Tag: Moving Cannabis

This blog is co-written by our former articling student, Janet Son.

On October 17, 2018 Cannabis became legal in Canada. The federal Cannabis Act^[1] sets out the terms and conditions, which are uniform across Canada. It deals with the production, sale, distribution and possession of cannabis. Provinces have power to deal with how it is distributed, sold and can add restrictions; hence there are variances in each province.

In Canada there is a need for a federal license to grow and sell cannabis for medical and recreational purposes. Those with licenses are called Licensed Producers[2].

Those who wish to sell cannabis are required to be licensed as well. The provinces provide retail licenses. As with alcohol, in Ontario the Alcohol and Gaming Commission in Ontario is in charge of the retail licensing process and the sale of recreational marijuana in private stores. In the spring of 2019, 25 retail stores were opened in Ontario.[3]

With the legalization of the cannabis industry and the establishment of stores comes the need to transport cannabis.

The Cannabis Act set out a comprehensive scheme for the transportation and delivery of cannabis. There are many distribution prohibitions that are accompanied with heavy penalties; however there are exceptions.

Is it Cannabis?

The first question the transportation company needs to ask is what is it planning to move? Is it cannabis? The Cannabis Act, defines cannabis as a plant and those items listed in Schedule 1 of the Cannabis Act, but not those parts of the plant listed in Schedule 2 of the Act.

Schedule 1 includes:

• Any part of a cannabis plant, including the phytocannabinoids produced by, or found in, such a plant, regardless of whether that part has been processed or not, other than a part of the plant referred to in Schedule 2
• Any substance or mixture of substances that contains or has on it any part of such a plant
• Any substance that is identical to any phytocannabinoid produced by, or found in, such a plant, regardless of how the substance was obtained[4]

Schedule 2 indicates that the following are NOT included in the definition of cannabis:

• A non-viable seed of a cannabis plant
• A mature stalk, without any leaf, flower, seed or branch, of such a plant
• Fibre derived from a stalk referred to in item 2
• The root or any part of the root of such a plant[5]

Is the Cannabis Legal?

The Cannabis Act defines illicit cannabis as cannabis that is or was sold, produced or distributed by a person prohibited from doing so under Cannabis Act or any provincial act or that was imported by a person prohibited from doing so under this Act.^[6] Legal advice will be needed as there are many nuances under the Cannabis Act and its regulations that will need to be considered. Below are some initial areas to consider.

Restrictions on Possession and Distribution

Sections 8 and 9 of the Cannabis Act sets out the restrictions on possession and distribution of cannabis.

Among other things, unless authorized, it is illegal for a person or organization to possess or move more than 30g of dried cannabis[7] (as defined by Schedule 3 of the Act) in a public place, to distribute to an organization, or to distribute cannabis it knows is illicit.[8]

We expect that there will be extensive litigation in this regard and particularly around what a court will deem a defence to distribute cannabis it “knows” is illicit. This will be an expensive proposition for those who need to defend such cases.

It should also be pointed out that the Act’s definition of a public place includes a motor vehicle.[9]

Punishments can include lengthy imprisonment and hefty fines.

The Cannabis Act defines distribution as administering, giving, transferring, transporting, sending, delivering, providing or otherwise making available in any manner, whether directly or indirectly, and offering to distribute.[10]

The Cannabis Act allows for the distribution of Cannabis in certain circumstances.

It needs to be produced by a Licensed Producer. Everyone in the transportation industry must make sure that the cannabis they are transporting is legal. The Cannabis producer must be specifically licensed.

Where two conditions are met, the Cannabis Act allows for transportation of cannabis. The requirements are that (1) parties are acting as agents or contractors on behalf of Licensed Producers[11] and (2) the activity is authorized by provincial legislation.[12]

This allows for the transportation of cannabis on behalf of Licensed Producers in compliance with the Licensed Producers regulatory conditions.  Legal advice is recommended to anyone planning to transport cannabis to make sure it is legal.

Is the Producer a Licensed Producer

In order to legally cultivate, process or sell cannabis for medical or recreational purposes, a company must have a federal license. Those players with licenses are referred to as Licensed Producers.[13]

Retail Licenses

It should be noted that the provincial governments regulate the process for making recreational cannabis available forCannabis Act sale.^[14]

Agent or Contractor on behalf of Licensed Producer

The regime allows agents or contractors to transport cannabis on behalf of Licensed Producers so long as the distribution is in compliance with the Cannabis Act and its Regulations. This is an important exception to the limitations on possession and distribution. This allows the movement of legal cannabis products at its various stages across Canada. The transportation companies will need to make sure they are in compliance with the conditions that the Licensed Producers are required to adhere to.

Compliance

In agreeing to transport, a company should request a copy of the license and a warranty that the Licensed Producer is in compliance with its own obligations. The transport company should also make sure it is complying with the regime and therefore legal advice should be sought in this regard.

Cannabis Tracking System

An aspect of the regime that a transporter needs to consider is compliance with the Cannabis Tracking System.[15] This is required by the Cannabis Act. This system is intended to monitor the flow of cannabis and to ensure that only the designated amount of legal cannabis is flowing. The Cannabis Tracking System requires monthly reporting by Licensed Producers, inventory reporting and reporting from health care practitioners. The obligations of the transporters needs to be determined and needs to comply with this regime.

Cannabis Transportation Issues

Cannabis and its products can be very delicate. There can be light issues, heat issues and moisture issues that can damage the product. More importantly, it is a high value to weight product that has significant demand on the black market and therefore is a target for theft. Consideration therefore needs to be made to transporting the products with the necessary type of vehicle that can supply the necessary conditions and security needed to keep the product safe and viable. Damage to the product and theft will lead to significant expenses for companies and/or its insurers. From a theft perspective, transport companies should weigh the pros and cons of unmarked trucks, versus armoured trucks, versus security guard escorts, versus police escorts. They should also consider the number of drivers per truck, predetermined or blind routes and geo-tracking shipments. While there is little regulation in this regard, the costs associated with theft for companies and the risks prevention measures an insurer may impose will likely create a standard that exceeds any regulations.

Importing and Exporting Cannabis

Under the Controlled Drugs and Substances Act[16] importation and exportation are considered to be illegal unless otherwise authorized by regulation or an exemption. Cannabis is a controlled substance. In general, controlled substances or precursors may only be imported or exported into Canada by a licensed dealer, licensed producer or registered dealer and each shipment must be accompanied by a valid import or export permit.[17]

All permits carry an issuance and expiry date and are only valid for a onetime specific shipment of a controlled substance, cannabis or a precursor. It may only be imported into or exported out of Canada at the port and to the place specified on the permit.[18]

The import and export of cannabis may only be authorized for medical and scientific purposes and within the parameters set by the international drug conventions. The import and export provisions for cannabis implement Canada’s international drug treaty obligations. Canada is a Party to the Single Convention on Narcotic Drugs, 1961 as amended by the 1972 Protocol[19], the Convention on Psychotropic Substances, 1971[20], and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988[21]. Health Canada has an obligation to maintain control over the movement of cannabis in a manner consistent with these international drug control conventions.[22] Accordingly, cannabis can only be imported or exported for medical and scientific purposes but not for recreational purposes.

These rules apply whether Cannabidiol (“CBD”) or Tetrahydrocannabinol (“THC”) is being imported or exported. Some hemp products that meet certain criteria, may have different restrictions. Legal advice and consultation with Health Canada as well as other appropriate regulatory bodies is necessary to avoid the risk of penalties in the event the products do require permit.[23]

The import or export of industrial hemp grain or seed also require an import or export permit issued under the Industrial Hemp Regulations.[24]

Importing and Exporting Cannabis

Only Licensed Producers with a valid Health Canada permit can import Cannabis products into Canada and only for commercial use.[25] The Cannabis Act bans cannabis imports for recreational use.

A Licensed Producer requires a permit from the federal Ministry of Health to export Cannabis. It can only be transported to the designated source. At this time, only cannabis for medical and scientific purposes can be exported into countries that allow cannabis to be imported.[26]

Transportation of Imported and Exported Cannabis

The import and export is a large growth area and it requires transportation. Shipments of dried cannabis tripled to 1,460 kilograms (3,219 pounds) in 2018, compared with 500 kilograms in 2017 and only 44 kilograms in 2016.[27]

Organizations are discussing declassifying cannabis but to date that has not taken place.[28] With less restrictions, there can be an increase in import and export.

Canada is one of the first countries to legalize recreational marijuana. Other countries are starting to allow for the use of cannabis for medical purposes, so demand for transporting product will increase.  As countries legalize recreational marijuana then the demand for transporting product will be even higher.

There are significant issues about importing and exporting to the United States. At the federal level, cannabis remains a controlled substance, but more states are voting to legalize marijuana in one form or another.[29] The United States does not even allow for interstate transportation of hemp, hemp derived products and CBD.[30]  This is unfortunate, given the United States is Canada’s closest neighbor and natural trading partner. That being said, some progress is being made. Two Canadian companies made some headway, legally shipping marijuana from Canada to the United States. Tilray received approval from the U.S. government to export a cannabinoid product to California for a clinical trial in September 2018. The DEA approved a shipment of legal medical cannabis from Canada’s Canopy Growth to a research partner in the U.S.[31]

This is an industry with heavy regulation, but will hopefully get easier to navigate with time. In the interim, advice from insurance brokers, insurers and lawyers are strongly recommended to navigate the regime without any unpleasant expensive surprises.

 

[1] The Cannabis Act, S.C. 2018, c. 16 [the “Cannabis Act”].

[2] Ibid at s 160.1(1).

[3] “First allocation of stores – Expression of Interest Lottery” Alcohol and Gaming Commission of Ontario, online: <https://www.agco.ca/cannabis/cannabis-retail-lottery>

[4] The Cannabis Act, supra note 1 at Schedule 1.

[5] Ibid at Schedule 2.

[6] Ibid at s 2(1).

[7] Ibid at Schedule 3.

[8] Ibid at s 9(1).

[9] Ibid at s 2(1).

[10] Ibid at s 2(1).

[11] Ibid at s 71(2).

[12] Ibid at s 72(2).

[13] Ibid at s 160.1(1)

[14] Cannabis Licence Act, 2018, SO 2018, c 12, Sched 2.

[15] The Cannabis Act, supra note 1 at ss 81-83.

[16] Controlled Drugs and Substances Act, SC 1996, c 19.

[17] CBSA Memo D19-9-2, supra note 16.

[18] Ibid.

[19] Single Convention on Narcotic Drugs, 1961 as amended by the Protocol amending the Single Convention on Narcotic Drugs, 1961 (entered into force 8 Aug 1975).

[20] 1971 Convention on Psychotropic Substances, 21 February 1971 (entered into force 16 Aug 1976).

[21] United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 20 December 1988 (entered into force 11 Nov 1990).

[22] “Import and export of cannabis by licence holders under the Cannabis Regulations”, Health Canada (last modified 12 August 2019), online: <https://www.canada.ca/en/health-canada/services/cannabis-regulations-licensed-producers/import-export.html> [Health Canada]

[23] “Can CBD Oil Be Imported Into Canada?” BorderBee (21 May 2019), online: <https://borderbee.com/2019/05/21/cbd-oil/> [BorderBee]

[24] Health Canada, supra note 23.

[25] “What does the future hold for cannabis importing into Canada?” BorderBee (19 October 2018), online: <https://borderbee.com/2018/10/19/future-hold-cannabis-importing-canada/>

[26] The Cannabis Act, supra note 1 at s 62(2).

[27] Matt Lamers, “Canadian medical cannabis exports tripled last year, as race for European market position intensifies” (21 March 2019), online: <https://mjbizdaily.com/canadian-medical-cannabis-exports-tripled-in-2018/>

[28] Subramaniam, supra note 24.

[29] Nathan Reiff, “Marijuana Companies That Legally Export Cannabis to the U.S.” (15 Jan 2020), online: <https://www.investopedia.com/insights/marijuana-companies-legally-export-cannabis-us/> [Reiff].

[30] Ian Stewart “Federal Courts Are Split on the Legality of Transporting Hemp and CBD in Interstate Commerce” (19 Feb 2019), online: <https://www.cannabisbusinessexecutive.com/2019/02/federal-courts-are-split-on-the-legality-of-transporting-hemp-and-cbd-in-interstate-commerce/>

[31] Reiff, supra note 31.