Less Regulation, More Product Pathways?

Critics argue that regulations prevent large food companies from entering the edible cannabis market and that cosmetic and topical products containing cannabis might be best sold in drugstores

If regulation in agribusiness has been relatively stable over the years, that in the blossoming cannabis industry is still on the boil.

In October — one year after cannabis was legalized for recreational use in Canada — cannabis edibles, extracts and topicals were likewise legalized.

“In the scheme of things, that’s pretty new,” says Lewis Retik, co-leader of Gowling WLG’s National Cannabis Group in Ottawa. “That’s opened up an entirely different world when it comes to cannabis. With respect to edibles, we’re seeing a lot of questions from clients regarding preservatives and ingredients” in order to be compliant with legislation, just as food additives need to be approved.

“And for the cosmetic or topical products, they’re not allowed to make claims.”

Regulations requiring cannabis products be produced completely separately from food products have also made agribusiness companies wary of producing cannabis edibles, even when they don’t contain THC. And publishers of cannabis advertising can be held liable if they publish advertising that’s not compliant with regulations.

“All of these challenges lead to a more consolidated and mature industry in cannabis,” says Kelly Harris, who leads the national marketing, advertising & product compliance group for Miller Thomson LLP from her Calgary office. “As you face more and more regulatory challenges . . . only sophisticated entities are able to navigate through that.”

Notice period for cannabis products
Health Canada requires a 60-day notice period for the introduction of new cannabis products to the market. Although producers don’t normally need to wait for a response to begin marketing their product, says Retik, Health Canada is beginning to question whether producers are making implied claims of mental or physiological benefit, for example, and whether the name of the product implies a claim or not, sometimes a while after the notice has been filed.

“The regulator has pushed back on a number of products,” Retik says, including a cannabidiol or CBD product. A company may believe that the name of their product is not an implied claim and file a notification. “And let’s say on day 62 you start manufacturing the product, getting it ready for market. But then on day 100 or 110, [the company gets] a notice from Health Canada saying it’s their position that the name of the product is an implied claim and, therefore, [the company] shouldn’t be using the name of the product.”

At this point, there has already been a major investment made in bringing the product to market. “This has been an actual struggle for the industry, especially where there’s so many constraints on branding that it makes it really difficult for companies to break from the pack,” says Retik.

There are no requirements for Health Canada under the legislation to respond to a notice, he adds. “So, they could wait a year and tell you they have a problem with [the name of other aspect]. As an industry participant, you would expect that, if Health Canada had a problem with the name, they should at least advise the company within a 60-day period.”

Branding and advertising
Another significant regulatory change in October 2019 was the addition of s. 104.2 of the Cannabis Regulations, wherein a brand element referred to in s. 17(6) of the act must meet the following requirements:

  • the surface area must be smaller than or equal to 300 cm2; and
  • the height of any letter, character or number must be smaller than or equal to four cm.

“This made it more difficult to use s. 17(6) of the Cannabis Act to put a brand element on a thing in an outdoor space that could be well viewed; i.e,. a brand element on an outdoor billboard,” says Retik. “This further limits a company’s ability to market their brand than what was available when the Cannabis Act first came into force.”

General advertising legislation, federally and provincially, requires advertisers support their claims. But, normally, advertisers are responsible for their claims, and consumers and competitors have remedies to false or misleading claims.

“But it’s very unusual for publishers of those advertisements . . . for the publisher to be directly liable,” says Harris. Under federal cannabis legislation, there is a provision that holds a publisher liable if the advertisement is not compliant with cannabis legislation. Compliance includes the audience not being minors and the advertisement not appealing to young people.

“It’s a very restrictive box for cannabis advertisers,” she says. Although publishers are not normally reviewing advertising for compliance, the legislation has put them in a position of having to be a gatekeeper, she says. And although digital publishers “have come to the game earlier,” that is less the case for traditional publishers.

Product categories and the cannabis regime
With the addition of new product categories in cannabis, the bar has been raised for who can participate in the market, says Harris.

“With more product formats that are available for the retail market, particularly if you’re adding foods [such as edibles], you’re dealing with the agribusiness production model,” she says, which brings in “a whole host of highly complicated regulatory standards” related to food production.

“I think what we’re going to see a push for in the future is cannabis and its derivatives as ingredients in personal care products.” This is a challenge for the industry, she says, because a topical form of cannabis, such as a lotion, would be regulated as a drug.

In the global market, however, there are many cosmetic and personal care products not regulated as drugs that have cannabis components in them. “I think that Canada is going to be under increasing pressure from products that are available in other markets,” Harris says. In the United States, for example, hemp-derived CBD oil is treated very differently than in Canada, which has caused confusion in the market, she adds. Going forward, she predicts pressure from other jurisdictions in how ingredients are regulated and to allow more product pathways to market.

Indeed, Health Canada is considering classifying tetrahydrocannabinol or THC and CBD differently, says Teresa Reguly, a partner at Torys LLP in Toronto with a practice focus on food, pharmaceutical and biotechnology. This may involve “possibly rethinking whether those CBD-only products should fall under the natural health product regime,” she says, pointing to Canadian regulations that CBD products be treated in the same way as those containing a high level of THC.

For those looking for CBD products to manage pain, for example, a drugstore may be better suited for those sales than a cannabis store with a more recreational-use image.

Pre-coronavirus pandemic, says Reguly, “I think Health Canada was coming around to appreciating that there might be products that could be sold in certain drugstores . . . rather than in a cannabis product regime. I think there was a push from the industry: ‘You’ve set up the regime, but now that we’ve had different kinds of products come into the market, it doesn’t make sense to have them all treated the same way.’”

Is agribusiness and cannabis over-regulated?
Gerald Chipeur, a public policy lawyer and partner at Miller Thomson LLP in Calgary, says his biggest concern is that the agricultural industry is being chilled by overregulation.

“We have the best in the world in the agricultural sector, but instead of both levels of government sorting it out, they’ve both exercised jurisdiction,” he says. A beef-processing plant in Alberta went down recently, he says, affecting 50 per cent of exports. “That’s because we have such high regulation, and it’s hard for new players to get involved, which means less choice for farmers and consumers. Competition brings better quality and better pricing.”

Two sets of inspectors, one at the provincial and the second at the federal level, can each claim jurisdiction, he says. But should they? “It seems to me that the government has come up with a wonderful model in the protection of privacy by passing a protection privacy law, and then providing, within that law, that it will not apply . . . where the province has adopted a system of regulation that meets the standard set by that [federal] legislation,” says Chipeur.

Large food manufacturers inquire about getting into the edible cannabis market, says Reguly. They understand compliance in food standards and inspections. Still, they are reluctant to enter a still-nascent — and struggling — cannabis market owing to the current federal requirement that cannabis edibles must be made in a separate facility from where food is made.

“I don’t think right now . . . a lot of companies are willing to make that investment when they’re not quite sure” of the nascent cannabis marketplace yet, she says.

“I think what [this regulation is] doing is preventing larger, even global companies that deal with food compliance issues and likely could deal with any other compliance on the cannabis-specific ingredients side” from moving into the edible cannabis market, Reguly says. “There doesn’t seem to be enough interest from them to go forward.”

Regardless, she adds, “I don’t think there’s going to be any significant changes to the [cannabis] regime, at least in the coming year.”