Italian Chamber of Commerce in Canada West | The legalization of recreational cannabis in Canada
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Cannabis Legalizzazione In Canada

08 Nov The legalization of recreational cannabis in Canada

Canada legalized recreational cannabis use nationwide with the Cannabis Act. The Act is viewed by many as an opportunity for Canada to be the pioneer in the sale of recreational cannabis in international markets. There are more than 100 publicly listed cannabis companies in Canada with a market value of more than $30 billion. Tax revenue for the federal government is projected to be approximately $675 million per year. The opening of a new market, although limited to Canadian boundaries when it comes to production and sale, opens a new streamline of businesses opportunities. A recent report stated that cannabis production could be reach a global market value worth $194 billion in the next 7 years. These numbers are capturing the interest of national and international investors. Here’s some of the most important features of Canada’s cannabis legislation.

Dario Valoncini*

In Canada, medicinal use of cannabis was legalized in the Marihuana Medical Access Regulations in 2001 as subsequently amended.

In 2015 Canada’s Supreme Court found restrictions to dried marijuana violating the right to liberty and security “in a manner that is arbitrary and hence is not in accord with the principles of fundamental justice” (see R v. Smith). That decision, re-opened the discussion on reforming the legislation and Prime Minister Justin Trudeau, elected shortly after, steered the legislation towards complete legalization as promised while campaigning.

As of October 17, 2018, Canada legalized recreational cannabis use nationwide with Bill C-45, also known as the Cannabis Act (the “Act”). The same day, parliament enacted Bill C-46, amending the Criminal Code by strengthening existing drug-impaired driving laws.

The Act is a comprehensive piece of legislation with over 225 sections, covering almost every aspect of the cannabis market, from production to distribution, from taxation to IP.

Within the international legal framework, it is important to note Canada is a signatory to the United Nations International Drug Control Conventions (i.e. the Single Convention on Narcotic Drugs of 1961, the Convention on Psychotropic Substances of 1971, and the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988): full compliance with these frameworks is yet to be proved.

Some of the most important features of Canada’s cannabis legislation:

1. POSSESSION AND USE

Adults over the age of 18 are now legally able to:

  1. possess up to 30 g of dried cannabis or equivalent in non-dried form;
  2. share up to 30 g of cannabis with other adults;
  3. purchase fresh or dried cannabis (and cannabis oil) from a provincially-licensed or federally-licensed retailer;
  4. grow, from licensed seeds, up to 4 cannabis plants per residence for personal use; and
  5. make cannabis products (e.g. food and drinks) at home.

Recreational (i.e. non-medical) cannabis cannot be consumed in public places, in the workplace, on a vehicle or on a boat, or in any other prescribed place.

2. PRODUCTION AND SALE

In order to produce and sell cannabis legally in Canada, companies must hold two licenses: one from Health Canada and one from the Canada Revenue Agency (CRA). The former is needed in order to grow cannabis for sale or produce cannabis products, sell cannabis for medical purposes, conduct test or research. The latter for excises and retail purposes.

Amongst the many provisions introduced by Bill C-46, it is prohibited to sell or distribute cannabis to a person who is (or appears to be) intoxicated.

The Act provides that edible cannabis products and concentrates will be legal for sale and retail one year after the came into force of the Act itself (October, 2018). Food and beverage companies are already moving into this new industry, Molson Coors Brewing Co and other main Canadian players are developing cannabis-infused beverages.

Each province is responsible for creating its own retail sales system. Some provinces (such as Ontario) have decided to restrict the sale of cannabis through a government retailer similar to the government owned and operated alcohol industry. Other provinces opted for an open-market system.

As of today, Canada has issued only about 130 licenses for the production and sales of cannabis out or more than 1700 applications received.

The licensing process consists of several steps, including the submission to the Health Canada of a business plan, Security Clearance Application Forms and record-keeping methods pertaining to security, good production practices, inventory, and destruction methods.

3. TAX AND COMMERCE

As above-mentioned producers and sellers of cannabis products must obtain a cannabis license from the CRA before starting business operations.

Canada imposed an excise duty at the federal level. Such duty is payable by a licensed producer when cannabis products are distributed to a buyer (e.g. an authorized distributor/retailer or final consumer). Excise taxes are imposed on the following products: (a) cannabis products produced and packaged for retail sale in Canada; (b) Imported cannabis products; and (c) must have >0.3% THC.

A few products exempted by the current regime are: (a) cannabis products with ≤0.3% THC; (b) medical and pharmaceutical products approved by Health Canada having a Drug Identification Number that must be acquired through a prescription; and (c) exports.

Depending on the location of the final purchase, consumers are responsible for paying the applicable VAT (GST/HST) depending on the province or territory where the product is purchased (from 5% to 15%).

The Act is viewed by many as an opportunity for Canada to be the pioneer in the sale of recreational cannabis in international markets. However, when it comes to export and import, the advantage is not so relevant because cannabis products can only be exported or imported for medical or scientific purposes notwithstanding the exporting/importing market has legalized cannabis for recreational purposes.

Moreover, the federal government has imposed a strict regime on import and export permits.

4. MARKETING AND IP

Every player in the industry is affected by the provisions of the Act as per the promotion of cannabis related products (or cannabis accessories or services). The Act prohibits promoting of products in a manner that could be appealing to young persons, via cartoon characters, animals, or celebrity endorsements. Moreover, cannabis related marketing campaigns are prohibited in the contest of events. International marketing by cannabis company is also prohibited. Authorized retailers must comply with the packaging and labelling of the Act, are very similar to the tobacco industry. Retailers must affix excise stamps to the packaging of cannabis products intended for retail sale.

Generally speaking, Canadian law provides for three main areas of intellectual property rights: Copyright, Trademarks and Patents. Contrary to many other countries in the world, under Canadian Patent law, higher life forms (i.e. plants, breeds) are not patentable. Inventors (i.e. producers) will seek protection for their inventions in patenting the plants’ genes.

5. CONCLUSIONS

Currently, there are more than 100 publicly listed cannabis companies in Canada with a market value of more than $30 billion. Tax revenue for the federal government is projected to be approximately $675 million per year. A recent report from the bank of Montreal stated that cannabis production could be reach a global market value worth $194 billion in the next 7 years. These numbers are capturing the interest of national and international investors.

National borders are certainly a limit when it comes to international investments in a product that is illegal in almost every country in the world. However, it should be pointed out that the opening of a new market, although limited to Canadian boundaries when it comes to production and sale, opens a new streamline of businesses opportunities: life science, healthcare, research, food & beverages, capital markets are only few of the industries that are affected by this new, provocative legislation.

*LL.M. Candidate at University of Toronto

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