliers;
- packaging suppliers;
- marketing companies;
- cannabis-related not-for-profit organisations;
- service providers and consultants of all types; and
- influencers, investors and financial institutions.
Finally, there has been – and likely will continue to be – growth in the public sector to implement and administer the new cannabis industry regulatory framework.
What primary and secondary legislation governs the use, cultivation and retail of cannabis in your jurisdiction?
Canada’s federal cannabis legislation, the Cannabis Act (the Federal Act), legalised recreational cannabis across the country when it came into force on 17 October 2018. The Federal Act regulates, among other things, the production, distribution, sale and possession of cannabis throughout the country.
While all aspects of Canada’s medical cannabis regulatory system are governed solely by the Federal Act, the Federal Act delegates authority to regulate the distribution and sale of recreational cannabis to the provinces and territories. Provincial legislation can also impose rules relating to personal possession limits, the minimum age for consumption, places of consumption or personal cultivation. Where provincial rules relating to, for example, the minimum age of consumption are inconsistent with the Federal Act, the more restrictive rule should be followed.
In Ontario, personal use, personal cultivation and the retail sale of recreational cannabis are governed by the Cannabis Control Act 2017) and the Cannabis Licence Act 2018.
The Ontario Cannabis Retail Corporation Act 2017 establishes a crown corporation that will be responsible for:
all wholesale distribution of recreational cannabis in Ontario to Alcohol and Gaming Commission of Ontario (AGCO) authorised retailers; andfor all online sales of recreational cannabis to residents of the province.
Cannabis consumption is also governed by the Smoke-Free Ontario Act 2017, which dictates where cannabis products can be smoked or vaporised.
What bodies regulate the use, cultivation and retail of cannabis, and what is the extent of their powers?
The use of cannabis and the personal cultivation of recreational cannabis in Ontario are regulated by the Cannabis Control Act. Commercial cultivation of cannabis and personal cultivation of medical cannabis is governed by the Federal Act.
Police enforcement agencies will enforce compliance with provincial use and cultivation rules. The Cannabis Control Act gives police officers various specific powers in connection with the investigation and enforcement of the provincial cannabis rules, including:
- rights of entry;
- removal of persons from premises;
- closure of premises; and
While the commercial cultivation of cannabis and the personal cultivation and sale of medical cannabis are regulated by Health Canada, the retail sale of recreational cannabis in Ontario falls under the regulatory jurisdiction of the AGCO. The government’s crown corporation, the Ontario Cannabis Retail Corporation (OCRC), is responsible for cannabis distribution to AGCO-authorised retailers and for online sale to Ontario consumers.
The AGCO is the provincial agency that operates the licensing regimes for alcohol, gaming, horse racing and now cannabis. Any person seeking to open a retail store selling recreational cannabis in Ontario will have to obtain from the AGCO a retail operator licence and, for each location, a retail store authorisation. Managers of such retail stores must obtain a cannabis manager retail licence from the AGCO. The AGCO will oversee licensed retailers on an ongoing basis, including through its powers of inspection and the requirement for licensees to obtain ACGO approval for licence renewals, changes or transfers.
The OCRC is a crown corporation created pursuant to the Ontario Cannabis Retail Corporation Act 2017 and has the exclusive right to conduct the online sale of recreational cannabis in Ontario. Once the AGCO begins to issue retail licences, the OCRC will also act as the sole distributor of recreational cannabis from federal licence holders to authorised private retail cannabis stores.
The retail sale of recreational cannabis in Ontario will be available only to Ontarians online, through the OCRC (operating as the Ontario Cannabis Store) until April 2019 when the government aims to have bricks-and-mortar retailers licensed and open for business.
Health Canada enforces the Federal Act’s commercial cultivation (and other) rules. Notwithstanding provincial jurisdiction to regulate use and personal cultivation, the Federal Act also establishes criminal penalties for the breach of various provisions of that statute, including those relating to illegal possession, distribution, sale or production.
Personal use and cultivation
Possession and consumption
What rules and restrictions govern the personal possession and consumption of cannabis in your jurisdiction?
The federal Cannabis Act (the Federal Act) legalised recreational cannabis in Canada on 17 October 2018. Although the Federal Act prescribes rules for the personal possession of cannabis, each province has the power to impose more restrictive possession rules if it sees fit to do so. The provinces also have the right to regulate places of consumption of recreational cannabis, among other rules.
The Ontario government has chosen not to further restrict possession rights; therefore, Ontarians have the right to possess the Federal Act maximum of 30 grams of dried cannabis in public at any time. Similarly to alcohol, pursuant to Ontario’s Cannabis Control Act 2017, recreational cannabis may be transported in a vehicle or boat only if the cannabis is not readily available to any person in the vehicle or boat – and cannot be consumed in a vehicle or boat. Ontario allows a passenger in a vehicle to possess medical cannabis provided that it is not readily available to the driver.
Recreational cannabis users will be permitted to smoke or vaporise cannabis anywhere that tobacco use is allowed pursuant to the provisions of the Smoke-Free Ontario Act 2017. Currently this would prohibit the smoking or vaporising of cannabis products:
- in any enclosed public space or workplace (although there are certain exemptions, including for long-term care homes and designated hotel rooms);
- on outdoor patios;
- in areas where home healthcare workers work;
- outside of hospitals, schools or other public institutions;
- near children’s playgrounds or publicly owned sports fields or entertainment venues; or
- in a vehicle or boat.
What rules and restrictions govern cultivation of cannabis for personal use?
The Federal Act prescribes rules for the personal cultivation of cannabis for both personal recreational and medical use. Although the Federal Act has exclusive jurisdiction to regulate the cultivation of medical cannabis, the provinces have the right to impose rules on the personal cultivation of recreational possession if such rules are more restrictive than those of the Federal Act.
The Federal Act permit adults in Canada to cultivate up to four legal cannabis plants per residence (not per person). The Ontario government has not chosen to further restrict this limit.
Use in and outside the workplace
What statutory and case law (if any) governs employers’ ability to restrict cannabis use both in and outside the workplace? Can cannabis use (even medical use) serve as legal grounds for termination?
Other than potentially for medical reasons, cannabis legislation does not give employees the right to use cannabis in the workplace and this remains a largely unprotected area under the Ontario Human Rights Code.
Consuming recreational cannabis in an enclosed workplace is prohibited by the Smoke-Free Ontario Act 2017, subject to certain exclusions. Otherwise, it falls to employers to set their own policies regarding recreational cannabis use subject to existing applicable legislation, such as the Ontario Occupational Health and Safety Act.
Regardless of the anticipated effect of cannabis legalisation, employers should update their policies and consider treating cannabis in the workplace in the same way that alcohol is dealt with.
With respect to medical cannabis, employers have a duty to accommodate employees until reaching a point of undue hardship. These employees must be accommodated in the same way as an employer accommodates any other disabled employee who has been prescribed medication. However, the duty to accommodate is not without limits and workers do not have a right to be impaired while at work.
Under the common law, it can be a challenge to justify the termination of employees even for blatant violations of workplace drug and alcohol policies. The case law often centres around whether there are potential threats to workplace safety and employee safety that would be directly influenced by an employee’s decision to consume alcohol or other drugs while working.
Commercial cultivation, retail and marketing
Business licensing requirements
What licensing requirements apply to businesses seeking to cultivate, distribute, produce and sell cannabis products in your jurisdiction? What procedures, timeframes and fees apply in this regard, and on what grounds can a licence be revoked?
The federal Cannabis Act (the Federal Act) governs licensing requirements for the commercial cultivation and production of all cannabis, and for the distribution and sale of medical cannabis products. Ontario’s Cannabis Licence Act 2018 (the Licence Act) governs the distribution and sale of recreational cannabis products in the province and delegates authority to the Alcohol and Gaming Commission of Ontario (AGCO) to regulate licensing and oversight of private cannabis retail stores in Ontario.
Under the Licence Act, a business looking to sell recreational cannabis to Ontarians must obtain from the AGCO a retail operator licence and a store authorisation issued for each retail location. The Licence Act also requires that cannabis retail store managers be vetted and licensed by AGCO.
To obtain the necessary licences, applicants must satisfy the AGCO as to both their own personal character, financial history and presumed competence and potentially that of persons interested in the applicant or the proposed retail location (eg, shareholders, creditors and landlords). Proposed store locations must satisfy location-specific conditions, such as compliance with statutory rules on the display and sale of cannabis products, security and layout requirements, minimum distances to nearby schools and compliance with zoning and other municipal considerations.
The AGCO will seek to revoke a licence if it believes that the licence holder is in breach of the Licence Act, the regulations issued under it or any conditions attached to the applicable licence, or if the licence holder does not continue to satisfy any of the eligibility criteria that must be satisfied for the licence to be issued in the first instance.
Timeframes and fees cannot be determined as the AGCO has yet to release specifics details about the licensing process for private retailers.
Are any businesses specifically prohibited from selling cannabis products?
Any Ontario business not holding a valid authorisation from the AGCO to sell recreational cannabis products is prohibited from doing so under the Cannabis Licence Act 2018. Similarly, any business not holding a valid federal licence to sell medical cannabis is prohibited from selling cannabis for medical purposes within the province (or elsewhere in Canada).
An authorised retail store is permitted to sell prescribed goods (eg, accessories) only in addition to cannabis purchased from the government’s sole distributor, the Ontario Cannabis Retail Corporation.
Subject to compliance with applicable legislation regarding promotion and advertising, any business is permitted to sell cannabis accessories.
Federal licensed producers, together with their affiliates, are currently limited to operating a single retail cannabis store in Ontario, and this must be located in or adjacent to their federally licensed site. Federal licensed producers or their affiliates are not permitted to own more than 9.9% of any authorised provincial retailer.
Ontario municipalities that do not want to host cannabis retail stores anywhere within their municipal boundaries can pass a council resolution to that effect at any time until 22 January 2019. Municipalities can reverse this decision at a later date to permit retail stores, but that reversal would be final.
For retail stores proposed to be located on reserve, the First Nation band council must approve the location. Band councils can also prohibit retail cannabis stores outright. Ontario’s Cannabis Licence Act 2018 also contains provisions permitting First Nations to enter into side agreements with the Ontario government to establish parallel licensing frameworks applicable on First Nation lands.
Zoning and real estate considerations
Are there any zoning restrictions on where businesses can cultivate, produce and sell cannabis products?
Three different approaches have emerged for the regulation of cannabis cultivation or production facilities through municipal zoning bylaws.
Under the first approach, a municipality simply defines the term ‘cannabis production facility’ (or a similar term) in its zoning bylaw. In Ontario, all uses are presumed to be prohibited, except those that are explicitly permitted in a zoning bylaw. However, this approach does not provide a prospective federal licensed producer with any additional guidance as to how the use may be regulated in a particular zone, which potentially raises questions with respect to certain matters (eg, mandatory separation distances from other land uses).
Under the second approach, a municipality defines the term ‘cannabis production facility’ (or a similar term) in its zoning bylaw and provides detailed regulations regarding where and how the use can be permitted or expressly prohibited. This was the approach taken by the City of Toronto when it amended its City-Wide Zoning Bylaw in 2014 to permit medical marijuana production facilities in specific zones. As a result, the city created a new defined term and added a new chapter to its City-Wide Zoning Bylaw containing regulations addressing:
- the location of the production activity;
- open storage;
- separation distances from sensitive uses (eg, residential, institutional and open space zones, as well as schools, places of worship and open spaces); and
Under the third approach, a municipality makes no amendments to its zoning bylaw and instead determines that the cannabis production facility use falls within existing use definitions and zoning permissions.
Many municipalities have not looked at this issue and have made no changes to their zoning bylaws to address cannabis production facilities. In these cases, it will be difficult for a prospective federal licensed producer to know whether the use is permitted without consulting the municipality’s planning department.
With respect to the sale of cannabis at a consumer level, the Licence Act permits a local municipality to pass a resolution by 22 January 2019 to prohibit the retail sale of recreational cannabis in the municipality. The prohibition may be lifted by a later resolution; however, once lifted, the municipality would be unable to prohibit cannabis retail stores from being located in its community at a later date.
The Licence Act does not permit a municipality to create a zoning framework for cannabis retail stores that differs from the zoning framework applicable to any other retail store. That is, zoning bylaws, interim control bylaws or site plan control cannot be used to distinguish between buildings containing a cannabis-related use and those that do not.
Are there any other notable real estate issues pertinent to cannabis businesses, including with regard to landlord/tenant relationships and real estate market activity?
Permissive use clauses in leases could present a challenge to landlords who do not wish to rent to cannabis businesses. Such landlords should ensure that they are clear about what a tenant can and cannot do on the premises. Tenants should ensure that they can use the property for their intended purpose without disruption.
Even if they are comfortable with the risks and issues associated with cannabis use when entering a lease, landlords may want to consider providing for specific termination rights, which permit them to terminate the lease for any reason or in certain circumstances. For tenants, it is likely that this issue will be the subject of intense negotiations, with particular emphasis on minimising any possible disruption to business operations.
With respect to financing, landlords should review their mortgage documents and, if the premises form part of an industrial or commercial condominium, the applicable condominium documents and bylaws to determine whether, despite legal compliance, such uses are permitted under those documents. Compliance requirements by insurers may also present issues for both landlords and tenants. In addition, tenants that have or want to seek financing for their business should ensure that the terms of the lease provide for operational security. A lender may not extend financing if it is unsure whether the borrower will enjoy undisrupted possession of the premises.
Typical commercial lease agreements provide the landlord with rights of access to the premises on reasonable notice or in the event of an emergency. However, a standard access clause may not work for the security requirements of a cannabis business. Similarly, in a typical commercial tenancy, a landlord could exercise the self-help remedy of distress to seize the property of a delinquent tenant. However, in the context of a cannabis business, seizing any inventory could constitute a criminal offence.
Product restrictions and specifications
Are any cannabis products and accessories prohibited from sale? Do any product specifications apply?
Pursuant to the federal Cannabis Act and its Cannabis Regulations (the Federal Act) the only forms of cannabis that are permitted to be distributed or sold anywhere in Canada are:
- dried flower;
- fresh flower;
- plants; and
Edibles (ie, candies, other foods and beverages) are scheduled to be legalised for sale in late 2019 once applicable regulations are published. Until then the only legal edibles are those made at home by consumers for their own use. The Federal Act prohibits the sale of any product that contains a mixture of cannabis and nicotine, caffeine or alcohol. Indeed, it requires that any cannabis product must be comprised only of cannabis – except for certain permitted residues in connection with the production of cannabis oil or resin. It also contains prohibitions on cannabis products intended to be used in the human eye and products administrated by disrupting the skin barrier.
The Federal Act also prohibits any cannabis accessory that imparts a characterising flavour to the cannabis and any accessory that would alter or enhance its phytocannabinoid effects – other than through heating or combustion.
Ontario has the power to further narrow the forms of cannabis permitted for retail sale, but the province’s cannabis legislation has not done so at this point. Ontario’s legislation provides that cannabis retail stores shall be permitted to sell only those cannabis products authorised by the Federal Act, together with cannabis accessories and shopping bags.
Packaging and labelling
What packaging and labelling requirements apply to the sale and distribution of cannabis products and accessories?
Cannabis products must be packaged and labelled in compliance with the Federal Act, which contains strict and comprehensive rules on cannabis product labelling and packages. For example, dried cannabis packaging and labels are subject to approximately 70 unique requirements, which prescribe requirements for:
- the immediate container;
- the container;
- the container covers;
- the container interior and exterior surfaces;
- the label content; and
- the presentation of text.
Ontario’s cannabis legislation requires that any cannabis products sold in Ontario must be packaged only in the packaging in which such products were purchased from the Ontario government’s sole recreational cannabis wholesale distributor, the Ontario Cannabis Retail Corporation.
Advertising and marketing
What rules and restrictions govern the advertising and marketing of cannabis products and accessories (including online)?
The Federal Act prescribes strict rules relating to the promotion of cannabis products and accessories. Cannabis products and accessories cannot be promoted (online or otherwise):
- in a manner that could be appealing to young persons;
- through the depiction of characters or animals, real or fictional; or
- by presenting their brand elements in a manner that:
- evokes an emotion or associates the product or the brand with a way of life that can be seen as glamorous, exciting or daring;
- communicates information about pricing or distribution (except at point of sale); or
- contains any testimonial or endorsement.
The Federal Act provides for limited exceptions to permit informational or brand-preference promotions, provided that such promotions are in a communication sent directly to an adult, in a place where young persons are not permitted by law or communicated by means of telecommunication where reasonable steps have been taken to ensure that young persons cannot access the promotion. Only federal licence holders are permitted to promote cannabis products – although anyone can promote a cannabis accessory. Additional restrictions apply to sponsorships and branding on items that are not cannabis products or accessories. Finally, cannabis drugs that are subject to the Food and Drugs Act are subject to additional marketing requirements and all marketing and advertising – of any product – must comply with consumer protection legislation (eg, it cannot be deceptive or misleading) and the Canadian Code of Advertising Standards administered by Advertising Standards Canada, the advertising industry’s self-regulatory body.
Ontario’s Licence Act provides that the (as yet unpublished) regulations and the province’s regulator, the AGCO, may prescribe rules relating to the advertising and promotion of cannabis by authorised retail store licensees.
What rules and restrictions govern the branding and trademarking of cannabis products and accessories? Are there any other special branding considerations for cannabis businesses?
Branding in the broad sense (eg, the use of a characteristic logo or other mark or slogan for marketing purposes) is governed by the rules regarding promotion in the Federal Act, the details of which are described under “advertising and marketing”.
Branding in the more narrow sense (eg, the design of the characteristic logo, other mark or slogan itself) is also restricted by such promotion rules to the extent that a cannabis business logo or slogan could take a form that is appealing to young persons, depict a character or animal (real or fictional) or evoke an emotion or create an association with a way of life (eg, one including glamour, excitement, vitality or daring).
Brand logos (or any other brand element) cannot be used to promote:
- individuals; or
As a result, cannabis companies are limited in the extent to which they can sponsor events (eg, sporting events or music festivals).
Cannabis businesses can display their logo or other brand element on items that are not cannabis or a cannabis accessory, provided that those items cannot reasonably be interpreted as being associated with or appealing to minors or with a particular lifestyle. There is much room to argue about what goods are associated with or appealing to minors.
Cannabis logos or other marks must also comply with the Federal Act’s labelling requirements if the cannabis company intends to use them to identify its products.
Registering a cannabis brand trademark is generally a straightforward exercise, but industry participants should consider whether they will be permitted to use the proposed mark in commerce, given the restrictive promotion and packaging rules contained in the act.
Although the regulations remain to be published, Ontario’s cannabis legislation does not currently contain any restrictions on brand logos.
What private financing options are available for cannabis businesses in your jurisdiction, and what are their respective advantages and disadvantages?
Until recently, private (and public) equity financing has been the primary form of financing for cannabis businesses as historically it has been difficult for many cannabis businesses (in particular those without substantial securable assets) to obtain debt financing from Canada’s primary lenders.
Any direct participation in the US cannabis market will make it difficult for a cannabis business to obtain financing from a Canadian bank. One reason for this is because US banks that serve as correspondent or intermediary banks to Canadian banks (to facilitate the international movement of funds) are reluctant to provide such a service to Canadian banks that serve the cannabis industry given the federal illegality of cannabis in the United States. There are also major Canadian banks that operate internationally, which are therefore directly exposed should they provide banking services to businesses in breach of such US laws.
The Canadian cannabis sector has also seen some deal flow being driven by stream financing, which is most commonly seen in the mining sector. This financing option sees major Canadian cannabis producers financing smaller Canadian cannabis companies. The debt obligations incurred in this type of financing arrangement may be repayable in product or product equivalents, with repayment contingent on actual production.
What rules and restrictions govern cannabis businesses’ listing and admission to trading on recognised equity securities exchanges? What are the advantages and disadvantages of public listing?
Currently, the Canadian Stock Exchange (CSE) is the only exchange in Canada that will permit the listing of a cannabis company doing business in the United States. Both the Toronto Stock Exchange and the TSX Venture Exchange refuse to accept new listings of companies with ties to the US cannabis market. To list on the CSE, the issuer must not be in breach of any securities legislation in any Canadian jurisdiction and, in addition to other more technical requirements, the issuer must have filed a preliminary prospectus and a prospectus in a Canadian jurisdiction and be a reporting issuer or the equivalent in a Canadian jurisdiction.
Some of the potential advantages of public listing are the capital that can be raised, liquidity gained, higher valuation and greater publicity. However, when companies choose to go public they must also make extensive disclosure and comply with stringent rules and regulations of the applicable exchanges, all of which can be costly.
Which medical conditions qualify for treatment with cannabis products? What other rules and restrictions govern medical use of cannabis (eg, dosage limits)?
The regulation of medical cannabis falls under the exclusive jurisdiction of the federal Cannabis Act and the Cannabis Regulations made under it.
Medical conditions that may qualify for treatment with cannabis products include:
- attention deficit disorder and attention deficit hyperactivity disorder;
- Alzheimer’s disease;
- back and neck problems;
- brain injury;
- chronic nausea;
- chronic pain;
- Crohn’s disease;
- eating disorders;
- gastrointestinal disorders;
- hepatitis C;
- HIV and AIDS;
- irritable bowel syndrome;
- kidney failure and dialysis;
- multiple sclerosis;
- muscle spasms;
- muscular dystrophy;
- Parkinson’s disease;
- post-traumatic stress disorder;
- severe arthritis;
- sexual dysfunction;
- sleep disorders; and
- spinal cord injury and disease.
There are no restrictions on the daily cannabis amount that a physician may prescribe; however, there is a possession limit equal to the lesser of 150 grams of dried cannabis (or its equivalent in fresh cannabis or oils) or 30 times the daily amount of cannabis authorised.
The federal Cannabis Regulations also introduced a cannabis drug licence that authorises the licence holder to manufacture and sell a drug (as defined in the Food and Drugs Act) that contains cannabis.
What licensing requirements apply for physicians seeking to prescribe cannabis products to patients?
The regulation of medical cannabis falls under the exclusive jurisdiction of the federal Cannabis Act and the Cannabis Regulations made under it. Accordingly Ontario’s cannabis legislation defers to the federal regime for medical cannabis.
There are no special licensing requirements that must be satisfied for physicians to prescribe medical cannabis products to patients. However, physicians should be aware of the policies or guidelines promulgated by their provincial self-governing regulatory bodies (eg, in Ontario, the College of Physicians and Surgeons of Ontario) before prescribing medical cannabis.
What licensing requirements apply for pharmacies seeking to dispense cannabis products?
The federal Cannabis Regulations govern the sale of cannabis by holders of a cannabis drug licence and Sections 170 to 182 apply specifically to pharmacists.
In Ontario, pharmacies may obtain a retail licence under the Cannabis Licence Act 2018 to sell cannabis as a recreational product. However, if a pharmacy wants to dispense medical cannabis, a federal sale licence must be obtained under the federal Cannabis Act. Pharmacists that are federally licensed to sell medical cannabis can dispense it on registration of a medical document obtained from an applicable healthcare provider.
How are cannabis products covered by health insurers (both public and private)? Are there any rules or restrictions in this regard?
Ontario’s insurance companies are beginning to make changes to their policies by offering coverage for medical cannabis. However, coverage is restricted at this time, with only a small range of conditions being included in policies, such as:
- cancer with severe or refractory pain;
- nausea and vomiting due to cancer treatment;
- multiple sclerosis with neuropathic pain or spasticity;
- rheumatoid arthritis with pain that has not responded to standard therapy;
- HIV and AIDS with anorexia or neuropathic pain; and
- patients requiring palliative care.
Insurers are expected to conduct periodic reviews of evolving clinical evidence supporting the use of medical cannabis for various conditions.
Insurers will likely require claimants to be registered with Health Canada in accordance with the requirements of the federal Cannabis Regulations as they relate to access to cannabis for medical purposes.
What opportunities are available for cannabis businesses to cooperate with healthcare providers, pharmaceutical companies and research institutes in the development of new medical cannabis products? Are there any notable regulatory considerations in this regard?
The regulation of medical cannabis is under the exclusive jurisdiction of the federal government, pursuant to the Cannabis Act and the Cannabis Regulations.
They provide three classes of licence that form the foundation of a licensing framework that will permit the development and commercialisation of new medical cannabis products.
The three licence classes are:
- cannabis drug licences;
- research licences; and
- analytical testing licences.
The holder of a cannabis drug licence is authorised to manufacture and sell a pharmaceutical drug that contains cannabis. The prerequisite for applying for a cannabis drug licence is that the company must already hold a drug establishment licence under the Food and Drug Regulations. Obtaining both licences would permit the possession, production or manufacturing, distribution and sale of cannabis pharmaceuticals.
Although research and development activities can be conducted under other licence classes, holders of research or analytical testing licences are ideally positioned to operate in the healthcare industry for the purposes of developing new medical cannabis products to be commercialised by holders of cannabis drug licences or cultivate or process licences as well.
How are sales of cannabis products taxed?
The sales tax treatment of cannabis throughout Canada is complex, and the relevant taxes and duties imposed depend on the province of sale. Although some provinces impose separate provincial sales taxes, in Ontario there are two categories of taxes on cannabis:
- goods and services tax/harmonised sales tax (GST/HST); and
- excise duties.
GST/HST generally applies to all sales of cannabis products, on the final sale price (ie, inclusive of excise duties). This is true regardless of whether the cannabis product is purchased pursuant to a medical document or for recreational purposes. The applicable rate of GST/HST payable depends on the province of purchase; in Ontario, it is 13%.
Cannabis is also subject to excise duties pursuant to the Excise Act 2001. The excise duties apply to all cannabis products available for legal purchase, including fresh and dried cannabis, cannabis oils and seeds and plants for home cultivation.
The Canada Revenue Agency is responsible for administering and enforcing the collection of applicable GST/HST and excise duties.
The computation of excise duties on cannabis is complex. In general terms, the only person in the cannabis supply chain who needs to account for and pay the excise duty is the person who packages the cannabis product for final retail sale and arranges for the delivery of such products to provincially-licensed retail locations or direct to medicinal cannabis purchasers. The amount of excise duty is the higher of a flat rate (eg, an amount per gram) applied on the quantity of cannabis contained in the final product available for sale or a percentage (ie, ad valorem rate) of the federal licensee’s sale price of the packaged product. The quantum of excise duty depends on the relevant province of sale, and the final computation of excise duties is contingent on several adjustments depending on the province (for specific rates, please see the Department of Finance website).
Every Canadian province and territory, with the exception of Manitoba, has agreed to sign up to a coordinated excise duty framework with the federal government. For these jurisdictions, the total combined excise duty rates are generally:
- flower – C$1/gram or 10% of the sale price of the cannabis product packaged by a federal licensee to a purchaser;
- trim – C$0.30/gram or 10% of the sale price of the cannabis product packaged by a federal licensee to a purchaser; and
- seed/seedling for home cultivation – C$1/seed or seedling or 10% of the sale price of the cannabis product packaged by a federal licensee to a purchaser.
Ontario (and the other Canadian jurisdictions, except for Manitoba) will receive approximately 75% of these duties, with the federal government receiving about 25%.
Finally, excise duties in certain provinces require a further positive adjustment. In Ontario, this additional amount is 3.9%.
What tax liabilities arise for cannabis businesses, and what best practices are advised for efficient tax planning?
The income tax implications of cannabis businesses are not appreciably different in comparison to those of any other business. Different considerations arise for retailers, processors, manufacturers and cultivators. Cannabis businesses should consult with their tax advisers to determine the most efficient tax-planning strategies for their circumstances.
Import and export
What rules and restrictions govern the import and export of cannabis products and accessories to and from your jurisdiction?
Ontario’s cannabis legislation does not contemplate the interprovincial or international trade of cannabis. Section 121 of the Constitution Act 1867 provides that goods from one province must be freely admitted into any other province, but the Supreme Court of Canada has declared that provincial free trade cannot be allowed to impede the regulatory actions of provincial governments.
In Ontario, such regulatory actions in respect of recreational cannabis products are evident in the Cannabis Control Act 2017 and the Cannabis Licence Act 2018, which prohibit the distribution (ie, transferring, transporting and delivering) of recreational cannabis unless it is recreational cannabis purchased from an Ontario-licensed cannabis retailer.
However, medical cannabis is not subject to the same restrictions and – provided that it is lawfully acquired and possessed – can be imported into Ontario across provincial boundaries. All cannabis (both recreational and medical) is subject to provincial rules on how it can be transported in a vehicle or boat.
With respect to a licensed producer, the federal cannabis regulatory regime requires that excise stamps are applied to cannabis products packaged for consumer purchase, before being delivered to a purchaser for sale or distribution. Excise stamps indicate the provincial or territorial market in which the recreational cannabis product is intended to be sold or distributed.
With respect to international import and export, a federal cannabis licence holder can seek a permit from Health Canada to import cannabis to – or export it from – Canada, provided that the cannabis is to be used for a medical or scientific purpose. Even then, Health Canada’s current policy makes it difficult to import or export unless it is for scientific or analytical testing purposes. Other permits (eg, an import permit from the Canadian Food Inspection Agency) may also be required, depending on the nature of the proposed import.
What immigration rules and restrictions are noteworthy for stakeholders in a cannabis business, including with regard to the movement of employees and the cross-border carriage of cannabis for personal use?
There are no Canadian immigration laws that apply expressly to individuals involved in a cannabis business; therefore, there should be no cannabis-specific issues faced by employees of cannabis businesses seeking to enter Canada, provided that ignore cannabis business is lawful in Canada. However, cannabis legislation can affect immigration status. For example, if permanent residents to Canada or foreign nationals are convicted of certain offences under the federal Cannabis Act, this could result in their being deemed inadmissible to Canada and, if they are already in the country, could lead to their expulsion.
Notwithstanding legalisation in Canada, it remains unlawful to bring cannabis across the border into Canada (or out to the United States). Cannabis must be imported to or exported from Canada pursuant to an import or export permit granted by the federal government to a federally licensed cannabis producer seeking to import or export for medical or scientific purposes only.
Although the situation at the Canada-US border continues to evolve, since cannabis is still illegal at the federal level in the United States, admitting to cannabis use or involvement in a US-based cannabis business (and potentially even to a Canada-based cannabis business) to US border officials could result in a lifetime ban from entering the United States. Border officers have significant discretion in this regard. Banned individuals can apply for a temporary waiver if travel to the United States is necessary.