McCarthy Tétrault Advance ™ Building Capabilities for Growth Opportunities and Risks Arising from the Legalization of Recreational Cannabis March 29, 2018 17166709 McCarthy Tétrault LLP / mccarthy.ca
McCarthy Tétrault Advance ™ Building Capabilities for Growth The Canadian Cannabis Market Greg Turnbull, QC McCarthy Tétrault LLP / mccarthy.ca
3 The Past: Cannabis Prohibition in Canada since 1923 Prohibition Strict Criminal Prohibition- Domestic/ Legislation Oriented International Elected Enforcement Officials Obstructive Governance : Controlled Drugs and U.S. Opposition : Minimum sentencing, limited Substances Act (“CDSA”) : previous attempts to support for medical Cannabis currently classified decriminalize thwarted as a schedule II substance: marijuana policy, restrictions by U.S., international possession, production, and on producer approvals and position, UN treaties sale are offences research McCarthy Tétrault LLP / mccarthy.ca
4 The Present: Disruption of the Prohibitionist Approach Key Disruptive Trends Prohibition • Charter Challenges: since as early as 2000, appellate courts Criminal Prohibition- Strict have consistently found medical users have a right of access to a Legislation Oriented Domestic/ Elected International safe supply of cannabis Officials Enforcement • Marihuana For Medical Purposes Regulations (“MMPR”): Due to the unconstitutionality of previous regulations, the Federal Government introduced the MMPR regime under the CDSA in 2014; this has enabled large-scale commercial production of marijuana for medical consumption Prohibition • Electoral Change: On October 19, 2015, campaigning on a platform openly calling for cannabis legalization, the Liberal Party Criminal Prohibition- Strict of Canada defeated the incumbent Conservative Party—under Legislation Oriented Domestic/ New Market Elected International Conservative Leadership despite receiving over 1,400 applications Officials Enforcement Opportunities for an MMPR production license, only 27 licensed producers had been approved • Rising Enforcement Costs: Statistics from B.C. indicate 47% of all possession incidents are resolved without criminal charges and in 2013, the Canadian Association of Chiefs of Police urged the Prohibition Minister of Justice to amend the CDSA to provide authority to issue tickets rather than enforce possession laws Criminal Prohibition- Strict Legislation Oriented Domestic/ • U.S. “Legalization”: Over 50% of the U.S. population now Elected International Officials Enforcement supports legalization and Colorado, California, Nevada, Massachusetts, Washington State, Alaska, Oregon, Vermont and Washington, D.C. have, or are planning to enact some form of legalization of recreational marijuana while 29 states have legalized cannabis for medical purposes. McCarthy Tétrault LLP / mccarthy.ca
5 The Future: Shift Towards Cannabis Legalization New Policy Objectives Policy Preference § Prevent access by young persons § Reduce burden of enforcement Outcome: and prosecution for minor Legalization refers to the possession offences abolition of laws prohibiting § Deny a revenue stream for possession and personal Legalize organized crime use of marijuana and § Increase tax revenue allows the government to § Align policy and associated costs regulate and tax its use with actual harms [1] and sale Liberal Cannabis Policy Shift Outcome: Decriminalization refers to the loosening of criminal penalties imposed for personal marijuana use Decriminalize even though the manufacturing and sale of the substance remain illegal [1] Liberal Party of Canada, “Marijuana”, 2015 Electoral Platform , online: <https://www.liberal.ca/realchange/marijuana/ >. McCarthy Tétrault LLP / mccarthy.ca
6 Current Legal Framework Legal Standing of Current Cannabis Suppliers The Access to Cannabis for Medical Purposes Regulations came into effect and replaced the MMPR as of August 24, 2016. Current Players Legal Standing Enforcement Stance Legal, Heavily ¬ ¬ Regulated Legal: permitted to cultivate, possess, Work in tandem with authorities: ACMPR Licensed and sell to customers with producers work with police, medical Producers (Medical appropriate medical documentation licensing authorities, and Health Marijuana) Canada ¬ ¬ Illegal: cultivation, sale, and Low police enforcement priority: possession remain illegal under the recreational users more likely to Personal Use Controlled Drugs and Substances receive caution rather than to be Growers Act (“CDSA”) charged by police Illegal, unregulated ¬ ¬ Illegal: cultivation, sale, and Low police enforcement priority: possession remain illegal under the inconsistent enforcement, but raids Dispensaries/ CDSA do occur where there are sales to Cannabis Clubs minors or ties to other crimes ¬ ¬ Illegal: cultivation, sale, and Highest police enforcement priority: possession remain illegal under the police have diverted majority of Organized CDSA enforcement efforts to criminal Criminal enterprises Enterprises McCarthy Tétrault LLP / mccarthy.ca
7 Current Medical Marijuana Market Sizing The Medical Marijuana Market Licensed Producers Publicly Traded Retail Market Size ¬ There are currently 94 licensed ¬ 23 of these licensed producers are ¬ The value of the Canadian medical producers of marijuana publicly listed companies marijuana market is expected to be $1.3 billion by 2024 (status quo) [2] ¬ 20 of these licensed producers are ¬ Market capitalization exceeds based in British Columbia $12 billion ¬ 5 of these licensed producers are based in Alberta TXV:APH CSE:ACB TSXV:THCX TSXV:EMH TSXV:OGI TSXV:CGC Private Alberta Licensed Producers or Applicants [2] Marihuana for Medical Purposes Regulations , SOR/2013-119 Canada, “Regulatory Impact Analysis Statement”, online: <http://gazette.gc.ca/rp-pr/p1/2012/2012-12-15/html/reg4-eng.html>. McCarthy Tétrault LLP / mccarthy.ca
8 Authorized Licensed Producers of Cannabis McCarthy Tétrault LLP / McCarthy Tétrault LLP / mccarthy.ca / Docs mccarthy.ca #15227122
9 The Current Medical Marijuana Model Regulation of the Retail Value Chain Marketing/ Channels/ Inputs/Start-up Service Production Sales Distribution Requirements Sow/Harvest Record Client Identification Order Required Product Monitoring Pre-License Inspection Health Canada must LP must record dates of LP must only sell to LP must receive a written, Appointed QA person Health Canada conditional “Ready to Build confirm no risks to public propagation, seed sowing, persons ordinarily resident or a recorded verbal order responsible to receive health, safety, and security and harvest as well as an in Canada and must gather with the unique client client complaints Letter” allows LP to seek financing inventory record of at the name and address identifier Storage/Security Recall System end of each quarter information Health Canada imposes Payment System Capability to recall any lot storage/security Pest Control Client Documentation of marijuana and report all Online orders typically requirements fulfilled through Credit recalls and any adverse LPs must operate an LP must obtain the original Sanitation Card, Bill e-Payment, product reactions to integrated pest prescribing medical LPs must maintain a money order, or cheque Health Canada management program document as well as a sanitation program with a client statement Shipping Client Validity Analytical Testing designated QA person Verification Required Physical transfer of LP must monitor validity LPs must test for Personnel Checks of client registration and is contaminants and possession can only LP must verify the medical Security Clearances must required to refuse orders percentages of delta-9- occur by shipping document and the be obtained for certain key in certain circumstances tetrahydrocannabinol and prescribing practitioner employees Accompanying cannabidol Seeds and Inventory Requests for Client Registration Required Documents Packaging/Labelling MMPR allows an LP to Information Client to be registered and LP must include a Health purchase seeds and dried Strict lot ID, branding, verification of registration Canada document and Upon demand to Health marijuana from another child proofing, expiry, and by LP sent with a unique client-specific info Canada and Police LP by a written order sanitation requirements client identifier document with each order authorities Continuous Requirements Record Keeping / Record Retention Ministry Spot Checks / Requests for Information MMPR Good Production Practices McCarthy Tétrault LLP / mccarthy.ca
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