The legalization of recreational cannabis in Canada is official, as the Cannabis Act has advanced through the final federal government House of Commons and Senate reviews. Following a lengthy list of proposed amendments from the Senate following its third reading, the House of Commons and Senate agreed on a refined draft of the legislation that now awaits Royal Assent.

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The latest and final set of Senate amendments to the Cannabis Act were delivered to the House of Commons in early June and were quickly reviewed, revised and approved by the federal government. In achieving this historic milestone before adjourning for the summer, the federal government keeps the legalization of recreational cannabis on track for a mid-October implementation.

The passing of the Cannabis Act

In 2016, the federal government established the Task Force on Cannabis Legalization and Regulation which provided guidance and recommendations for the initial design of the Cannabis Act. The legislation has continually evolved over the last two years, passing its first reading in November 2017 and its second reading in March 2018 after extensive debate among the Senate committees. The third reading of the Cannabis Act was passed in June 2018 with voting results of 56 in favour, 30 against and one abstention.1

The House of Commons acted quickly following the third reading, responding to certain proposed amendments discussed below before approving and returning the legislation to the Senate for its final review and sign-off. With both House of Commons and Senate approval, Royal Assent from the Governor General is imminent and will initiate the 17 week runway to mid-October implementation.

Third reading amendments

During its third reading, the Senate proposed 46 amendments to the Cannabis Act and sent those back to the House of Commons for consideration.2 Several substantive amendments flowing from the third reading were closely reviewed by the House of Commons, as the federal government attempted to balance preventive policy measures with positive market conditions.

One amendment that the federal government accepted relates to security clearances for licensed producers. This amendment allows the Minister of Health to require anyone connected with a licence to obtain security clearance upon written notice, even if that individual does not hold one of the currently designated positions requiring such precaution.3

Among the substantive amendments put forward by the Senate, the federal government voiced opposition to the following that are relevant to businesses currently operating or contemplating operations in the cannabis space:

Banning brand elements on promotional items

This amendment aligned with the general apprehension associated with widely advertising cannabis products by attempting to prohibit the promotion of cannabis brands on promotional items that are not cannabis or cannabis accessories - referred to by the Senate as "swag" - including branded items such as hats, t-shirts, and other merchandise unrelated to cannabis.4

While the goal of this ban was to prevent and eliminate the marketing of cannabis to youth, the counter-argument from the federal government and within the industry that ultimately prevailed was that the legislation already tightly constrains advertising and this enhanced measure would make it exceptionally difficult for emerging legal cannabis and cannabis accessory companies to overcome the illegal market.5

Banning home cultivation

The Senate suggested that provinces and territories be empowered to establish their own rules around home-grown cannabis plants, including the ability to restrict or entirely prohibit the practice.6 Despite some provinces having already indicated an intention to ban all home cultivation, the government chose not to accept this amendment as it would run contrary to the stated objective of displacing the illegal market.7

Public disclosure of industry investors

This proposed amendment would have required the creation of a public registry of all directors and investors in the cannabis industry, including disclosure of every holder of a licence or permit. Companies holding a licence or permit would have been required to list their directors, officers, members and any parent corporation or trust, and to provide detailed shareholder disclosure.8 This notable deviation from tobacco and alcohol regulation was rejected by the federal government on the grounds that it would have created operational challenges and privacy concerns.9

Limiting potency

The Senate recommended an amendment to require that the final legislation prescribe a maximum level of potency for cannabis products.10 This was rejected as the federal government has already incorporated potency limits into the regulations, which offers future flexibility as new products emerge and innovation in the industry evolves.

Products not contemplated by the Cannabis Act

The Senate made a recommendation that the future legalization of additional cannabis products mirror the consultation process for this initial legislation. The federal government dismissed this suggestion and noted that mechanisms are already in place to scrutinize future regulations. If this had been accepted, legalization of products like edibles would have required the same Senate and House of Commons review down the road and led to another lengthy policy initiative.11

Next steps for legalization

With the House of Commons and Senate providing their sign-off on the Cannabis Act, Canada becomes the first industrialized country to legalize cannabis at the national level. The final piece of the puzzle is the Governor General's Royal Assent that will allow the provinces and territories to prepare for implementation. The federal government intends to implement the legislation in mid-October - 17 weeks after receiving Royal Assent, creating a target of mid-October for legal recreational cannabis.

Our team

Gowling WLG's Cannabis team has significant expertise in navigating the regulatory landscape, with our industry experts constantly monitoring and updating clients on policy developments that are relevant to their businesses. We regularly assist at all stages of a cannabis company's development, including advising on licensed producer applications, facility build-outs, protection of intellectual property, corporate finance matters and mergers and acquisitions. If you have any questions or require assistance, please feel free to reach out to our Gowling WLG professionals.

The author wishes to acknowledge the contributions of summer student Laura Mila in the preparation of this MarketCaps article.

[1] Senate of Canada, 1st Session, 42nd Parliament, Volume 150, Issue 217 (June 7, 2018).

[2] Ibid.

[3] House of Commons, Order Paper and Notice Paper, 1st Session, 42nd Leg, No. 314 (June 13, 2018).

[4] Supra note 1.

[5] Supra note 3.

[6] Supra note 1.

[7] The Canadian Press, "Government rejects Senate ban on homegrown marijuana and other proposed changes," CTV News Toronto (June 13, 2018).

[8] Supra note 1.

[9] Supra note 4.

[10] Supra note 1.

[11] Ibid.