Navigating the Upcoming Regulatory Framework of What Could Be the Canadian Cannabis Market’s Most Lucrative (& Delicious) Sub-Sector Yet
The Canadian cannabis landscape has changed greatly in the last few years; in particular since then governor-general David Johnston announced the Liberals’ plan to legalize marijuana during the Speech from the Throne in December 2015. Certainly Canada’s relationship with the notorious superplant doesn’t begin there, however the legislative leaps and bounds taken since that time have undoubtedly launched the Canadian marijuana marketplace into the global spotlight. Afterall, the Cannabis Act, also known as Bill C-45, on October 17, 2018, effectively made Canada only the 2nd country in the world to enact legislation to permit a nationwide marijuana market.
There is no doubt that being poised as a global leader and logistical pioneer of an industry with unimaginably widespread economic growth potential has solid potential advantages. On a very tangible level, Stats Canada released that in the first five and a half months following the legalization of cannabis, Canadian governments collected a whopping $185+ million from taxes alone. And as international momentum begins to take hold in terms of legalization and decriminalization of recreational and medical marijuana, it has become increasingly clearer that Canadian companies will have to act swiftly in order to secure their place at the forefront of the global industry.
Last October, Canada’s Cannabis Act came into force, setting strict guidelines for controlling the production, distribution, sale and possession of cannabis. But it wasn’t quite full-force. One of the most remarkable elements of witnessing this particular shift in Canadian history is witnessing the collaborative efforts of industry and government coming together to merge the legislative with the practical. Speaking of practicality, a need for further legislation has arisen in response to the technological and social advancements we’ve seen in recent years which have revolutionized the accessibility, safety, and efficacy of cannabis. New modes of consumption have created a need for an elaborated framework, in particular as we see the emergence of previously unlikely and inexperienced patrons partaking in the cannabis revolution.
And a year later, the foundation of Bill C-45 continues to evolve with the mandate to keep Canadians safe. To that end, federal Health Minister, Hon. Ginette Petitpas Taylor stated:
The amended regulations under the Cannabis Act will support our overarching goal of keeping cannabis out of the hands of youth and protecting Canadians by helping to mitigate the health risks posed by these new cannabis products.
and in keeping with the federal government’s mandate of taking a public health and safety-oriented approach, the Cannabis Regulations are about to expand once again.
In what has been referred to as the second great Canadian cannabis rush, or more commonly ‘Cannabis 2.0,’ the Canadian government is soon to introduce an elaborated regulatory framework to permit the legal sale of edible cannabis, cannabis extracts and cannabis topicals. But why did the Canadian government decide to separate legislation, effectively creating this “second wave?” Unlike states in the U.S. which included edibles in their initial phase of cannabis legalization, the federal government stated that it delayed ending prohibition on the products for a year in order to receive public feedback and undertake additional studies.
And now for the moment we’ve all been waiting for…
This next monumental stage of cannabis legalization in Canada represents a unique potential involving the creation of a new and subsequently untapped cannabis consumer sub-sector – that of edibles and other alternative cannabis products – which according to a report released by multinational professional services network Deloitte, can be expected to be worth more than $2.5 billion Canadian annually.
Some additional noteworthy findings of the Deloitte report suggests:
- More than half of the estimated C$2.7-billion Canadian market for edibles and alternative cannabis products will be spent on edibles ($1.6 billion), followed by cannabis-infused beverages ($529 million), topicals ($174 million), concentrates ($140 million), tinctures ($116 million), and capsules ($114 million).
- The global market for alternative cannabis products is expected to nearly double over the next five years, to US$194 billion.
Also notable, however, is the seemingly common understanding among industry leaders and legislators that the expectations of consumers may necessitate some ‘finessing’ due to the fact that the timeline of actual availability of these products remains largely uncertain.
In June of this year, Health Canada released the following statement:
As required by the Cannabis Act, the amended regulations will come into force on October 17, 2019. However, it will take time, after that date, before new cannabis products become available for purchase. Additionally, as with any new regulatory framework, federally licensed processors will need time to become familiar with and prepare to comply with the new rules and to produce new products.
The press release continued:
Provincially or territorially authorized distributors and retailers will also need time to purchase and obtain the new products and make them available for sale.
So, what happens now?
Well basically, the timeline of the rollout on specific products is still a little hazy, but the content of the amendments has been fairly clear since June.
In many cases, the amendments have ‘simply’ expanded definitions to include the new classes of cannabis products, and in some cases the specific guidelines for the unique product sub-sectors have been outlined as well.
Let’s explore how these changes will impact the cannabis market – and most importantly the many eager consumers anxiously awaiting this new era in Canadian cannabis.
PART I – edible/ˈɛdɪb(ə)l/ – : products containing cannabis that are intended to be consumed in the same manner as food (i.e. eaten or drunk); any of various food items containing THC
There is no denying the trend of ingesting marijuana has seen a boost in popularity, and according to a study by Lift & Co. and Ernst and Young, legal cannabis edibles and their derivatives could potentially grow the Canadian cannabis market even further – in fact, pretty darn significantly – to the tune of about 65% (representing about 3 million consumers.)
This is likely at least partially due to the fact that the products covered in Cannabis 2.0 offer an alternative to traditional methods of marijuana use (ie. smoking), and consequently will appeal to a much broader consumer base. Additionally, with the de-stigmatization inherent with legalization, this new wave of regulation will likely see a surge of cannabis-curious consumers flocking to try this previously forbidden-fruit.
Jon Kamin, Chief Revenue Officer at cannabis-focused tech and media company Lift & Co, stated:
I think it (2.0) will be transformative — it will bring a significant cohort of consumers who were not consuming due to stigmatization or the consumption delivery.
So what does 2.0 say about edibles? Can we have our cake and eat it too? Sure we can, with a few stipulations.
The new Cannabis Regulations include multiple safeguards regarding edible cannabis, which for the purpose of legislation also includes beverages. If you’re like many who have heard the hype about companies such as Heineken and Molson Coors getting into the market, it’s worth noting the regulations put significant limits on alcohol and any association with alcoholic beverages is strictly prohibited.
Section 132.31 regarding prohibited representation of alcoholic beverages states:
It is prohibited to make an express or implied representation, including by way of a brand element, on a cannabis product — or on the package of a cannabis product or on the label or panel of a container in which such a cannabis product is packaged — if there are reasonable grounds to believe that the representation could associate the cannabis product with an alcoholic beverage.
One of the amendments included in the new Cannabis Regulations place a limit of 10 mg of THC permitted in a package of edible cannabis products. According to the article Practical considerations in medical cannabis administration and dosing, published by the European Journal of Internal Medicine, the 10 mg mark might even be on the heavy end for inexperienced consumers. It states that while 5 mgs of THC is usually tolerated, 10 mg of THC, “produces a strong effect in all except those with tolerance, and may be too much for some.”
Restrictions will also be put on the total amount of caffeine allowed in edible cannabis products, including the stipulation that the total amount of caffeine in each immediate container is 30 milligrams or less. This will permit the use of ingredients that contain caffeine naturally, for example chocolate, tea, and coffee. What about adding caffeine after the fact as an additive? Government says, hard no. It also said no to the addition of minerals and vitamins.
With the creation of proactive cannabis-related waste recycling programs such as TerraCycle, it is no surprise that the environmental implications of this new 10 mg limitation will likely contribute to making this an area of focus as we move forward and the legislation is refined to better align with consumer preferences.
So packaging/environmental concerns aside just for the moment, this maximum dosage per package seems to be symbolic of the government’s effort to create safeguards to facilitate a positive experience for unaccustomed cannabis users. Medical experts are anticipating an increase in emergency room visits for edibles following this new wave of legislation, but obviously that’s yet to be seen. However, logically, we all seem to know that one very accustomed cannabis user who thought they would be a champion and ate far too many infused treats with terrifying – but virtually never fatal – results. And that’s some seriously scary shortbread right there. It’s no joke. So logically, with the anticipated increase in inexperienced cannabis users opting for edible treats as an alternative to smoking, many may mistake a delayed reaction to an inadequate dose, and sure, there may be a few more folks ending up in the ER. That said, this extra year has provided an opportunity for an array of public and private education initiatives, the effects of which we could likely see counteract that anticipated spike.
Further to the packaging considerations regarding dosing discussed in 2.0, the new regulations also require child-resistant, plain packaging with an official health warning and standardized cannabis symbol. This is in order to mitigate the risk of accidental consumption and overall minimize the appeal of these products to kids.
Additionally, the new regulations forbid any claims respecting health benefits or nutrition on the label of any edibles, which must also include: THC/CBD content and the equivalency to dried cannabis (which is useful in order to comply with federal public possession limits.) In fact, the new requirement regarding the indication of the product’s equivalency to grams of dried cannabis applies not only to edibles but is now a labelling requirement applied to both existing and new classes of cannabis. One other cross-cannabis requirement new to Cannabis 2.0 is that THC and CBD content on labels be standardized in either total milligrams or milligrams per gram.
In terms of comparison to other Canadian products currently on the market and the legislation that oversees those, it is interesting to note that standardized alcoholic beverages such as beer, wine, rum and bourbon whiskey, are exempt from the requirement to show a list of ingredients on the label. In the case of edible cannabis products, this is not the case. The new amendments provide a solid framework for consumer protection which requires labels of these products to include an ingredient list, nutrition facts table, and allergens.
Next up, strict manufacturing controls have been implemented in order to reduce the risk of food-borne illness and simply to standardize the quality of various products. This will also prohibit the production of food and cannabis in the same facility in order to ensure the safety and integrity of the Canadian food system. In fact, the regulations also prohibit the co-packaging of cannabis and food, as well as the co-packaging of more than one class of cannabis in the same exterior container.
PART II – extract – /ikˈstrakt/ – products that are produced using extraction processing methods or by synthesizing phytocannabinoids
In order to create a concentrated form, the cannabinoids of the plant must be extracted and then condensed. The isolation of those valuable cannabinoids can be achieved in a number of ways, and fall under two basic categories: solvent and solventless.
Similar to the regulations overseeing edibles, Cannabis 2.0 re: extracts prohibits the use of any ingredients that could appeal to young people or that could “increase the appeal” of cannabis extracts, such as sweeteners and colourants. As far as the label goes, again there can be no mention of any health benefits and the labeling cannot include any flavours that are particularly appealing to kids.
The 2.0 regulations have also placed a limit of 10 mg of THC per unit of cannabis extract. In this case, the total amount of THC in a package of cannabis extract is capped at 1,000 mg (for example 100 10-mg capsules.) But exactly how much traction are items like capsules expected to get following the implementation of these new regulations?
In an article released by Postmedia outlet GrowthOp, Kaivan Talachian, Pharm.D. and R.Ph, vice-president of professional services at CannTrust reported:
Based on third-party research conducted by Cannabis Evidence, an online resource in the field of medical cannabis research, three in four patients out of 709 screened preferred alternative formulations to smoking cannabis. The majority of these patients prefer a capsule/tablet over other oral dosage forms like oils.
As with edibles, extracts of all kinds including capsules, will have strict manufacturing and quality controls in place to ensure consistency, reduce health risks, and ensure producers are maintaining the, ahem, high industry standards.
Once again, the world of legal extracts will also require child-resistant, plain packaging. These packages, as well as those of certain pre-filled accessories like vape pens, will also be required to display health warnings as well as the standardized cannabis symbol. Are you seeing the pattern here?
What is specific to cannabis extracts in terms of the regulations, includes the maximum package size of 90 mL for liquid extracts (if under 3% THC) as well as a maximum size of 7.5 grams if over 3%. If the cannabis extract product is in liquid form, an additional requirement exists for the manufacturer to include a dispensing device as well (if not in unit form.)
PART III – topical – ˈtä-pi-kəl/ – products that include cannabis as an ingredient and that are intended to be used on external body surfaces (i.e. skin, hair, and nails)
Cannabis has been documented as a revered and versatile botanical in the medical world since ancient times, and topicals are perhaps the earliest of those incarnations. One of the first references to cannabis topicals comes from the Louvre collection where an Assyrian medical tablet was transliterated, “So that god of man and man should be in good rapport;- with hellebore, cannabis and lupine you will rub him.” So like the many other incarnations of marijuana products, topicals present an opportunity for diversification of consumption methods that provide Canadians with more natural alternatives for pain management and other medical ailments.
But let’s go back to the future here – Cannabis 2.0.
The amended regulations of Cannabis 2.0 have limited the THC content per package to 1,000 mg for topicals, and as with all other products will require adherence to specific packaging regulations, prohibit any health or cosmetic claims on labels (i.e. “reduces wrinkles” etc.), and of course will still require the cannabis symbol and health warning. The manufacturing controls for production are also in place for cannabis topicals. The regulations state that the cannabinoids and terpenes in a cannabis extract or topical must be uniformly distributed throughout the product.
In the case of topicals, the amended regulations also restrict the use of certain types of ingredients, for example, no nicotine or alcohol. And also set out the requirement that these products must contain cosmetic grade ingredients only. Additionally, the product rules conclude that they are not for use in eyes or on damaged skin, and specifically only on skin, hair and nails.
And We’re Almost There.
With the introduction of this extensive regulatory framework slated to arrive in the coming weeks, the anticipated reaction by Canadian consumers and the subsequent market growth that is expected as a result, is clearly significant.
We are undoubtedly at the forefront of enormous internationally-relevant changes that will affect not only the illicit black markets of the cannabis world, but are also set to have a significant impact on pharmaceuticals and even the historically invulnerable alcohol industry.
According to New Frontier Data, 46% of alcohol users say that they would replace at least some of their alcohol intake with cannabis, and 74% believe cannabis is safer than alcohol. This has inspired a series of product shifts as many attempt to quickly adapt so as to avoid losing market share.
A Ministerial Order setting reporting requirements for the cannabis tracking system came into force on October 17, 2018. Health Canada has an online Cannabis Tracking and Licensing System which is used to track the movement of cannabis from cultivation, to processing, to sale. This is a mechanism designed not only to track cannabis, but also to prevent legal cannabis from being diverted into the illegal market and vice versa. A new ministerial order is also on its way, in order to cover reporting requirements specifically for these new Cannabis 2.0 products and will include a public-facing web application that enables the submission of monthly tracking reports. In addition, new licence applications and requests for licence amendments and renewals, will also be updated accordingly with the order.
There is a very broad range of sub-topics contained in Cannabis 2.0 and not all have been mentioned here. There are many more contained in the regulations, a full copy of which you can find directly through the Government of Canada’s website. Some, like Section 104.19, include specific advertising requirements such as the fact that it is prohibited to promote cannabis… in a school, a public playground, a daycare facility or any other public place frequented mainly by young persons or that is visible from such a place.
In section 117, the amendments to the act states that the interior surface, exterior surface and panel of any container in which a cannabis product is packaged and any covering of such a container must not be capable of emitting a scent or sound.
These are just some of many guidelines put in place to protect consumers and ensure the integrity of what is growing to be a truly massive market. Despite all the questions that remain, the majority of industry leaders seem to be confident that the cautious implementation of the regulations from last October give reason to anticipate a smooth, albeit potentially slow to shelf, release of Cannabis 2.0 in the coming weeks. So all we can really do is sit back and watch closely as Canadians everywhere find yet another way to become even nicer than we were before.
Bon Appetit Canada!