Where is Canadian Cannabis Headed Next? Views from the Legislative Review of the Cannabis Act: Final Report of the Expert Panel

By Emilie Feil-Fraser

This article was originally published by Law360 Canada, part of LexisNexis Canada Inc. https://www.law360.ca/

Released in March 2024, the Final Report is the culmination of work by the independent expert panel appointed by the federal government to conduct a legislative review of the Cannabis Act. The report is a key indicator of the future of the Canadian cannabis regime and how the Act may be amended. In total, the panel made 54 recommendations to federal policymakers, and 11 observations for provincial and territorial policymakers and health care bodies.

As the Final Report is lengthy, this article focuses primarily on areas of keen interest for the recreational cannabis industry.

The overarching message of the Final Report is that the policy objectives of public health and the protection of young persons will continue to be the guiding light as the cannabis regulatory framework evolves over time. Within that lens, the panel supports a financially viable legal cannabis industry providing a quality-controlled supply of cannabis to help “pull” consumers away from illicit sources. More “push” efforts are also needed, however, as a lack of enforcement is causing illicit cannabis sources to persist and undermine the entire regime. The legal cannabis industry also needs greater diversity of products and people, to interrupt the trend towards higher potency THC products and reduce barriers to entry for micro-cultivators and equity-deserving groups.

High Potency THC Products

One of the panel’s biggest concerns was the trend of consumers purchasing increasingly potent legal cannabis products, and the recent studies suggesting an increase in psychosis reactions for these products. Limited product information contributes to this trend, causing consumers to think high THC is the only indicator of quality.

While the panel did not recommend these products be removed from the market at this time, it advocated for a mix of policy instruments to “nudge” consumers away from high-potency cannabis products, while supporting research to better understand their risks.

The panel recommended:

• Health Canada establish a definition of high-potency products, and require additional health warnings about the elevated risks of these products;
• Health Canada develop a “standard dose” for each product type, and require it on labels so consumers better understand a product’s intoxication potential. The panel recommended this research be a priority;
• The current promotion, packaging, and labelling framework be maintained, but allow more flexibility in what product information can be displayed;
• A wider variety of lower potency products be made available. To encourage this, the panel recommended a progressive excise tax regime on higher potency products. The panel also encouraged distributors and retailers to diversify their product offerings; and
• Greater enforcement efforts against both regulated parties and illicit actors.

A number of these recommendations came up as standalone themes in the Final Report and are discussed in more detail below. Ultimately, the panel cautioned that if these “nudging” measures are not effective, Health Canada should be ready to implement more restrictive measures.

Lack of Enforcement

The panel was “struck by the limited enforcement action” and found “enforcement of the regime does not appear to be a priority”. These observations applied to both the illicit market and non-compliant licensees. While the panel appreciated that law enforcement does not have unlimited resources, it observed the lack of enforcement threatens to undermine the integrity of the regime.

The panel recommended enforcement improve in the following areas:

• “Lab shopping”, where claims about the THC quantity or concentration of a product are currently being inflated to appeal to consumers seeking higher levels of THC. This practice effectively amounts to making false and misleading claims, which are prohibited by the Act but are not being sufficiently policed.
• Non-compliant promotional activities of cannabis licence holders. In the few cases where Health Canada has undertaken enforcement efforts in this area, it typically only acts on complaints and issues warnings without meaningful penalties. The panel recommended Health Canada be more vigilant and take more decisive action, including issuing monetary penalties and suspending/revoking licenses.
• Age requirements online. The current widespread approach to verifying age (i.e. a “tick the box” age gate or one where the user enters a birthday) is weak and ineffective. The panel recommended measures be explored to make it harder for youth to access cannabis websites and social media platforms. Generally, brick-and-mortar retailers are adequately enforcing age requirements.
• Illicit cannabis supply. A proliferation of illicit online sellers, unauthorized stores on First Nations reserves and in other locations, and an abuse of designated production sites for the medical purposes program contribute to ongoing and widespread illicit supply. Compounding this problem is the involvement of organized crime, and the fact that many unauthorized sellers appear to be legitimate. The panel recommended that more be done to help consumers differentiate from legal and illegal sources, especially online. Authorities could also consider compelling ISPs to block illicit cannabis websites, and compelling financial services providers to help identify illegal online operators. Municipalities could employ zoning bylaws and business licensing rules to discourage illicit physical stores.

10 mg Edible Limit

The panel recommended that Health Canada maintain the current limit of 10 mg of THC per package. The current limit has been a contentious point among industry, especially given the existence of more potent and cheaper illicit products.

The panel’s recommendation was primarily informed by increasing reports of poisonings among children who have unintentionally consumed cannabis, notably edible cannabis.  While the panel acknowledged it was not clear whether these reports involved legal, homemade, or illicit edibles, the panel concluded that the safest approach was to maintain the current limits.

That said, the panel acknowledged critical knowledge gaps on this issue, and recommended further research to determine whether the limit could be raised without unduly impacting public health. The panel noted that extract products with higher concentrations are still available (e.g. oils, oral capsules), which pose less risk to children because they do not resemble foods.

Packaging and Advertising

The panel recommended that the majority of existing packaging and advertising restrictions be maintained, but that Health Canada provide the industry with greater clarity on what is permissible. Currently, there are common misperceptions that Health Canada has failed to correct. For example, Health Canada should promote the inclusion of factual information about a product on labels and in-store displays (for example, “sun grown” or “hand trimmed”) and clarify that this is already allowed under the current regime.

The panel also recommended revisions to the current regulations to:

• Simplify the display of THC and CBD quantities to “total THC” and “total CBD” and require increased font sizes for it. Current requirements for THC/CBD information are difficult to interpret.
• Allow some portion of a cannabis package for dried flower to have a transparent window so that consumers can more readily see the product.
• Allow for the display of certain symbols that convey useful info to the consumer, e.g. regarding organic certification or recycling.
• Allow for the use of QR codes on product labels to convey factual information to consumers about the product, such as terpene profile, quantity of other cannabinoids, analytical testing results (COAs), and production practices (e.g. “sun grown”, “organically grown”).

Excise Tax

Industry has called loudly for reforms to the excise tax regime. However, the panel expressed concern that reductions to excise tax would likely translate to reductions in already record low wholesale and retail prices. However, with a view to encouraging consumers away from high-potency THC products, the panel recommended a progressive excise tax regime where products with lower THC would have less tax and products with higher THC would have progressively more tax. If the model is implemented, there should be enhanced monitoring to ensure consumers are not moving to the illicit market for lower-priced products.

Creating a More Financially Viable Industry

Industry stakeholders expressed concerns about their financial viability in an increasingly competitive market, which the panel adjudged as well-founded.

While oversupply was one factor, the panel also noted distributors’ significant influence of the success of prospective suppliers. Current scenarios where distributors dictate terms pushes prices down, reduces incentives for innovation, and causes an overall imbalance in the bargaining power between distributors and producers.

The panel recommended:  

• Health Canada improve transparency about the data it holds as to the state of the cannabis market, so prospective licence applicants can make better informed decisions about the feasibility of entering the market. Currently, there is a large number of licence holders vying for market share.
• Health Canada reduce the financial and administrative burden on licence holders by streamlining its processes and reducing the costs of compliance. For example, current personnel security requirements may not be needed for some types of employees, some controls related to physical security may not be essential (e.g. visual monitoring of areas not in use), and some record-keeping and reporting requirements could be streamlined.
• Cultivators be permitted to sell dried or fresh cannabis directly to distributors, without having to go through a processor to package and label the cannabis as is currently required.

Reducing Barriers for Micro-Cultivators and Equity-Deserving Groups

In addition to measures promoting economic viability for the industry as a whole, the panel recommended measures to reduce barriers to access for “micro” licence holders and equity-deserving groups.

The panel noted that small-scale cultivators and processors struggle to gain a foothold in the legal market. Not only can they not compete with larger companies on price, they often have less ability to secure shelf space with distributors.

The panel heard from stakeholders that the legal cannabis industry is not inclusive. Equity-deserving groups face challenges with financing, due to discrimination and lack of existing networks with banks, lenders, and investors. There were also reports of limited diversity in leadership roles and less minority representation in the industry than in others.

The panel recommended:

• For equity-deserving and micro-class applicants, Health Canada consider removing the requirements for licences to have a pre-built site and reduce or eliminate the regulatory fees for applying for a licence.
• Health Canada do more to make equity-deserving licence applicants more aware of available business supports (e.g. incentives, grants, or loans), and develop a specialized program to provide pre- and post-licensing supports.
• Provincial and territorial governments consider allowing direct-to-consumer sales for micro licence holders, e.g. in a farmgate or mail order setup. The panel noted how important direct-to-consumer sales are for craft breweries and suggested a similar model could be followed.
• Distributors and retailers consider reserving space for and highlighting products from micro licence holders and equity-deserving groups. The panel noted with approval BC’s Indigenous Shelf-Space program and encouraged additional similar initiatives.

Other Areas of Study  

The Final Report addressed a wide range of other topics, including:

• Engaging with First Nations, Inuit, and Metis on the impacts of cannabis and the Act.
• Enhancing the medical access regime by, for example, permitting pharmacies to distribute cannabis products, promoting research, developing national clinic guidance documents, and moving medical cannabis towards standard drug approval pathways (especially CBD).
• Protecting vulnerable populations and increasing cannabis amnesty through automatic criminal record sequestration for other cannabis offences besides possession.
• Maintaining home cultivation rules.
• Prioritizing enforcement of cannabis-impaired driving.
• Studying the environmental impacts of the cannabis regime.
• Recommending a review of industrial hemp regulations.

The panel highlighted that in general, there were critical gaps in data in many areas of its mandate, and took a firm stance that governments should put more funding back into the regime for ongoing research and surveillance, provision of information to the public, and better enforcement.

In general, the recommendations of the panel were thoughtful, measured, and provide a positive outlook for the future of the cannabis regime in Canada. Perhaps with the adoption of the panel’s recommendations and a renewed investment by governments into effective implementation, the health of both the industry and the public will benefit.