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Cannabis legislation and regulation

cannabisThe Liberal Party of Canada made the legalization of marijuana a priority during the 2015 federal election campaign and now the Liberal government has taken a step toward enacting that promise. On June 30, 2016, the Government of Canada launched a Task Force to advise it on the design of a legislative and regulatory framework for legal access to cannabis (the “Task Force”). The prescribed framework was the Government’s commitment in the 2015 Speech From the Throne to legalize, regulate, and restrict access to cannabis.

Headed by the Honourable A. Anne McLellan, the Task Force is comprised of nine distinguished experts in areas such as public health, substance abuse, law enforcement and justice. Together they extensively consulted the public, including youth and patients, various levels of government, including provincial, territorial, municipal and Indigenous governments, and relevant experts.

On November 30, 2016, the Task Force disclosed its findings in a report to the Minister of Justice and Attorney General of Canada, the Minister of Public Safety and Emergency Preparedness and the Minister of Health (the “Report”). The statements contained therein are not binding as law but are guidelines and recommendations for the Government which it may voluntarily consider in developing and implementing a legislative and regulatory framework. However, the robust nature of the Task Force and its delegated consultations suggest that the Government will consider the Report with weight.

The Report clearly identifies that public health and safety should be the primary goal of the
framework. Many of its recommendations aim to balance discouraging consumption to protect public health interests with making cannabis readily legally accessible to deter an illicit market. The Task Force considers secondarily the potential to generate government revenues if the system is properly designed.

The Canadian “cannabis culture”

In Canada, there already exists a market and appetite for cannabis. Statistics show that 1/3 of adults have consumed and 21 to 30% of youth will consume cannabis in their lifetime. Despite existing criminal penalties, Canada has significant experience with cannabis use and cultivation, as well as an illicit market. The Task Force recommends proportional penalties under new legislation that would, among other things, reserve prosecution for serious offences and create exclusions for “social sharing” of cannabis.

Certain medical patients in Canada currently have legal access to cannabis. To support the medical market, there are 36 licensed producers of cannabis across the country operating and supplying medical cannabis pursuant to the Access to Cannabis for Medical Purposes Regulations (the “ACMPR”). At the outset of major legislative change, the Task Force recommends that the Government maintain the ACMPR to ensure patient access to cannabis. Despite recommending a separate medical market, the Task Force proposes identical taxation of medical and non–medical products.

Minimizing harms of use

The Task Force identifies that the harms associated with tobacco or alcohol are greater than with cannabis. Cannabis also offers certain benefits. The Task Force acknowledges however various risks associated with cannabis, such as the effects of consuming it with alcohol, cannabis–impaired driving and use by children and youth. The Task Force clearly aims to discourage these harms with the following noteworthy recommendations:

  1. Set a minimum age. The minimum age for the purchase of cannabis should be set at 18, but 18– to 25–year–old youth should be discouraged from using cannabis. Provinces and territories would maintain their right to adjust the minimum age, such as in accordance with the minimum age for consuming alcohol.
  2. Implement possession and sales limits. In line with all other jurisdictions which have legalized cannabis for non–medical purposes, the Government should implement possession and sales limits. Consumers should also be restricted from using cannabis in certain places in accordance with current rules on tobacco consumption.
  3. Regulate advertising. The Government should comprehensively restrict the advertising and promotion of cannabis similar to how it does tobacco under the Tobacco Act. Advertising and promotion should be devoid of any appeals to youth and children.
  4. Educate. The Government should immediately implement of a public education program, which should include a clear message to Canadians about the risks of cannabis–impaired driving.
  5. Eliminate co–use with alcohol. The Task Force identifies a general public concern that colocation of alcohol and cannabis at a retail storefront may encourage co–use. Co–location of alcohol or tobacco and cannabis sales should be avoided.

From seed to sale

Production. The Task Force recommends federal regulation of the production of cannabis. The Government can implement certain of its good practices from the medical cannabis sector. It must develop production controls to ensure an appropriate balance between oversupplying the market and undersupplying it, which would direct consumers to an illicit market. Production controls should also encourage a diverse and competitive market that includes small–scale producers. The Government should employ graduated licensing and fee structures to help control oversaturation and also to recover administrative costs.

Distribution. Based on wide support, the Task Force recommends that the provinces and territories regulate wholesale distribution of cannabis. While a storefront retail market was generally supported, the Task Force received mixed views on the type of retail outlet. These include a government–run model, whereby cannabis is sold at a provincial liquor distributor, and a private–enterprise model. The primary concern with the former model is co–location of alcohol and cannabis sales. Importantly, the concern is limited to sales, and the Task Force does not comment on liquor companies as potential suppliers. Each jurisdiction would ultimately be responsible for choosing its model for distribution.

Sales. Effective price controls can drive revenue and the Government should commit to using those revenues as a source of funding for prevention, education and treatment. The Task Force recommends a price and tax system which limits the growth of cannabis consumption but also discourages consumers from seeking cannabis from the illicit market. All levels of government should conduct economic analyses to determine an appropriate tax level. The Task Force also recommends a variable tax rate on cannabis products, such that high–potency products would be taxed higher to encourage consumers to purchase lower–potency ones instead.

Implementing a legislative and regulatory framework for legal access to cannabis is replete with public policy issues. But the Report makes clear that the legalization of cannabis is still a realistic Government goal.

By: Awanish Sinha and Matthew Kelleher, McCarthy Tétrault LLP

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

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