Consultation Submission Regarding the Proposed Approach to the Regulation of Cannabis

Consultation Submission Regarding the Proposed Approach

to the Regulation of Cannabis

January 20, 2018

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The Cannabis Trade Alliance of Canada (CTAC) is an organization established to represent a broad range of cannabis industry participants. CTAC has been engaging governments across Canada, recommending policies to assist the drafting of regulations and legislation, and encouraging governments to leverage the existing knowledge base of the cannabis industry to create an inclusive, sustainable and transparent legalized structure. The objective of any new legislation should be to allow legitimate stakeholders the opportunity to participate in the supply chain of Canada’s newly legalized cannabis economy. Governments across Canada should aim to create a diverse, competitive, and sustainable cannabis sector.

CTAC believes that the Government of Canada should learn from the successes and failures of jurisdictions such as Oregon, Colorado, and Washington - that have already undergone a transition to cannabis legalization - to determine best practices moving forward.

We appreciate the opportunity to provide feedback regarding potential regulations, and look forward to engaging further in the months ahead.

Licensing To ensure the inclusion of existing industry participants, and draw them away from the unregulated market, licensing should not impose barriers that are arbitrary and overly restrictive and should instead grant more – and varied – licenses to increase the quantity and variety of the available supply chain. Legalization provides an opportunity for evidence-based regulation through the use of rigorous studies about “what works” as well as using the best available scientific research and systematically collect data.

A healthy cannabis industry, like other sectors, is better served by a large number of small, medium and large businesses competing fairly in order to consumers, government and the general public to be best served. Small, independent farmers and artisans, whether or not they are currently involved in the cannabis industry, want to be given a fair opportunity to participate in Canada’s emerging regulated cannabis industry. CTAC is very pleased to see the creation of separated licensing categories, which are in-line with the recommendations we have consistently put forward during previous consultation sessions.

The objective of any new legislation should be to allow legitimate businesses the opportunity to participate in the supply chain distribution of Canada’s newly legalized cannabis economy. To ensure the protection of the safety of Canadians, provincial regulations should allow for the issuing of cannabis distribution and sales licenses to businesses that are compliant with all applicable rules and regulations.

Most of Canada’s cannabis is currently produced by craft farmers, mom and pop types, or entrepreneurs from complimentary industries. Having separate licensing categories provides more opportunities for small businesses to participate in this emerging industry, instead of dominated by a small group of large corporations. This will encourage small businesses to participate in the legal industry, instead of being drawn in to the unregulated market. If properly implemented, variation in licensing will lead to the creation of a viable and inclusive industry.

Cannabis Trade Alliance of Canada

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Different aspects of the cannabis industry require different forms of licensing as they have different potential for public harm, criminal activity, and taxation. Such differences should be reflected in the licensing requirements in the same way that different categories of license exist in each aspect of the liquor, wine and beer industries CTAC recommends that government generate revenue from the new cannabis industry by implementing a fee structure for licensing, including renewals. However, such a structure should be balanced so that it is modest enough for small businesses to afford, and sufficient enough for cost recovery for government to organize, implement, deploy and administer the new legalized regulatory structure. Such licensing fees would include funding for application processing, inspections and enforcement.

Outdoor Cultivation Licensing outdoor cultivation will be an essential aspect of facilitating a diverse, competitive, and environmentally sustainable cannabis industry.

Outdoor cultivation allows for the supply of low cost, clean input material for cannabis oil production. In US jurisdictions that have legalized cannabis, derivatives represent over 50% of the product demand. Derivative products will be favored by large distributors because they have a longer shelf life, take up less shelf space, are much more consistent and targeted in their cannabinoid profiles, and tend to have higher margins. This will not only apply to the Canadian market, but also to the countries Canadian Licensed Producers export to. Outdoor production of low cost, clean input material for these standardized products will be an essential part of the supply chain.

Most importantly, outdoor producers will use far less electricity and water. It is imperative that Health Canada promote sustainable practices and the preservation of our most valuable resources wherever possible. Outdoor production will also produce more economic opportunities for Canadians in rural parts of the country. All of these recommendations are very much in line with the current government's stated objectives of protecting our environment, protecting public health safety, and supporting the middle class.

Security Clearances CTAC advocates for a clear, transparent and accountable security clearance process. This is important to provide clarity and a level playing field for businesses, stakeholders and investors across the country.

Reasons for refusing a security clearance should not be vague or based on opinions and conjecture, and rather, should be based on facts, evidence and the law. Further, rules should not exclude those whose only crime was getting caught doing something Canada will now be making legal.

If Canada is to be a global leader in legalized cannabis (medical or recreational), CTAC believes the single biggest success factor will be the ability to be practical on security, to incentivise the best talent to participate in the regulated market, and to put the highest focus on quality assurance. They industry will attract the best player and the best practices with this approach.

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Whatever form of security clearances required by the province or federal government agencies should not be based on the current federal model under the MMPR. Again, we urge government to look at the alcohol, wine and beer industries, as well as US states that have legalized cannabis, for guidance; in those industries, a background and criminal records check much accompany any applications for licensing.

While the proposed regulations do not address amnesty or expungement for non-violent cannabis related crimes, CTAC will continue to recommend an inclusive approach towards transitioning longtime consumers and operators into the regulated market.

Cannabis Tracking System An effective cannabis tracking system is imperative to the efficacy of Canada’s recreational cannabis regime.

CTAC recommends that the government create a centralized platform, off of which Licensed Producers’ software can interface. Licensed Producers have developed their own solutions for their companies. Rather than force everyone onto the same software platform, their individual solutions can API with the central system.

Cannabis Monograph Health Canada should truly consider creating a cannabis monograph. One of the biggest regulatory problems in Canadian and US cannabis regimes is the lack of standardization across testing labs.

This problem will only be magnified with full legalization, particularly with the addition of edibles and concentrates. Currently there are huge differences in testing methodology and identical samples sent to different labs are constantly coming back with vastly different results.

For producers to have confidence in the system, and for consumers to have confidence in product safety, we must know that testing labs can produce reasonably accurate and consistent results. It should be noted that Germany commissioned a cannabis monograph immediately upon the legalization of cannabis for medical use. CTAC recommends that Canada follow a similar approach.

Cannabis Products In US jurisdictions, consumer demand for alternatives to smoking dried cannabis is driving the fastest growing category of cannabis products: cannabis extracts, also known as ‘concentrates’.

Edibles, tinctures, topicals, sprays, capsules and vape pens are just a few of the diverse array of cannabis concentrate products being sought after for medical and recreational use. The move towards extract-based products supports public health policies that provide for safer and more discreet alternatives to combustion-based methods of cannabis consumption.

While CTAC is encouraged that the federal government will be introducing legislation for edibles and concentrates in 2019, this segment of the cannabis industry needs to be addressed sooner. CTAC is concerned that the government might severely under-estimate the size of the

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market, Licensed Producers need the flexibility to provide consumers with the kinds of products that there is a demand for.

It is important that products that already exist in the unregulated market, and for which there is a high level of demand, are available to consumers in the regulated marketplace. Otherwise this will result in niche areas in which the unregulated market will continue to thrive.

Additionally, CTAC strongly advises against capping THC potency of cannabis that consumers can purchase at adult-use cannabis retailers. Indeed, this recommendation is aligned with that of the federal government’s own Task Force. Overly strict prohibitions on already popular products, like high THC cannabis, will only serve to embolden the unregulated market by driving consumers to it. Additionally, issues related to potency and psychoactivity are far more complicated than simply restricting THC levels. It is essential that governments more closely study this issue and adhere to good public policy rather than myths that have existed in the unregulated market for decades. Offering adult consumers alternatives to smoking dried cannabis is consistent with the Government's public health approach to the regulation of cannabis

Definition of Cannabis Oil vs Concentrate The threshold for the definition of cannabis oil to distinguish it from concentrate should be increased from 3% THC to a minimum of 50% THC. The way the current proposed regulations are drafted is that anything over the 30mg THC per 1 gram of oil threshold would be considered a concentrate. This does not make sense because cannabis flower on its own can be up to 30% THC and when concentrated into pure cannabis oil will always be at least 50%, usually over 70% potency. Regardless of the THC content of the source flower, once the product is refined to the same desired viscosity known as pure oil, it will always be in the range of 50-80% potency. To call it a concentrate, it should have to be the minimum of what a true concentrated oil would be - at least 50%. Anything over 80% potency is typically referred to as distillate, and over 99% as isolate Having cannabis oil with a higher threshold would increase the types of products that could become available starting July 2018, which would help eliminate the unregulated market. It would also allow cannabis processors room to create more effective cannabinoid formulations for medical cannabis derivative products like Phoenix Tears oil or gel caps which are used most commonly by cancer patients and are currently only available in the unregulated market, and not from Licensed Producers. This type of cannabis oil is being used almost exclusively by very sick individuals, and is also likely a strong candidate for clinical research which we know is so desperately needed.

Vaporization (‘vape’) pens should also be included in the proposed regulations. Vape pens, even with a higher THC content, being that they operate at much lower temperatures than smoking, are less harmful to the lungs, less offensive to second hand subjects, and induce less psychoactivity. It would be a mistake to continue to prohibit these methods of cannabis use that appear less damaging than dried flower inhalation.

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Packaging and Labelling Securing safe cannabis products for sale and distribution to the public is imperative to the public health interest of Canadians. Proper testing, packaging and labelling, as is done in the wine and beer industries, allows consumers to make informed choices regarding their purchases.

Cannabis consumers must have confidence in what they are purchasing and consuming. Just as food packaging must display the ingredients and nutritional information, so too should cannabis products possess reliable labeling of their ingredients, potency and active components.

CTAC opposes prohibitions on branding and the institution of generic labeling or white labeling, as it is important that legal producers and retailers are able to differentiate their products from those available in the unregulated market. Responsible branding and marketing are powerful tools to use against black market products. Restrictions on branding and marketing will give a competitive advantage to unregulated operators; without factual and informative branded packaging, consumers will be unable to distinguish legal product from low-quality, untested, unregulated product for cheaper prices.

Additionally, in the absence of responsible branding and marketing, smaller legal producers will be unable to differentiate their products from larger, well-financed competitors.

Conclusion All the of recommendations put forward by CTAC are designed to eliminate the competitive advantage of the unregulated market, and provide a regulatory environment in which legal operators can succeed. Indeed, all policy decisions made by the federal government should create opportunities to drive cannabis industry actors to the regulated market, where their activities can be monitored and controlled to protect public health and safety.

The elimination of the unregulated market and protection of public health and safety, as we know, is the reason for legalization, and the foundational goal from which our above recommendations are derived.