Health Canada is changing the way it issues cannabis industry licences in a move that will likely alleviate a bottleneck that observers attribute to a long-running shortage of legal pot in the country.

Effective immediately, the regulator says new applicants seeking to produce, sell or process cannabis must already have a fully built facility. Previously, applicants were only required to make a paper submission.

“This is a game changer,” said Matt Maurer, a cannabis lawyer with Torkin Manes LLP, in a phone interview with BNN Bloomberg.

“We go from a situation where if you wanted to submit an application, you submit your paperwork and you sit and wait to hear back from Health Canada,” he said. “Now you’re asked to build a $30-million to $40-million facility before you even submit your application.”

Health Canada said it is making these changes after reviewing its existing process where more than 70 per cent of applicants whose paperwork was approved over the last three years failed to provide evidence of a having a cannabis facility that meets regulatory requirements.

“As a result, a significant amount of resources are being used to review applications from entities that are not ready to begin operations, contributing to wait times for more mature applications and an inefficient allocation of resources,” Health Canada said in a release Wednesday.

Industry applicants have previously complained to Health Canada about the time it takes to become licensed as well as the number of current applications waiting for approval.

For example, Aphria Inc. interim chief executive officer Irwin Simon said in January during a call with analysts that his company was still waiting for Health Canada to approve licensing for an expansion to one of its facilities in Leamington, Ont. despite submitting an application with the regulator in early 2018. The company received licensing for the facility in March.

“This is not a slam against Health Canada. It's just we as an entire industry were not fully prepared for the [consumer] onslaught,” Simon said. “We have great pent-up demand; we are impatiently waiting, but we are waiting.”

Sherry Boodram, chief executive officer of cannabis consulting company CannDelta Inc. and a former Health Canada staffer, said the new licensing requirements will likely “hit the industry hard” and make it more difficult to get investors to commit to a cannabis-related project.

“Your business plan has to be sound and make sense,” she said in a phone interview with BNN Bloomberg. “It might deter some people who were thinking of getting into the industry, like the micro-cultivation type, because they need a lot of money up front.”

Health Canada said that since May 2017 it has licensed more than 129 new sites and counts more than 600,000 square metres of production space for legal cannabis – the equivalent of growing 1 million kilograms of legal pot in Canada annually, roughly the same amount consumed in the country.

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