The Next Phase of Canadian Cannabis

Health Canada unveiled its Final Regulations for New Cannabis Products: Edible Cannabis, Cannabis Extracts and Cannabis Topicals (the “Regulations”), addressing and permitting the production and sale of edible cannabis, cannabis extracts, and cannabis topicals.

The Regulations highlight the Government of Canada’s three main concerns: (i) the potential for cannabis products to be overly appealing to young persons; (ii) overconsumption or accidental consumption; and (iii) advancements in research relating to the use of cannabis products. The first two are of particular impact to industrial actors in the Cannabis space.

A key component of the Regulations is the overarching prohibition against promoting cannabis products in a manner that would reasonably appeal to young persons. To determine whether a product falls under this strict prohibition, a wide range of factors will be considered on a case-by-case basis. These include, but are not limited to, the shape, colour, smell, flavour, name, label, and presentation of cannabis products and packaging.

Health Canada has expressed its concerns that both new and seasoned cannabis users often do not fully understand the dosing effects of cannabis, particularly edible cannabis. The Regulations prescribe precautionary limits on the amount of tetrahydrocannabinol (THC)[1] that can be contained in edible cannabis, cannabis extracts, and cannabis topicals to address the concerns of overconsumption and accidental consumption. 

Timeline and Process

The Regulations are scheduled to come into force on October 17, 2019,[2] which means that the Cannabis Act[3] will authorize the sale of edibles containing cannabis along with cannabis extracts and cannabis topicals. Federal licence holders must provide Health Canada with a 60-day notice of their intent to sell any of the new categories of cannabis. This requirement remains unchanged from the initial Cannabis Act for the initial classes permissible for sale. Accordingly, the market should expect the actual sale of the new cannabis products to be permitted no earlier than December 16, 2019.

Products and Quantity

Under the Regulations, manufacturers are prohibited from producing any cannabis products (not just edible products) in buildings where non-cannabis food products are also produced. This is aimed at reducing risks of mislabelling and cross-contamination. Moreover, the area in which edibles containing cannabis are manufactured and produced must be compliant with the security and sanitary requirements under the Cannabis Act. Due to licensing timelines, current federal licence holders will likely have a first mover advantage over food processors on the edibles side. However, the Regulations also place new requirements on producers surrounding food safety and food borne illnesses, as well as obligations in line with current regulatory frameworks for items like cosmetics, topical creams and ointments. These processes will be new for cannabis companies, so we expect some creative licensing frameworks to emerge so that both industries are able to take advantage of the other’s expertise.

Edibles

Producers will need to be strategically cautious in creating and marketing their edible cannabis products to ensure that the products are not appealing to young persons. It is unclear what level of reduction of such appeal, if any, allows for a complaint product.  For example, a gummy bear is likely prohibited, however a colourless, flavourless, gummy product in a bear shape and unappealing packaging may or may not be permissible.

Cannabis infused edibles cannot include additional caffeine or alcohol. The only method for caffeine or alcohol to be found in edible cannabis products permitted by the Regulations is if it has naturally occurred in ingredients like chocolate (caffeine) or vinegar (alcohol).[4]  

Due to the presence of an unlicensed (illegal) cannabis market in Canada, federal licence holders will be competing with products such as gummy bears, chocolates, or candies available to consumers from unregulated sources, without the ability to replicate or produce comparable products. The Regulations may pose additional challenges given the restrictions on ingredients, as well as the restrictions on mg of THC per packaged cannabis product. The Regulations impose a limit of 10mg of THC per discrete unit and per container (a multi-pack). This means, for example, that a container could contain one discrete unit of edible cannabis (e.g. cannabis beverages) that contains 10mg of THC or two discrete containers that each contain 5mg of THC. Since a multi-pack with six beverages would result in a per unit THC amount of approximately 1.67 mg, four-packs may be more in line with anticipated market demand for beverages with approximately 2.5 mg of THC per can or bottle, which would also be in line with Health Canada’s recommended maximum initial dose for new consumers.

Extracts

Oils containing cannabis are currently permitted as a class under the Cannabis Act. However, they may only have two ingredients, the CBD and the carrier oil, and may not include sugar, sweetener or colour. Under the Regulations, the class of oils will remain but will be subsumed under the extracts class and producers will be allowed to add prescribed additional ingredients, colour and some flavour into the product.

Cannabis vaping is not restricted, so when the Regulations are in place, companies will be able to offer concentrates, such as cannabis oils.[5]  Notwithstanding the inclusion of the Extracts class, any vaping products will also remain subject to the Tobacco and Vaping regulatory framework.

Topicals

The Regulations set out strict limits for the production and sale of cannabis topicals, meaning products applied to skin, hair, or nails. A cannabis topical is limited to 1,000 mg per package,[6] and cannot include any nicotine or alcohol, or ingredients that are on Health Canada’s cosmetic ingredient hotlist for prohibited use in cosmetics.[7]

Packaging

Under the Regulations, in addition to the prohibition on promoting cannabis in a manner that could appeal to young persons, manufacturers will be prohibited from packaging and labeling cannabis products in a manner that evokes an alcoholic beverage or references alcohol or tobacco. The rationale behind this prohibition is the preclusion of cannabis products that incorporate other substances like alcohol or nicotine. What will ultimately be deemed to “evoke” an alcohol or tobacco product is still difficult to interpret. Accordingly, federal licence holders should encourage Health Canada to be proactive and informative with their reviews of cannabis products to provide guidance on how labeling rules will be applied in practice. 

Under the Regulations, lower possession limits and limits on the quantity of cannabis per package applies to cannabis products containing more than 3% THC by weight. There is a maximum quantity of 7.5 grams of cannabis (which is the deemed equivalent to 30 grams of dried cannabis) per package and public possession.[8] This rule applies to edible cannabis, cannabis extracts, and cannabis topicals that contain more than 3% THC.

An additional requirement set out in the Regulations is the need for products to be packaged in child-resistant containers. This is the same for dried and fresh cannabis, as well as cannabis oil. While there is some flexibility in the way that cannabis may be packaged (e.g. in a pill container, a cardboard box, etc.), packaging should not be considered a market barrier. The need for the packaging to be child resistant is non-negotiable; however, Health Canada has pointed to new products that may be less waste producing than traditional medical packaging, as examples of opportunities for the industry to be creative and competitive.

The Regulations will continue to include restrictions on brand elements, locations and sizing of the standard cannabis symbol. On review, the labeling rules remain difficult to navigate. The industry would benefit from swift product reviews from Health Canada on how labelling rules will be applied in practice. 

Colorado, California, and Washington State all have different regulatory schemes regarding the control of edibles. In the states where cannabis is legal (pursuant to state, rather than federal, law), the state allows up to 10 mg of cannabis per serving, in contrast to the 10 mg per package to be allowed in Canada,[9] Colorado[10] and California[11] have also specified that each package is allowed up to 100 mgs, which is a much broader regulatory allowance than under the Regulations. As a result, there may be additional overhead costs for companies doing business in both the United States and Canada because they will have to adjust the way they produce and package cannabis products to accommodate for the varying regulations across different  jurisdictions.

Cannabis packages in Canada are required to display THC and CBD concentrations on cannabis product labels, and must also display the product’s equivalency to dried cannabis to provide consumers with a new tool to help determine their public possession.

Conclusion

While the Regulations do offer strict controls over the industry, federal licence holders will be left to define these standards as they apply to Health Canada for approval and populate the industry with new cannabis products. It is likely that, as the industry begins to take shape with these new products theoretically hitting the market starting December 16, 2019, the way in which Health Canada will interpret and apply the Regulations will subsequently emerge, and the industry will have examples of products that have passed the screening process to build from.

[1] House of Commons, Final Regulations for New Cannabis Products: Edible Cannabis,

Cannabis Extracts and Cannabis Topicals (June 2019) online (pdf).

[2] Health Canada, News Release, “Health Canada finalizes regulations for the production and

sale of edible cannabis, cannabis extracts and cannabis topicals” (14 June 2019), online:

Government of Canada.

[3] Cannabis Act, SC 2018, c 16.

[4] Supra note 2 at 14.

[5] Hannah Thibedeau, “Cannabis edibles available for sale legally in mid-December” (14 June

2019) online.

[6] Supra note 2 at 57.

[7] Health Canada, Cosmetic Ingredient Hotlist (Canada: Health Canada, 2018) online:

Government of Canada.

[8] Supra note 5 at part 3.

[9] US, National Environmental Health Association, Food Safety Guidance for

Cannabis-Infused Products, online: National Environmental Health Association.

[10] US, Colo Rev Stat §44-12-202(d)(IV).

[11] US, Cal Code Regs tit 14, § 757.