Legalization and regulation of cannabis

December 20, 2016
Written by Leigh Coulter, GGS
Dec. 20, 2016 – The Canadian government has released the November 2016 report that was filed in Ottawa by the Task Force on Cannabis Legalization and Regulation. This report contains the findings and official recommendations of the task force for establishing legal cannabis across Canada.

In total the document contains 112 pages and covers issues from cultivation licenses, to processing, and distribution to taxation and home growing. Everyone interested in cannabis as an industry or as a medicine should read this document.

For growers I have summarized the main points that the Task Force recommends:

• The production of cannabis and its derivatives (e.g., edibles, concentrates) should be regulated at the federal level, drawing on the good production practices of the current cannabis for medical purposes system.

This is good news for existing LPs (Licensed Producers). The last thing any company who has spent millions of dollars getting established wants to see is a dramatic change in the rules.

GOOD NEWS FOR INVESTORS

This is good news for investors and those looking to raise capital. A recommendation to build on the existing platform is a sign of stability.

This is good news for other interested cultivators and cannabis processors. Federal regulations make it easier to cross provincial borders, or to set up multiple sites nationwide. A federal standard encourages growth and export potential.

• Licensing and production controls should be used to encourage a diverse, competitive market that also includes small producers.

This is a good indication that a craft cannabis industry will be sustainable in Canada.

This is also a concern, because when governments try and meddle with a free market system they often put constraining regulatory burdens in place that stifle the entire industry and increase costs to the consumer. On page 32 of the report they go into detail on why they feel the government should put in supply controls.

• Implement a seed-to-sale tracking system to prevent diversion and enable product recalls.

This a standard caveat in every government’s legalization plan. What remains to be seen is how stringent the tracking and regulatory burden will be.

• Permit outdoor production, with appropriate security measures.

The intention is divided between promoting energy conservation by moving the grow into natural sunlight, and providing an opportunity for a lower capital cost entrance into the industry.

In many jurisdictions there has been debate over whether greenhouse cultivation is considered indoor or outdoor growing; by recommending allowing outdoor it hopefully reduces the confusion in this regard making it easier for greenhouse producers.

With Canada’s northern climate true field production is a seasonal business. Greenhouse cultivation and controlled environment agriculture (CEA) will still have many advantages.

• Wholesale distribution of cannabis should be regulated by provinces and territories not federally.

This will potentially increase distribution costs to growers who plan to sell nationally, because each province could have a very different model.

NICHE  MARKET POTENTIAL

While it is unlikely to create any significant barrier to entry, the different provincial rules could potentially assist small cannabis growers in securing craft niche markets in their areas.

• Retail sales of cannabis should be regulated by provinces and territories in close collaboration with municipalities.

As with the wholesale regulations, different rules in different provinces mean additional administrative costs for anyone operating in multiple provincial jurisdictions.

This likely opens up more opportunities for a diverse retail industry.

• The report considers that it is appropriate for retail zoning considerations to include appropriate distance from schools, community centres, etc.

DIVERSE RETAIL OPPORTUNITIES

Clearly they are recommending more opportunities for a diverse retail industry. For growers the larger the pool of retail outlets the more opportunity to sell your flower and other products.

• Interestingly the Task Force also recommends no co-location of alcohol or tobacco and cannabis sales, wherever possible.

We are hopeful that this recommendation will be observed in order to prevent the provinces from adding marijuana to their liquor board monopolies, which stifles small producers reducing the competitive environment which is best for business and consumers.

• Access via a direct-to-consumer mail-order system is also in the recommendation.

This supports the continuance of the sales channel currently employed by the LPs.

Direct to consumer sales keeps the grower fully informed, and enables more touch points with consumers if marketing and sales programs are properly executed. The challenge with this model is the limitation on advertising that are also in the report.

• Personal cultivation of cannabis for non-medical purposes should be allowed with limits on the number of plants.

This is very good news for growers. Home gardeners open up new opportunities for selling starter plants. Home growers means increased acceptance which will grow the market as a whole.

We all know that prohibiting marijuana growing at home has never worked. By removing the restrictions the government is truly acknowledging that marijuana is not a harmful plant.

• The Task Force states that there was general agreement on the legitimacy of medical use.

This battle has already been won in the Supreme Court. Another announcement that medical marijuana is legitimate can only be positively viewed.

• They recommend that a separate medical access framework to support patients be maintained to ensure that the market provides reasonable affordability and availability.

TAXATION CONSIDERATIONS

At first blush this looks like a positive approach; however they further recommend that both medical and recreational marijuana are taxed under the same tax system. It is not clear how they believe medical marijuana should be differentiated from recreational cannabis, and the risk is unintentionally creating an uneven playing field that puts medical marijuana growers at a disadvantage.

• The ACMPR should be reviewed with the objective of eliminating this category of producer.

There will be more uncertainty for the existing ACMPR growers while they wait to see what the government will do with these recommendations.

The ACMPR takes some of the blame for the hesitancy of the medical community to participate in authorizing medical marijuana.

This underlines more uncertainty for existing ACMPR growers, and supports a more strictly regulated environment like the current LPs.

The positive take-away is that it also indicates that proper seed to sale tracking and product testing under a reasonable regulatory system should open the door for communications between producers and doctors.

• The government should support the development and dissemination of information and tools for the medical community and patients on the appropriate use of cannabis for medical purposes.

This is an encouraging statement for medical marijuana growers who may be allowed to provide advertising product information pieces to medical staff, and other forms of marketing to doctors, similar to what the pharmaceutical industry does already.

• Promote and support pre-clinical and clinical research on the use of cannabis and cannabinoids for medical purposes, with the aim of facilitating submissions of cannabis-based products for market authorization as drugs.

THE IMPORTANCE OF RESEARCH

More money and recognition of legitimate research for medical marijuana applications is very positive for agricultural research scientists as well as medical researchers.

Additional research is positive for the whole industry.

The risk will be a potential focus on simulated cannabinoid tablets rather than whole flower medicine. Growers should remain alert to ensure that the cannabis plant receives its share of research attention.

• Indigenous authorities and representative organizations should be engaged in discussing opportunities for their participation in the cannabis market.

The cannabis industry has risen from grassroots, and is one of the most welcoming and inclusive group of people I have ever met. No one should be excluded from an opportunity. As the industry matures I sincerely hope this foundation remains strong.

IN SUMMARY

In general, everyone I have spoken to is happy with this report. A sincere effort was clearly made to cover a complex topic and it was done so in a respectful manner. The big remaining questions are:

• When?

• And what will the Liberal government actually implement, or choose to reject, from these recommendations?

AUTHOR

Leigh Coulter is the president of GGS Structures Inc. and Niagrow Systems Ltd. GGS has been building greenhouses for growers around the world since 1979.

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