Preface

On April 13, 2017, the Government of Canada introduced Bill C-45, An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (the Cannabis Act) in the House of Commons. The proposed Cannabis Act would implement the 2015 Speech from the Throne commitment to legalize, strictly regulate, and restrict access to cannabis.

The Government of Canada has indicated that it intends to bring the proposed Cannabis Act into force no later than July 2018, subject to the approval of Parliament and Royal Assent. To support implementation of the proposed Act, regulations would need to be enacted in a range of areas, such as cannabis product standards and packaging and labelling requirements, to ensure that the risks and harms of cannabis are appropriately addressed under the legal framework.

In many cases, Health Canada is proposing to build upon established regulatory requirements that have long been in place for current producers of cannabis for medical purposes or industrial hemp. Enacting many of the same types of strict regulatory controls for production under the proposed Cannabis Act would allow for legal and quality-controlled products to be available by July 2018 and immediately begin to address the public health and safety risks posed by illegally-produced cannabis.

The purpose of this consultation paper is to solicit public input and views on the approach to these regulations. To meet the government's commitment of bringing the proposed Cannabis Act into force no later than July 2018, the final regulations will need to be published in the Canada Gazette, Part II, as soon as possible following Royal Assent. As such, it is important that interested parties provide feedback on the regulatory proposals in this consultation paper, as draft regulations will not be pre-published. Instead, Health Canada intends to publish a summary of comments received, as well as a detailed outline of any changes to the regulatory proposal, which will continue to provide industry and stakeholders with as much information as possible on the proposed regulatory requirements.

Please note that references to the provisions of the proposed Cannabis Act made throughout this consultation paper reflect the version of the Act reported to the House of Commons by the Standing Committee on Health on October 5, 2017, and therefore, do not reflect any amendments that may subsequently be made.

Regulatory proposals set out in this consultation paper have been made for consultation purposes only, and should not be interpreted as representing the final views of the Governor in Council, the Minister of Health or the Government of Canada.

Health Canada thanks all stakeholders for the valuable contribution they have provided to date in the development of the proposed Cannabis Act and its supporting regulations, and for their continued participation in this next stage of consultations on regulatory proposals.

Table of Contents

1. Introduction

1.1 Context

In the 2015 Speech from the Throne, the Government of Canada committed to introducing legislation to legalize, strictly regulate, and restrict access to cannabis. The Minister of Justice and Attorney General of Canada, the Minister of Public Safety and Emergency Preparedness, and the Minister of Health were mandated by the Prime Minister to implement this commitment.

To this end, in June 2016, the three Ministers established the Task Force on Cannabis Legalization and Regulation (“the Task Force”) to consult broadly with Canadians and to provide advice on the design of a new legislative and regulatory framework. The Task Force engaged in extensive cross-country consultations with provincial, territorial and municipal governments, experts, patients, advocates, Indigenous organizations, youth, employers and industry. The Task Force also heard from many other Canadians, including many young people, who participated in an online public consultation that generated nearly 30,000 responses from individuals and organizations.

The Task Force delivered its final report, A Framework for the Legalization and Regulation of Cannabis in Canada, to the Ministers and the public on December 13, 2016. In it, the Task Force made 85 recommendations for the establishment of a comprehensive framework for the legalization and regulation of cannabis across five themes: minimizing harms of use; establishing a safe and responsible supply chain; enforcing public safety and protection; medical access; and implementation.

On April 13, 2017, the Government of Canada introduced Bill C-45, an Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (the Cannabis Act) in the House of Commons. Based in large part on the advice provided by the Task Force, the proposed Cannabis Act would create a comprehensive national framework to provide restricted access to regulated cannabis, and to control its production, distribution, sale, import, export and possession. The proposed Act would also enable provinces and territories to oversee the distribution and retail aspects of the cannabis supply chain, and to tailor certain rules in their respective jurisdictions.

When the Government of Canada introduced Bill C-45, it signalled its intention to bring the Act into force no later than July 2018, subject to the approval of Parliament and Royal Assent.

1.2 Overview of the Proposed Cannabis Act Footnote 1

The proposed Cannabis Act seeks to achieve the following objectives:

restrict youth access to cannabis;

protect young people from promotion or enticements to use cannabis;

deter and reduce criminal activity by imposing serious criminal penalties for those breaking the law, especially those who import, export, or provide cannabis to youth;

protect public health through strict product safety and quality requirements;

reduce the burden on the criminal justice system;

provide for the legal production of cannabis to reduce illegal activities;

allow adults to possess and access regulated, quality-controlled legal cannabis; and

enhance public awareness of the health risks associated with cannabis.

To achieve these objectives, the proposed Act would:

Set the general control framework for cannabis - The proposed Act would establish a general control framework for cannabis by establishing a series of criminal prohibitions, and then providing exceptions or authorizations to permit persons to engage in otherwise prohibited activities. For example, the proposed Act would prohibit any person from selling cannabis, unless explicitly authorized to do so under the Act or its regulations. The proposed Cannabis Act would also prohibit individuals aged 18 years or older from possessing more than 30 grams of dried cannabis or its equivalent in public. Provinces and territories, together with municipalities, could also tailor certain rules in their own jurisdiction (for example, setting a higher minimum age or more restrictive limits on possession or personal cultivation, including lowering the number of plants or restricting where it may be cultivated). Provide for the oversight and licensing of a legal cannabis supply chain - The proposed Cannabis Act would, through the granting of a licence, permit or authorization, set parameters for the operation of a legal cannabis industry. Federal and provincial/territorial governments would share responsibility for the oversight and licensing of the cannabis supply chain. The federal Minister of Health Footnote 2 would be responsible for licensing, among other activities, the production of cannabis (cultivation and processing) and provincial/territorial governments would have the ability to use their legislative authority to authorize the distribution and retail sale of cannabis in their respective jurisdictions, should they choose to do so. Establish national standards to protect public health and safety - The proposed Act would set a number of clear legal requirements intended to protect against the public health and public safety risks associated with cannabis, in line with the government's objectives. For example, the proposed Act would prohibit the sale of products appealing to youth, and would set out a comprehensive framework to restrict promotion to protect young persons and others from inducements to use cannabis.

The proposed Cannabis Act would provide the Governor in Council with a broad suite of regulation-making powers that would allow for the development of the necessary regulatory frameworks to support the proposed Act. These authorities include regulations respecting areas such as licensing, importing or exporting, packaging and labelling, product quality and amending schedules of the proposed Act.

1.3 Transition from the Existing Legal Framework for Cannabis

1.3.1 Existing Legal Framework

Currently, cannabis is primarily subject to the Controlled Drugs and Substances Act (CDSA) and the Food and Drugs Act (FDA).

The CDSA and its regulations set out Canada's framework for the control of substances that can alter mental processes and that may harm an individual or society when misused or diverted to an illegal market. Under the CDSA, cannabis is generally prohibited except as authorized under the regulations or through an exemption for medical or scientific purposes or if an exemption is otherwise in the public interest. Under the CDSA, the current Access to Cannabis for Medical Purposes Regulations (ACMPR) set out a framework to provide individuals with access to cannabis for medical purposes and the Industrial Hemp Regulations (IHR) establish the conditions under which certain cannabis plants (industrial hemp) may be produced for commercial purposes. As well, a number of other regulations under the CDSA, including the Narcotic Control Regulations (NCR), the New Classes of Practitioners Regulations and the Qualifications for Designations as Analysts Regulations support the cannabis regulatory framework as it exists today. Similarly, the Cannabis Exemption (Food and Drugs Act) Regulations under the FDA play an important role in the framework.

The FDA applies to all food, drugs, natural health products, medical devices, and cosmetics. The Act and its regulations regulate the safety, efficacy and quality of health products, such as prescription or non-prescription drugs, natural health products, and medical devices. Health products are subject to a review process before they are authorized for sale with health claims. While there is no pre-market review or approval of cosmetics, all cosmetics in Canada must be safe to use.

Cannabis meets the definition of a drug under the FDA, which includes any substance intended to diagnose, treat, mitigate, or prevent health issues in humans or animals. Cannabis itself has not been authorized as a therapeutic product in Canada or in any other country. However, there are certain cannabis-based drugs that have undergone the market authorization process under the FDA, and as such are available for sale in Canada.

1.3.2 New Legal Framework

Should the proposed Cannabis Act be approved by Parliament and receive Royal Assent, cannabis would be removed from the CDSA and would instead be subject to the Cannabis Act and its regulations. It is critical that there be a smooth transition between frameworks. To that end, the proposed Cannabis Act includes a number of transitional provisions to provide, for example, that licences issued under the ACMPR, NCR, or the IHR that are in force immediately before the day cannabis is repealed from the CDSA would remain in effect until such time as they expire or are revoked. As part of the transition, the intention is to enact new regulations under the Cannabis Act, addressing areas such as specific requirements for different types of licence holders, or packaging and labelling requirements for different types of cannabis products.

The existing regulations made under the CDSA that relate to cannabis provide a solid foundation for the new regulations. As a result, many of the regulatory proposals outlined in this consultation paper draw on existing regulations and the experience Health Canada has had in administering them, as well as on feedback and input already received from regulated parties and other stakeholders through various consultation forums since June 2016. That said, it is important to note that the purpose, objectives and structure of the proposed Cannabis Act are different in many regards from those of the CDSA. As a result, there are a number of regulatory proposals outlined in this consultation paper that represent a change from the status quo. These new regulatory proposals reflect that the proposed Cannabis Act was designed in the broader context of legalizing, regulating and restricting access to cannabis.

As cannabis will continue to meet the definition of a drug under the FDA, careful coordination will be required between the application of the FDA, the Cannabis Act, and both of the statutes' regulations, to ensure that health products containing cannabis that fall under the FDA can continue to be developed and sold subject to the appropriate rules and requirements. In addition, it is proposed that the Cannabis Exemption (Food and Drugs Act) Regulations would be updated to exempt the cannabis produced by individuals holding licences or other authorizations under the proposed Cannabis Act from the requirements of the Food and Drug Regulations.

It is also important to note that many of the recommendations made by the Task Force on Cannabis Legalization and Regulation related to potential regulatory requirements for the new cannabis framework. For example, the Task Force recommended that there be a regulatory requirement that all cannabis products intended for sale to the public include labels identifying levels of tetrahydrocannabinol (THC) and cannabidiol (CBD). The advice and recommendations of the Task Force were taken into account in the development of the proposals in this consultation paper.

Taken together, the regulatory proposals in this consultation paper have been developed based on the following principles:

Consistent with the purpose of the proposed Cannabis Act - Each regulatory proposal should clearly support the overarching purpose of protecting public health and public safety, and should be linked to one or more of the specific purposes set out in clause 7 of the proposed Act. Evidence-informed - Each regulatory proposal should be informed by the best-available information or evidence. This includes experience regulating cannabis under the CDSA and the FDA, as well as other harmful substances at the federal level, such as tobacco, and the experience of other jurisdictions in regulating cannabis. Where relevant evidence is incomplete or inconclusive, a precautionary approach should be taken. Risk-based - Regulatory proposals should be based on an assessment of the risks that regulated parties and activities may pose to achieving the government's objectives. For example, security requirements for regulated parties should be proportionate to the risk that their activities could pose to public health and public safety, including the risk of cannabis being diverted to illegal markets or activities. Balance - Overall, the regulatory framework should seek to support all of the government's objectives for the legalization and regulation of cannabis. It should do so in a manner that seeks to minimize regulatory burden and facilitate compliance among regulated parties.

Consistent with the Cabinet Directive on Regulatory Management, this regulatory proposal aims, to the extent possible, to protect the health and safety of Canadians, while also seeking to maximize net benefits to Canadians and to minimize undue impacts on businesses. The feedback of all interested and affected parties, including Canada's Indigenous peoples, the provinces, territories, and municipalities, on this regulatory proposal will be actively sought and will be taken into consideration as Health Canada moves forward with the development of regulations.

1.4 Purpose and Scope of this Consultation

The purpose of this consultation paper is to solicit public feedback on an initial set of regulatory proposals that Health Canada is considering. It focuses on those regulations that would facilitate the coming into force of the proposed Cannabis Act by no later than July 2018, subject to parliamentary approval, and the transition from the current legal framework set out under the CDSA.

For example, it covers the rules and standards for the authorized production of the classes of products, namely dried cannabis, fresh cannabis, cannabis oil, seeds and plants, which would be permitted to be sold by an authorized person immediately upon coming into force of the proposed Cannabis Act. Regulatory proposals governing the production of other classes of cannabis for the purposes of sale, such as food-based cannabis products, known as “edibles,” or concentrates or resins, such as hash, would be the subject of separate consultations at a later date, with a view to enabling the quality-controlled production and supply of these products after July 2018.

This consultation paper covers regulations that would be made by the Governor in Council on the recommendation of the Minister of Health and orders that would be made by the Minister of Health. It does not cover regulations made by the Governor in Council on the recommendation of the Minister of Public Safety and Emergency Preparedness (pertaining to law enforcement) or on the recommendation of the Attorney General of Canada (pertaining to tickets).

The Government intends to offset costs in relation to cannabis by collecting, for example, licensing and other fees. Proposals to establish fees or recover costs related to the administration of the proposed Cannabis Act are not within scope of the current consultation paper, but will instead be the subject of separate consultations.

Within this scope, the regulatory proposals set out in this consultation paper fall under the following themes:

Licences, Permits and Authorizations;

Security Clearances;

Cannabis Tracking System;

Cannabis Products;

Packaging and Labelling;

Cannabis for Medical Purposes;

Health Products and Cosmetics Containing Cannabis; and

Miscellaneous Issues.

The purpose of this consultation paper is to solicit public input and views on the approach to these regulations. The Government of Canada has indicated that it intends to bring the proposed Cannabis Act into force no later than July 2018, subject to the approval of Parliament. To meet this commitment, the final regulations will need to be published in Canada Gazette, Part II, as soon as possible following Royal Assent. As such, it is important that stakeholders provide input on this consultation paper, as draft regulations will not be pre-published. Instead, Health Canada intends to publish a summary of the comments received, as well as a detailed outline of any changes to the regulatory proposal, in order to provide industry and stakeholders with as much information as possible on the proposed regulatory requirements.

2. Licences, Permits and Authorizations

Health Canada is proposing a system of licences, permits, and authorizations that is intended to: Allow a range of different activities with cannabis (for example, cultivation, processing, research);

Enable a diverse, competitive legal industry comprised of both large and small players in regions across the country;

Reduce the risk that organized crime will infiltrate the legal industry; and

Provide for legal cannabis products that meet high quality standards. To this end, it is proposed that the regulations would establish different types of authorizations, based on the activity being undertaken, and in some cases, the scale of the activity. The regulations would also establish rules and requirements for the different categories of authorized activities that would be proportional to the public health and safety risks posed by each category of activity. The following types of authorizations are proposed: Cultivation: Standard cultivation, micro-cultivation, industrial hemp, and nurseries;

Standard cultivation, micro-cultivation, industrial hemp, and nurseries; Processing : Standard processing, and micro-processing;

: Standard processing, and micro-processing; Sale (federal level) : Sale for medical purposes, and sale for non-medical purposes to adults in provinces and territories that have not yet enacted a retail framework;

: Sale for medical purposes, and sale for non-medical purposes to adults in provinces and territories that have not yet enacted a retail framework; Analytical testing ;

; Import / Export ; and

; and Research.

2.1 Context

The proposed Cannabis Act sets out a general licensing and permitting scheme for the Minister of Health to authorize persons to conduct various activities with cannabis. The proposed Act would also enable wholesale distribution and retail sale of cannabis by persons authorized to sell cannabis under a provincial or territorial Act, subject to certain minimum legislative measures outlined in the proposed Act.

Under the proposed Act, the Minister of Health would have the authority to issue licences and permits to conduct certain activities involving cannabis, and to include any conditions on those licences and permits that the Minister considers appropriate. These authorities would include the ability to amend, renew, suspend, or revoke licences or permits when warranted. The proposed Act would set out grounds for refusing to issue a licence or permit, as well as grounds for suspending or revoking a licence or permit.

The proposed Act would provide the Minister of Health with the authority to set out the application process for the issuance, renewal or amendment of licences and permits, including the form and manner in which applications would be made, and the information that an applicant would be required to submit (which may include financial information).

Finally, the proposed Act would provide the Minister of Health with the authority to make an order setting out procedures and conditions for the processing of applications to issue and renew licences and permits.

To complement and support the Minister's authorities set out in the Act, the Governor in Council would be able to make regulations respecting a broad range of aspects related to licences, permits and authorizations. These authorities would include, for example, establishing classes of licences or permits and setting legal requirements applicable to the different classes.

2.2 Licences, Permits, and Authorizations

The licensing and permitting framework established under the proposed Act and related regulations will strongly influence the type of legal cannabis industry that establishes itself in Canada. The regulatory proposals set out in this section are intended to achieve the following:

Enable a robust and responsible legal cannabis industry that is capable of outcompeting the entrenched illegal industry. To achieve this, the licensing and permitting framework is intended to: Enable a diverse, competitive legal industry that is comprised of a range of market participants, including both small and large players in regions across the country. Allow a range of different activities with cannabis, enabling innovation while at the same time protecting public health and public safety. Reduce the risk that individuals associated with organized crime infiltrate the legal industry and use their position to benefit, financially or otherwise, criminal organizations. Require that legal cannabis products meet high standards for quality, are produced in clean and sanitary environments and are tested for contaminants and the presence of unauthorized pesticides prior to sale to consumers. Establish an appropriate regulatory framework for industrial hemp that is risk-based and that allows cultivators of industrial hemp to sell the whole hemp plant to certain persons licensed under the proposed Cannabis Act. Maintain continued access to cannabis for medical purposes by continuing to federally-license persons and organizations to sell cannabis directly to registered clients and hospitals. Facilitate research and development by streamlining and rationalizing the process and requirements for cannabis-based research.

To achieve these objectives, it is proposed that the regulations set out the following categories of licensed activities:

Cultivation

Standard cultivation , which would authorize the large-scale growing of cannabis plants and harvesting material from those plants, as well as associated activities

, which would authorize the large-scale growing of cannabis plants and harvesting material from those plants, as well as associated activities

Micro-cultivation , which would authorize the small-scale growing of cannabis plants and harvesting material from those plants, as well as associated activities

, which would authorize the small-scale growing of cannabis plants and harvesting material from those plants, as well as associated activities

Industrial hemp , which would authorize the growing of industrial hemp plants (those containing 0.3% THC or less) and associated activities

, which would authorize the growing of industrial hemp plants (those containing 0.3% THC or less) and associated activities

Nursery , which would authorize the growing of cannabis plants to produce starting material (seed and seedlings) and associated activities

, which would authorize the growing of cannabis plants to produce starting material (seed and seedlings) and associated activities Processing

Standard processing , which would authorize the large-scale manufacturing, packaging and labelling of cannabis products destined for sale to consumers, and the intra-industry sale of these products, including to provincially/territorially authorized distributors, as well as associated activities

, which would authorize the large-scale manufacturing, packaging and labelling of cannabis products destined for sale to consumers, and the intra-industry sale of these products, including to provincially/territorially authorized distributors, as well as associated activities

Micro-processing , which would authorize the small-scale manufacturing, packaging and labelling of cannabis products destined for sale to consumers, and the intra-industry sale of these products, including to provincially/territorially authorized distributors, as well as associated activities

, which would authorize the small-scale manufacturing, packaging and labelling of cannabis products destined for sale to consumers, and the intra-industry sale of these products, including to provincially/territorially authorized distributors, as well as associated activities Sale to the public

Medical purposes , which would authorize the sale of cannabis products to registered clients for medical purposes

, which would authorize the sale of cannabis products to registered clients for medical purposes

Non-medical purposes, which would authorize the sale of cannabis to adults in provinces/territories that have not yet enacted a framework for distribution and sale

In addition, it is proposed that the regulations provide for the Minister to issue authorizations for the following additional activities:

Analytical Testing , which would authorize the possession of cannabis by independent, third-party laboratories for the purposes of analytical testing of cannabis to verify that it meets regulatory requirements for safety and quality

, which would authorize the possession of cannabis by independent, third-party laboratories for the purposes of analytical testing of cannabis to verify that it meets regulatory requirements for safety and quality Import/Export , which would authorize the import or export of cannabis for medical or scientific purposes, or in respect of industrial hemp

, which would authorize the import or export of cannabis for medical or scientific purposes, or in respect of industrial hemp Research, which would authorize activities with cannabis for the purposes of research and/or development by persons who are not otherwise permitted to conduct such activities under another licence or permit under the proposed Cannabis Act

Additional details on each licensed activity are set out below, and a high-level overview of licensed activities is set out in Table 1. Each licensed activity would be subject to specific regulatory requirements tailored to the level of risk associated with the activity involved (discussed in sections 2.3 and 2.4 of this consultation paper).

In general, licence holders would be authorized to conduct core activities (for example, cultivation) as well as related, supplemental activities (for example, research and development related to the cultivation of cannabis).

In general, there would be no restriction on the ability of a single person (either an individual or organization) to be authorized to conduct multiple activities per site. For example, a person could be authorized to conduct one or more activities (for example, cultivation, processing and sale to the public). This would allow flexibility in the administration of licences and reduce overall administrative burden on applicants. Applicants would be free to choose whichever activity or combination of activities for which they wish to be licensed, and the licensing process would enable them to submit a single application should they wish to conduct multiple activities.

The regulations would set out general requirements for licensing and would be supported by guidance and policy documents that would provide more detail and clarity around specific requirements. This would allow for flexibility and change over time based on lessons learned as the market evolves, specific risks are better understood, and the performance of the regulated industry is established.

2.2.1 Standard Cultivation

It is proposed that a licence for standard cultivation would authorize the cultivation of any variety of cannabis and to produce cannabis seeds, cannabis plants, fresh cannabis and dried cannabis. A licence for standard cultivation would also authorize associated or supplemental activities related to these core activities, including possession, transportation, research and development, storage, and destruction. The intra-industry sale of seeds, plants, and harvested materials (e.g., fresh and dried cannabis in bulk or unfinished form) to other cultivators, processors, and holders of a research authorization would be allowed. The cultivation of industrial hemp plants would also be allowed. However, standard cultivators would not be able to package and label cannabis for sale to the public, nor to sell directly to the public or to federally-licensed or provincially- or territorially-authorized sellers.

It is proposed that the regulations would not prescribe a limit on the amount of cannabis that could be cultivated under a standard cultivation licence. However, the Minister of Health could establish a production limit as a condition of a licence if there were reasonable grounds to believe that a licensee was producing more cannabis than this licensee was able to sell, and that the excess inventory was at risk of being diverted to an illegal market or activity (for example, a licensed cultivator producing significantly more cannabis than this cultivator has supply arrangements to provide). In addition to the amount of unsold inventory, this approach would take into account factors such as the licence holder's compliance history, financial status, and planned future sales, when determining if there was a risk of diversion.

2.2.2 Micro-cultivation

The intent of this licence category is to enable the participation of small-scale growers in the legal cannabis industry. It is proposed that a licence for micro-cultivation would authorize the same activities as a licence for standard cultivation, but at a smaller scale.

It is proposed that the regulations would set out a threshold to define a micro-cultivator. Health Canada is considering a number of options for this threshold, such as plant count, size of growing area, total production, or gross revenue. Part of the purpose of this consultation is to solicit feedback from interested parties regarding the most appropriate basis for establishing this threshold, and what the threshold should be.

A micro-cultivation licence would authorize the cultivation of cannabis plants and to produce cannabis seeds, cannabis plants, fresh cannabis and dried cannabis. A licence for micro-cultivation would also authorize associated or supplemental activities related to these core activities, including possession, transportation, research and development, storage and destruction. The intra-industry sale of seeds, plants, and harvested materials (for example, fresh and dried cannabis) to other cultivators, processors, and holders of a research authorization would also be allowed. However, micro-cultivators would not be able to sell directly to the public or to federally-licensed or provincially- or territorially-authorized sellers.

As described further in section 2.3, below, certain regulatory requirements for micro-cultivation would be reduced as compared with regulatory requirements for standard cultivation, reflecting differences in the level of risk related to the scale of the operation.

2.2.3 Nursery

The intent of this licence category is to enable a legal source of starting materials (both for commercial and personal cultivation), and the development of new varieties of high quality cannabis. It is proposed that a licence for a nursery would authorize the cultivation of any variety of cannabis plants (including industrial hemp), and to produce seeds and seedlings (including clones). A nursery licence would also authorize related activities, including possession, transportation, research and development, storage, and destruction. Nurseries would be permitted to sell live plants and seeds to other licensed cultivators, licensed processors, and holders of a research authorization. However, they would not be able to sell directly to the public or to federally-licensed or provincially- or territorially-authorized sellers. The harvest of other plant material and production of any other class of cannabis would be prohibited under this class of licence. This material would need to be destroyed.

As described further in section 2.3, below, certain regulatory requirements for nurseries would be reduced as compared with regulatory requirements for standard cultivation, reflecting differences in the level of risk related to the scale of the operation.

2.2.4 Industrial Hemp

It is proposed that a licence for industrial hemp would authorize the cultivation of industrial hemp plants and the production and sale of seeds and grains (and their derivatives). It is proposed that the regulations would define industrial hemp as “cannabis plants whose leaves and flowering heads do not contain more than 0.3% THC.” It should be noted that any part of the plant identified in Schedule 2 of the proposed Cannabis Act, such as a non-viable seed or mature stalk without any leaf, flower, seed or branch, would fall outside the scope of the proposed Act. As such, activities related to these plant parts (such as their processing or sale) would not require a licence under the proposed Act. Further, as is currently the case under the Industrial Hemp Regulations, a licence would not be required for the sale of derivatives of seed and grain that contain 10 micrograms per gram of THC or less.

An industrial hemp licence would also authorize related activities, including possession, transportation, research and development, consistent with other classes of licences. To improve upon the current regulatory requirements for industrial hemp producers, it is proposed that industrial hemp licences would authorize the intra-industry sale of leaves, flowers and branches (or the whole plant).

As is currently the case under the Industrial Hemp Regulations, industrial hemp licences would authorize the cultivation of approved industrial hemp varieties from pedigreed seeds. Since the THC content of plants produced from these seeds is consistently 0.3% or less, it is proposed that the current THC testing requirements with respect to these varieties grown for grain and fibre would be eliminated except for production of seeds. Requirements for THC testing would be maintained for the designation of new varieties of low THC cannabis (0.3% or less) as an approved cultivar of industrial hemp to be included in the List of Approved Cultivars.

As described further in section 2.3, below, certain regulatory requirements for cultivators of industrial hemp would be reduced as compared with regulatory requirements for standard cultivation, reflecting differences in the level of risk related to the scale of the operation.

2.2.5 Standard Processing

It is proposed that a licence for standard processing would authorize the production and packaging and labelling of a range of cannabis products destined for sale to the public. Authorized activities would include manufacturing cannabis oil (and intermediary products such as cannabis resin), synthesizing phytocannabinoids, the manufacturing of other authorized products (for example, pre-filled cannabis oil capsules or oral sprays), and/or the packaging and labelling of products for sale to the public. Further information on the types of cannabis products that licensed processors would be able to produce is discussed in Part 5 of this consultation paper. A licence for standard processing would also authorize related activities, including possession, transportation, research and development, storage, destruction, and the intra-industry sale of cannabis to other federal licence holders or provincially- or territorially-authorized sellers. A separate authorization would be required for sales directly to the public (see sections 2.2.7 and 2.2.8 of this consultation paper).

2.2.6 Micro-processing

The intent of this licence category is to enable the participation of small-scale processors in the legal cannabis industry. It is proposed that a licence for micro-processing would authorize the same activities as a licence for standard processing, but at a smaller scale.

It is proposed that the regulations would set out a threshold to define a micro-processor. Health Canada is considering a number of options for this threshold, such as limiting allowed activities to processing harvested product from a maximum number of micro-cultivators and nurseries, total production, on-site inventory, or gross revenue. Part of the purpose of this consultation is to solicit feedback from interested parties regarding the most appropriate basis for establishing this threshold, and what the threshold should be.

As with a licence for standard processing, a licence for micro-processing would authorize related activities, including possession, transportation, research and development, storage, destruction, and the intra-industry sale of products to other federal licence holders or to provincially- or territorially-authorized sellers. A separate authorization would be required for sales directly to the public (see sections 2.2.7 and 2.2.8 of this consultation paper).

2.2.7 Sale of Cannabis for Medical Purposes

A licence for the sale of cannabis for medical purposes would authorize the sale of cannabis products obtained from a federally-licensed processor to registered clients (or to an individual who is responsible for a registered client) in a manner consistent with the current system established under the ACMPR (ordered over the phone, online or via written order, with secure delivery through the mail or by courier).

As with other licences, a licence for sale for medical purposes would authorize related activities, such as possession, transportation, research and development, storage, destruction, and the intra-industry sale of cannabis to other federal licence holders.

2.2.8 Sale of Cannabis for Non-Medical Purposes

Under the proposed Cannabis Act, provinces and territories could licence and oversee the distribution and sale to adult consumers of cannabis for non-medical purposes. In the event that a province or territory has not established a retail environment with appropriate safeguards to enable the purchase of legal, regulated cannabis by July 2018, it is proposed that the regulations would enable the Minister to licence, potentially on a temporary basis, the sale of cannabis for non-medical purposes to adult consumers. This class of licence would authorize the sale of cannabis products obtained from a licensed processor to adult consumers in Canada (ordered over the phone, online or via written order, with secure delivery through the mail or by courier). As with other licences, a licence for sale for non-medical purposes would authorize related activities, such as possession, transportation, research and development, storage, destruction, and the intra-industry sale of cannabis to other federal licence holders.

As set out further in section 2.3, it is proposed that the regulations set strict controls to prevent illegal sales to youth and to prevent online sales by federally-licensed sellers in provinces and territories that have established their own distribution and sales systems (which may include online sales authorized at the provincial or territorial level).

2.2.9 Analytical Testing

Under the ACMPR and Narcotic Control Regulations, respectively, both licensed producers and licensed dealers are authorized to test cannabis. Cannabis must be tested for microbial and chemical contaminants, residues of solvents, content of THC and CBD, and disintegration of capsules, using validated methods. In addition, on May 5, 2017, Health Canada announced that it would require all licensed producers to conduct mandatory testing of all cannabis products destined for sale for the presence of unauthorized pesticides(for more information, please see the Statement from Health Canada on Mandatory Testing of Medical Cannabis for Unauthorized Pesticides).

Under the IHR, industrial hemp must be tested by a competent laboratory for THC content. Non-viable seeds must be tested by a laboratory accredited by the Canadian Food Inspection Agency.

As described in further detail in section 2.3.6 of this consultation paper, it is proposed that licensed processors would be required to conduct mandatory analytical testing, including mandatory testing for the presence of unauthorized pesticides, to verify that the regulatory requirements are met prior to packaging and labelling. For industrial hemp, it is proposed that mandatory testing only be required as set out in section 2.2.4 (i.e., for production of seeds and development of new varieties for designation as an approved cultivar).

Licensed processors could conduct their own, in-house analytical testing, however they would be required to demonstrate that they were using validated testing methodologies. Health Canada would require mandatory testing for the presence of unauthorized pesticides to be conducted by an independent third-party laboratory.

In general, all independent third-party laboratories conducting analytical testing of cannabis, including testing of microbial and chemical contaminants, residues of solvents, content of THC and CBD, disintegration of capsules, and testing for the presence of unauthorized pesticides, would be required to hold an analytical testing licence under the Cannabis Act. Such laboratories would also be required to demonstrate that they were using validated testing methodologies. With respect to industrial hemp, an analytical testing licence would not be required for private laboratories accredited by the Canadian Food Inspection Agency that conduct seed viability testing.

As with other licence types, a licence for analytical testing would authorize activities with cannabis such as possession, transportation, storage and destruction. A licence for analytical testing would also authorize research and development related to the analytical testing of cannabis (in particular the development and validation of testing methodologies), including industrial hemp. Licensed analytical testing laboratories would be required to destroy any cannabis or industrial hemp sent for analytical testing within 90 days of being tested.

2.2.10 Import and Export

As is currently the case, the import or export of cannabis would require a permit from the Minister of Health. As set out in the proposed Act, import or export permits would only be available for medical or scientific purposes, or in respect of industrial hemp.

2.2.11 Research

It is proposed that a research authorization would enable activities with cannabis for the purpose of research by persons who do not hold any other type of licence issued under the Cannabis Act and whose activities would otherwise be prohibited under the Act (for example, they are involved in the possession of 30 grams of dried cannabis or its equivalent in public or distribution of more than 30 grams of dried cannabis or its equivalent, or possession by an organization). These activities would include possessing, cultivating, processing, storing, administering, and transporting cannabis. Authorized activities would not include the sale of cannabis - however, there would be provisions to enable the commercialization of novel research and development (for example, the sale of new plant genetics). Research authorization holders would generally be required to destroy all cannabis once the research activities are complete and/or upon the expiration or revocation of the authorization. However, exceptions to this requirement could be sought by those wishing to commercialize novel products of research and development (for example, new plant genetics) or for archival purposes (for example, a seed bank).

As described above, persons holding a federal licence to conduct activities with cannabis, such as cultivation or processing, would be authorized to conduct research and development under their existing licence, provided that the research is related to the core activities authorized under the licence. For example, an industrial hemp licence would authorize research with industrial hemp, but the holder of an industrial hemp licence would be required to seek a separate authorization to conduct research with other varieties of cannabis.

It should be noted that persons seeking to conduct clinical trials with cannabis would still be required to seek appropriate authorization under the FDA and its regulations.

Table 1: Summary of Licensed Activities ACTIVITIES CULTIVATION PROCESSING SALE Standard Micro Nursery Hemp Standard Micro Medical Non-medical CORE ACTIVITIES CULTIVATION Applicable = Applicable

Blank Cells = Not applicable Cultivate cannabis with more than 0.3% THC Applicable Not applicable Applicable Not applicable Not applicable Not applicable Not applicable Not applicable Cultivate cannabis with more than 0.3% THC, below a certain threshold (to be established in the regulations) Not applicable Applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Cultivate cannabis containing 0.3% or less THC (hemp) Applicable Applicable Applicable Applicable Not applicable Not applicable Not applicable Not applicable Sell starting material (live plants and seeds) to cultivators or processors Applicable Applicable Applicable Applicable Not applicable Not applicable Not applicable Not applicable Sell harvested plant material (flower and trim) to processors Applicable Applicable Not applicable Applicable Not applicable Not applicable Not applicable Not applicable PROCESSING Manufacture cannabis products (for example, oil) Not applicable Not applicable Not applicable Not applicable Applicable Not applicable Not applicable Not applicable Manufacture cannabis products, below a certain threshold (to be established in the regulations) Not applicable Not applicable Not applicable Not applicable Not applicable Applicable Not applicable Not applicable Package and label products for sale to consumers Not applicable Not applicable Not applicable Not applicable Applicable Applicable Not applicable Not applicable Sell packaged products to federal or provincially- or territorially-authorized sellers Not applicable Not applicable Not applicable Not applicable Applicable Applicable Not applicable Not applicable Sell intermediary products (i.e. resin) to other processors Not applicable Not applicable Not applicable Not applicable Applicable Applicable Not applicable Not applicable SALE TO THE PUBLIC Sell products for medical purposes to registered clients Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Applicable Not applicable Sell products to adult consumers in provinces and territories without a distribution and retail sale system Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Applicable SUPPLEMENTAL ACTIVITIES Transportation Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Storage Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Destruction Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Research and Development (within authorized core activities) Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable

2.3 Licence Requirements

It is proposed that the regulations set out specific requirements by class of licence. As discussed in section 1.3, these requirements would be designed to achieve the purposes of the proposed Cannabis Act based on an objective assessment of risk that considers the following three factors: (i) the activities authorized to be undertaken and the resulting forms of cannabis that would be present on-site; (ii) the scale of activities authorized to be undertaken and the resulting quantity of cannabis that would be present on-site; and (iii) the proximity of authorized activities to the consumer-end of the supply chain. For each class of licence, it is proposed that the regulations would set, among others, requirements related to:

Notice to Local Authorities Validity Period Location Physical Security Personnel Security Good Production Practices Record Keeping and Reporting

A summary of these requirements by licence activity is set out in Table 2.

2.3.1 Notice to Local Authorities

It is proposed that the regulations would require notice be provided to local government, fire and policing authorities for all licence classes except industrial hemp, analytical testing, or for sale licences where cannabis is not stored on-site.

2.3.2 Validity Period

It is proposed that the regulations provide that all licences issued under the Cannabis Act be valid for a period of no more than five years.

2.3.3 Location

It is proposed that the regulations would prohibit the conduct of any licensed activity in a dwelling-house.

It is proposed that the regulations would permit both outdoor and indoor cultivation of cannabis (under all four classes of cultivation licence: standard cultivation, micro-cultivation, nursery and industrial hemp).

For any indoor areas where cannabis is present (such as where it is cultivated or where it is dried or stored), it is proposed that the regulations would require reasonable measures to prevent the escape of odours and pollen. It is proposed that these restrictions would apply to all licences, except industrial hemp, analytical testing, and sale licences.

Under all licence classes, cannabis (with the exception of cannabis plants and industrial hemp) would need to be stored and processed indoors.

2.3.4 Physical Security

Physical security requirements set out in the regulations would comprise one aspect of the overall approach to preventing legally produced cannabis from being diverted to an illegal market or activity, or from illegal cannabis being a source of supply for the legal industry. Other aspects would include personnel security requirements, record keeping and reporting, participation in the national cannabis tracking system, and facilities being subject to inspections.

Physical security requirements would be designed primarily to mitigate against the risk of cannabis being removed or stolen from a licensed site or during transit and diverted to an illegal market or activity. As a result, it is proposed that licences that authorize activities resulting in large quantities of high-value cannabis products being present on site would face proportionately higher physical security requirements compared to other licence classes. It is further proposed that the regulations would require all licence holders to take measures to safeguard cannabis in transit, including when transporting or shipping cannabis to another licence holder or when shipping cannabis to a provincially- or territorially-authorized seller.

For standard cultivation and standard processing licences, as well as for federal sale licences where cannabis is stored on-site (for medical purposes or non-medical purposes), it is proposed that the regulations require the following physical security requirements around the perimeter of the site:

The perimeter must be secured in a manner that prevents unauthorized access, including physical barriers.

The entire perimeter must be visually monitored at all times by a visual recording device. The visual recordings must be kept for one year after the day on which they were made.

There must be an intrusion detection system that operates at all times and that allows for the detection of any attempted or actual unauthorized access to or movement in the site or tampering with the system.

In addition, for these same licence classes, it is proposed that the regulations require the following security measures for indoor areas where cannabis is present (excluding growing areas):

Areas must include physical barriers that prevent unauthorized access.

Areas must be secured by means of an intrusion detection system that operates at all times and that allows for the detection of any attempted or actual unauthorized access to the site or tampering with the system.

Areas must be visually monitored at all times by visual recording devices. The visual recordings must be kept for one year after the day on which they were made.

Access to areas where cannabis is present must be restricted to persons whose presence in those areas is required by their work responsibilities.

For areas where cannabis is stored (but not where cannabis plants are cultivated or cannabis products are manufactured), the identity of the every person entering or exiting these areas must be recorded, in addition to the requirements above.

These physical security requirements are similar to those in place under the ACMPR, with four notable proposed changes. First, the proposed regulations would no longer require cannabis to be stored in accordance with the Directive on Physical Security Requirements for Controlled Substances (Security Requirements for Licensed Dealers for the Storage of Controlled Substances). Second, the proposed regulations would require visual recordings to be kept for one year, rather than for two years. Based on experience with the current program, this period of time is considered to be sufficient for compliance and enforcement purposes. Third, the proposed regulations would not require visual monitoring of areas where cannabis is grown. Considering the lower risk of theft of whole plants compared to processed material, other physical security requirements respecting cultivation areas (such as visual monitoring of the perimeter and points of entry) are considered to be sufficient mitigation against the risk of theft. Finally, the proposed regulations would no longer require the presence of a security-cleared individual, as will be discussed further in section 2.3.5, to be present when others are in an area where cannabis is present.

For micro-cultivation, nursery licences, and micro-processing licences, it is proposed that the regulations would require the following:

That the perimeter be secured in a manner that prevents unauthorized access, including physical barriers.

That indoor areas where cannabis is present be behind physical barriers that prevent unauthorized access.

That access to areas where cannabis is present be restricted to persons whose presence in those areas is required by their work responsibilities.

For industrial hemp licences, it is proposed that the regulations not prescribe specific physical security requirements. As a result, the proposed regulations would remove the current requirement under the IHR, which requires that industrial hemp be stored in a locked container or locked location, or on premises to which only authorized persons have access. This approach would allow industrial hemp to be stored under the same conditions as other agricultural products.

For federal sale licences where cannabis is not stored on-site, it is proposed that the regulations would not prescribe specific physical security requirements.

For analytical testing licences, it is proposed that the regulations would require that:

Cannabis be stored behind physical barriers that prevent unauthorized access;

Access to areas where cannabis is present be restricted to persons whose presence in those areas is required by their work responsibilities and that the identity of every person entering or exiting these areas must be recorded; and

Samples be destroyed within 90 days of the date of testing.

This proposed approach would be a change from the existing framework, and licensees conducting analytical testing of cannabis would no longer be required to adhere to the physical security requirements set out in the Directive on Physical Security Requirements for Controlled Substances (Security Requirements for Licensed Dealers for the Storage of Controlled Substances).

2.3.5 Personnel Security

Personnel security requirements set out in the regulations would comprise a second element of the overall approach to preventing legally produced cannabis from being diverted to an illegal market or activity. Personnel security requirements would be designed primarily to mitigate against the risk that individuals associated with organized crime infiltrate licensed organizations and use their position to benefit, financially or otherwise, criminal organizations.

Under the proposed Act, the Minister of Health would have the authority to grant or refuse to grant a security clearance, or suspend or cancel a security clearance, with respect to individuals associated with a licence applicant or a licence holder. The proposed process for issuing security clearances is set out in section 3 of this consultation paper. This section sets out general requirements with respect to personnel security, and identifies specific persons associated with a licence that would be required to hold a valid security clearance issued by the Minister of Health.

It is proposed that the regulations would establish the following personnel security requirements for standard cultivation, micro-cultivation, nursery, standard processing, micro-processing, and federal sale (for both medical and non-medical purposes) licences, and in some instances for research authorizations. These requirements would not apply to industrial hemp or analytical testing licences.

The creation and maintenance of an organizational security plan. The plan would need to set out, among other things, standard operating procedures to prevent cannabis from being diverted to an illegal market or activity, and from illegal cannabis being a source of supply for the organization's activities.

The security plan would be required to include an organizational diagram that provides a description of the duties and responsibilities of senior positions within the organization. In particular, the security plan and organizational diagram would be required to designate the positions responsible for overall management and oversight, including the following (“key positions”): individual responsible for the licensed activities conducted by the organization; chief of security; for processing licences, a quality assurance person; for cultivation licences, a master grower; and for licences to sell to the public, the head of client services.

The security plan would be required to be submitted to the Minister of Health as part of a licence application, along with the identification of the individual occupying each key position.

Nothing would prevent the same individual from occupying more than one key position (for example, the same person could be both the head of client services and the chief of security). However, only one individual could be responsible for any one position (for example, there could not be two different people designated as chief of security).

A licence holder would be required to notify the Minister of Health of any change to the security plan, including any change in the individual occupying a key position.

In addition to key positions, it is proposed that the regulations would require a licence applicant or licence holder to identify: all Directors and Officers of the organization and any parent company; any shareholders that own more than 25% of the organization (if it is privately held) or more than 25% of a privately held parent company; owner of the site, if different than the applicant, and in the case of a numbered company, the directors and officers; and any individual that is in a position to legally bind the applicant or licence holder.

It is proposed that the regulations would require any individual occupying a key position, or who are described above, to hold a valid security clearance issued by the Minister of Health. At least one individual holding a security clearance would be expected to be on site during normal business operations.

Based on the security plan and an overall assessment of risk, it is also proposed that the regulations would provide the Minister of Health with the authority to identify additional positions and/or individuals in an organization who require a valid security clearance.

The proposed personnel security requirements represent a change from similar requirements currently in place under the ACMPR in two key respects. For current licensed producers, the ACMPR requires that a “responsible person in charge” or an “alternate person in charge” who holds a valid security clearance, be present whenever other employees are present in a room with cannabis. The proposed regulations would remove these requirements and instead require at least one individual holding a security clearance to be on site during normal business operations. Second, the proposed regulations would add new requirements for key positions to hold a valid security clearance - such as the quality assurance person, or the master grower. As well, the proposed regulations would require individuals in positions to direct or control the licensed organization - such as the directors and officers of a parent company or major shareholders - to also hold a valid security clearance.

For industrial hemp and analytical testing, it is proposed that the regulations not prescribe requirements for individuals to hold security clearances from the Minister.

2.3.6 Good Production Practices

Regulatory requirements with respect to good production practices would be the primary means by which the government would control the quality of cannabis through the legal supply chain. Good production practice requirements generally include rules related to the use of pesticides, chemicals and fertilizers; recall procedures; quality control/assurance activities; sampling and analytical testing protocols, as well as requirements pertaining to facilities, equipment and sanitation.

It is proposed that the regulations establish good production practice requirements for all classes of cultivation licences (standard, micro, nursery and industrial hemp) as well as for all classes of processing licences. It is proposed that the other classes of licences (analytical testing and sale licences) would not be subject to good production practice requirements, with the exception of those relating to recall and adverse reaction reporting.

Currently, the ACMPR set out a number of requirements with respect to good production practices. It is proposed that the regulations made under the proposed Cannabis Act establish requirements for good production practices based on those found in the ACMPR for standard cultivation, micro-cultivation, nursery and processing licences. Specific good production practices would only apply to a licence holder to the extent that they are applicable to the activities authorized under the licence. In general, the proposed regulations would establish the following requirements:

Meet specific requirements with respect to: microbial and chemical contaminants (such as heavy metals); maximum allowed limits of THC in cannabis oil (30 milligrams per millilitre); the presence of solvents used during the preparation of cannabis products, or present in the final product; the disintegration of capsules or other dosage forms; and the presence of unauthorized pesticides.

Conduct mandatory analytical testing, including for unauthorized pesticides, to verify that requirements are met prior to packaging and labelling.

Establish and maintain an appropriate sanitation program for indoor cultivation and processing.

Maintain equipment, whether used in outdoor or indoor cultivation or processing, to prevent contamination of cannabis.

Establish a system to recall every lot or batch of cannabis that has been made available for sale, and for processors, maintain a sample of product from every lot or batch made available for sale for 1 year following the date of availability for sale.

Establish and maintain standard operating procedures to demonstrate that required good production practices applicable to the licence are properly implemented.

For processing licences, employ a quality assurance person, with appropriate training, experience, and technical knowledge to approve the quality of cannabis products prior to making them available for sale.

For industrial hemp licences, it is proposed that the regulations require licence holders to implement the same good production practices required under the IHR and applicable provisions of the exemption issued pursuant to section 56 of the CDSA. These requirements would include, for example, that hemp producers be required to clean equipment to avoid the inadvertent dissemination of industrial hemp. As with the current circumstance, THC testing for most crops would not be required, while THC testing at the plant breeding and seed production levels would continue. Finally, it is proposed that the regulations not reference the Industrial Hemp Technical Manual, in favour of guidance that is aligned between requirements for hemp and other varieties of cannabis regulated under the proposed Cannabis Act. For parts of the hemp plant transferred to a licensed processor for further processing (for example, into cannabis oil) or for packaging and labelling for sale to consumers, the applicable good production practices set out above for all cannabis products would apply.

2.3.7 Record Keeping and Reporting

Record keeping and reporting requirements set out in the regulations would help enable licensed persons to quickly and efficiently demonstrate that they are in compliance with their legal obligations under the proposed Act and its regulations. As well, record keeping and reporting requirements would help the Minister of Health protect public health - through measures such as the requirement to report details of product recalls or serious adverse reactions to specific cannabis products. Finally, record keeping and reporting requirements would enable the Minister of Health to monitor the evolution of the cannabis industry and track developments - such as the development of new types of products - to ensure that the regulatory framework is working effectively to support the objectives of the proposed Act.

To these ends, it is proposed that the regulations set out specific record keeping and reporting obligations for each class of licence. Reporting requirements with respect to the tracking of cannabis and cannabis products, including information such as production levels, inventory amounts, and sales volumes would be captured under the Cannabis Tracking System that would be established under Part 6 of the proposed Act, and are covered separately in section 4 of this consultation paper.

In general, it is proposed that the regulations require the following records be maintained by licensed persons, along with setting out the manner in which they must be maintained, and their retention period:

Records required to demonstrate compliance with required good production practices. These records would include, for example: documents demonstrating that each batch or lot of product sold was produced, packaged and labeled in accordance with the requirements of the proposed Act and its regulations; copies of standard operating procedures and the sanitation program; the results of any required analytical testing and the methods used in the testing; qualifications of the quality assurance person; or copies of complaints received, investigations undertaken and any resulting corrective action;

Information respecting research and development undertaken by the licensed person, including information such as the purpose and description of the research and development activity, the type and amount of cannabis used, and the product or compound made as a result of the activity;

Information respecting the system or controls established to enable the recall of cannabis, as well as information about recalls;

Information respecting adverse reactions to any cannabis product that the licensed person becomes aware of, the maintenance of an annual summary report, as well as the reporting of serious adverse reactions to Health Canada within 15 days;

Records related to physical and personnel security, including, for example, records of employees accessing areas where cannabis is present;

Notices and communications sent to local authorities;

Copies of import and export declarations and permits; and

Information respecting promotional activities.

It is proposed that the regulations would provide the Minister of Health with the authority to specify the regular reporting of any of these records, including the form, manner and frequency of such reports. For example, this would include reporting by persons authorized to sell cannabis on voluntary recalls of cannabis products, including information such as:

Details about the products being recalled (for example, name of product, lot or batch number, quantity produced and sold, list of licence holders to whom the product was sold, etc.);

The reason for the recall;

A risk evaluation identifying the level of risk to public health posed by the issue that led to the recall;

Description of any action taken in respect of the recall and copies of communication with respect to the recall; and

Outline of proposed actions to prevent a re-occurrence of the issue that led to the recall.

With respect to recalls, it is proposed that the regulations would require authorized sellers to report at three junctures: 1) within 24 hours of the decision to initiate a recall; 2) within 72 hours of initiating the recall; and 3) within 30 days after completion of the recall.

For sales licences, it is proposed that the regulations specify additional record keeping and reporting requirements.

For licences for sales for medical purposes, it is proposed that licensees would be subject to requirements consistent with current requirements set out under the ACMPR, including details on:

Medical client registration information;

Filling of orders and refusal to fill orders;

Medical documents provided by clients; and

Communications with provincial or territorial health care licensing authorities.

For licences for sale for non-medical purposes, it is proposed that licensees would be subject to the following additional record keeping and reporting requirements:

Copies of standard operating procedures related to age verification and records demonstrating that the age of each purchaser has been verified as meeting the minimum age requirement in the province or territory to which the cannabis was shipped); and

Copies of standard operating procedures related to geo-fencing (i.e., preventing sale to adult consumers in provinces and territories that have established their own systems) and records demonstrating compliance with a restriction to fill orders and make shipments to consumers in those provinces and territories.

Consistent with the current requirements under the IHR, industrial hemp licence holders would be required to keep records, samples or other documents proving that the seeds used are of pedigreed status, among other record keeping requirements.

Table 2: Summary of Licence Requirements by Activity REQUIREMENTS CULTIVATION PROCESSING SALE (medical and

non-medical purposes) Standard Micro Nursery Hemp Standard Micro Cannabis on-site No cannabis

on-site

(for example,

a call centre) LOCATION Applicable = Applicable

Blank Cells = Not applicable Table 2 footnotes Table 2 Footnote 1 Note: All cannabis will be tested prior to processing, packaging, and sale. Return to footnote 1 referrer Indoor Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable Outdoor Applicable Applicable Applicable Applicable Not applicable Not applicable Not applicable Not applicable PHYSICAL SECURITY Perimeter of the site Physical barriers (for example, walls or fences) to prevent unauthorized access Applicable Applicable Applicable Not applicable Applicable Applicable Applicable Not applicable Visual monitoring of the entire perimeter at all times Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable Keep visual recordings for 1 year Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable Alarm or other intrusion detection system Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable Indoor areas on-site where cannabis is present, excluding growing areas Physical barriers (for example, walls, doors, locks) to prevent unauthorized access Applicable Applicable Applicable Not applicable Applicable Applicable Applicable Not applicable Alarm or other intrusion detection system Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable Areas must be visually monitored at all times by visual recording devices Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable Keep visual recordings for 1 year Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable Access restricted to employees whose presence in those areas is required by their work responsibilities Applicable Applicable Applicable Not applicable Applicable Applicable Applicable Not applicable Additional requirement for areas where cannabis product (for example, dried, oil) is stored Identity of every person entering or exiting must be recorded Applicable Not applicable Not applicable Not applicable Applicable Not applicable Applicable Not applicable PERSONNEL SECURITY CLEARANCE Specified employees must hold a valid security clearance issued by the Minister Applicable Applicable Applicable Not applicable Applicable Applicable Applicable Applicable GOOD PRODUCTION PRACTICES Clean equipment Applicable Applicable Applicable Applicable Applicable Applicable Not applicable Not applicable Sanitation of indoor areas Applicable Applicable Applicable Not applicable Applicable Applicable Not applicable Not applicable Analytical Testing (microbial, contamination, heavy metals, unauthorized pesticides, THC, CBD) (limited requirements for hemp) Footnote 1 Not applicable Not applicable Not applicable Applicable Applicable Applicable Not applicable Not applicable Quality Assurance Person Not applicable Not applicable Not applicable Not applicable Applicable Applicable Not applicable Not applicable REPORTING AND RECORD KEEPING Maintain records and report information that, for example, demonstrates compliance with good production practices, describes research and development activities, protocols for product recalls and adverse effects. The exact requirements vary per activity. Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable CANNABIS TRACKING SYSTEM Report information with respect to tracking cannabis, such as production levels, inventory amounts, and sales volume. Applicable Applicable Applicable Applicable Applicable Applicable Applicable Applicable

2.4 Permit and Authorization Requirements

2.4.1 Import and Export Permits

Under the proposed Cannabis Act, the Minister of Health has the authority to issue import and export permits for medical or scientific purposes, or in respect of industrial hemp.

With respect to the import and export of cannabis for medical or scientific purposes, it is proposed that the regulations set out similar requirements to those found in the ACMPR and the Narcotic Control Regulations. This will enable persons licensed or permitted to conduct activities with cannabis to receive or send cannabis across international boundaries. Permits would be issued on a case-by-case basis and the validity period of a permit would be for a maximum of six months.

With respect to the import and export of industrial hemp, it is proposed that the regulations set out the same requirements as currently in place under the IHR, with the following modifications:

Reference to the List of Countries Approved for the Importation of Viable Grain would be removed. Instead, importers would be required to provide the Minister of Health with documentation issued by a competent authority that establishes that the seed is of an approved cultivar or that grain is industrial hemp. This change would allow importers to import hemp seed or grain from a greater number of countries; and

The validity period for import and export permits would be increased from a maximum of three months to a maximum of six months.

2.4.2 Research Authorizations

More research and development into cannabis will be critical in ensuring that public health and safety aspects are better understood and addressed. As well, the new cannabis industry will need to have the ability to develop and test new strains of cannabis, new product forms and new production methods to ensure they can compete with the illegal market. Finally, in its report, the Task Force emphasized the need for more research aimed at understanding, validating and approving cannabis-based medicines, and on the possible health benefits and harms of cannabis use.

Consistent with the overall principles of establishing regulatory requirements based on risk, it is proposed that the regulations establish a streamlined framework applying to activities with cannabis for the purpose of research, with security requirements based on the type of research being undertaken.

It is proposed that any person in Canada would be eligible to apply for an authorization to conduct research. This would include academic researchers, licence holders and industry. Based on the details of the research being undertaken, a research authorization could authorize any activity in relation to cannabis (including its possession, cultivation, processing, storage, administration, transportation, etc.), with the exception of its sale. However, there would be provisions to enable the commercialization of novel research and development (for example, the sale of new plant genetics).

Physical security requirements would be tailored to the level of risk of diversion associated with the specific research being conducted, consistent with requirements for the various classes of licences set out in part 2.3 of this consultation paper. For research involving the cultivation of cannabis, researchers would be subject to the same physical security requirements as with a cultivation licence (standard, micro or nursery), depending on the number of mature plants used in the research. For research activities involving the processing or manufacturing of cannabis products (for example, dried cannabis or cannabis oil), the physical security requirements applicable to an analytical testing licence would be required.

As well, it is proposed that the regulations provide the Minister with the authority to require individuals involved in the research to hold a valid security clearance, depending on the type of research being undertaken and the quantity and form of cannabis involved.

In addition, holders of research authorizations would be required to adhere to any reporting requirements specified by the Minister in issuing an authorization (consistent with the requirements respecting the record keeping and reporting of research and development activities undertaken by licensed organizations described in section 2.3.7 of this consultation paper). These requirements may include reporting into the Cannabis Tracking System discussed in section 4 of this consultation paper if the research activities involve high volumes of cannabis. As well, authorization holders would generally be required to destroy all cannabis once the research activities are complete and/or upon the expiration or revocation of their authorization.

2.5 Applications for Licences and Permits

2.5.1 Application Requirements

The proposed Cannabis Act provides the Minister of Health with the authority to specify how applications must be submitted and what information must be provided in an application (including, financial information). It is proposed that the Minister would specify these requirements in an administrative document (such as an application guide, published on Health Canada's website).

2.5.2 Grounds for Refusal, Suspension and Revocation

The proposed Cannabis Act sets out the grounds upon which the Minister of Health may refuse to issue a licence or permit. These include, for example, that the applicant is under the age of 18, is not ordinarily resident in Canada, or that a security clearance in respect of the application has been refused or cancelled. In addition, the proposed Act specifies grounds under which the Minister may suspend or revoke a licence or permit.

The Governor in Council has the authority to specify additional grounds for refusal or revocation in regulations. It is proposed that the regulations add that the Minister may refuse to issue a licence, or revoke a licence, in the event that the applicant or licence holder fails to obtain or maintain other required federal licences or authorizations.

3 Security Clearances

It is proposed that select personnel associated with certain licences issued under the proposed Cannabis Act hold a valid security clearance issued by the Minister of Health. The regulations would enable the Minister to refuse to grant security clearances to individuals with associations to organized crime; or with past convictions for, or an association with, drug trafficking, corruption or violent offences. This is the approach in place today under existing regulations governing the licensed production of cannabis for medical purposes; this approach was designed to protect the integrity of the legal production system. Health Canada acknowledges that there are individuals who have histories of non-violent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants) who may seek to obtain a security clearance so they can participate in the legal cannabis industry. Part of the purpose of this consultation is to solicit feedback from interested parties on whether these individuals should be permitted to participate in the legal cannabis industry.

3.1 Context

As discussed in section 2.3.5 of this consultation paper, it is proposed that select personnel associated with certain licences issued under the proposed Cannabis Act hold a valid security clearance issued by the Minister of Health. The main purpose of these requirements is to mitigate against the risks that individuals associated with organized crime could infiltrate licensed organizations and use their position to conduct illegal activities with cannabis to the benefit of criminal organizations.

This section of the consultation paper sets out the proposed approach that the Minister of Health would follow for the issuance of security clearances under the Cannabis Act regulations.

3.2 Decision to Grant a Security Clearance

It is proposed that the regulations provide that the Minister of Health may issue security clearances to individuals who do not pose an unacceptable risk to the integrity of the control of the production and distribution of cannabis under the proposed Act and its regulations.

The regulations would specifically enable the Minister to refuse to grant clearances to individuals associated with organized crime. The Minister would also have the ability to refuse to grant clearances to individuals with past convictions for, or an association with, drug trafficking (particularly trafficking to young persons); corruption (for example, money laundering or fraud); or violent offences (which may, among other risks, indicate a risk to the safety of Health Canada inspectors). In making decisions, the Minister would take into account information provided by an applicant for a security clearance, as well as information resulting from a criminal record check and a law enforcement record check (for example, charges and/or convictions, circumstances related to same, frequency, date of last charge or conviction, any known affiliations or associations with organized crime, etc.). Each application for a security clearance would be assessed on its own merits.

Taken together, this proposed approach is consistent with the approach currently in place for the licensed production of cannabis for medical purposes under the ACMPR, which is designed to protect the integrity of the legal production system.

Health Canada acknowledges that there are individuals who have histories of non-violent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants) who will seek to obtain a security clearance so they can participate in the legal cannabis industry. Part of the purpose of this consultation is to solicit feedback from interested parties on whether these individuals should be permitted to participate in the legal cannabis industry.

3.3 Criminal Record and Law Enforcement Record Checks

It is proposed that the regulations would require the Minister of Health to conduct the following checks prior to making a determination whether to issue or refuse a security clearance:

A criminal record check; and

A check of the relevant files of law enforcement agencies, including intelligence gathered for law enforcement purposes.

As well, it is proposed that the regulations authorize the Minister to conduct these checks at any point after a security clearance has been issued (during the period in which it is valid) for the purpose of determining whether or not to suspend or cancel the clearance.

3.4 Validity Period

When granting a security clearance, it is proposed that the regulations would authorize the Minister to set a validity period and expiration date for the clearance. This would be based on the level of risk posed by the applicant, taking into consideration the information described in section 3.2. In all cases, it is proposed that the regulations would require that the expiry date be no more than five years after the day on which the clearance was granted. If a security clearance is initially granted for less than five years, it is proposed that the Minister would have the ability to extend the validity period of the clearance to a total of five years.

3.5 Portability of Security Clearances

Currently under the ACMPR, a licensee must notify the Minister if an individual holder of a security clearance no longer requires the clearance as part of his or her duties and responsibilities within the organization (for example, the individual leaves the organization to accept employment with another licensee). In these circumstances, the security clearance in respect of the individual would be cancelled.

The current requirement to cancel the security clearance is regarded as creating a barrier to the movement of employees within the industry and creates unnecessary administrative burden associated with the re-clearance of these individuals. As a result, it is proposed that the regulations would provide for individuals to maintain a valid security clearance when transferring employment between licensees. Licence holders would still be required to notify the Minister when there is a change in the individual occupying any key position that requires a valid security clearance (see section 2.3.5 of this consultation paper).

3.6 Refusal to Grant a Security Clearance

It is proposed that, in the event that the Minister decides to refuse an application for a security clearance, the regulations require the Minister to notify the applicant in writing. The notice would set out the basis for the Minister's decision, and the applicant would be provided with a reasonable period of time to make written representations in response to the refusal notice.

3.7 Suspension or Cancellation of a Security Clearance

It is proposed that the regulations would provide the Minister with the authority to suspend a security clearance upon receipt of information that the individual may represent an unacceptable risk to the integrity of the system, including information related to charges under federal statues such as the Criminal Code, as will be described further in section 3.8. In such an instance, the Minister would be required to provide notice to the holder of the security clearance, including the basis for the suspension, and provide the holder of the security clearance with a reasonable period of time to make written representations before making a decision to reinstate the security clearance or cancel it.

It is proposed that the regulations would provide the Minister with the authority to cancel a security clearance at any point where the Minister is of the opinion that the holder of the clearance poses an unacceptable risk to the integrity of the control of the production and distribution of cannabis under the proposed Act and its regulations, including the risk of cannabis being diverted to an illegal market or activity. In such a circumstance, the Minister would be required to notify the holder of the security clearance and inform the holder of the security clearance of the basis of the cancellation. The regulations would require that the Minister provide the clearance holder with a reasonable period of time to make written representations in response to the notice before the cancellation of the security clearance.

In the event that a security clearance is suspended or cancelled affecting a key position, or that the incumbent of a key position leaves the organization, it is proposed that the regulations would provide a reasonable period of time for an alternate individual to be identified and granted a security clearance.

3.8 Application for Security Clearance

It is proposed that the regulations limit those individuals who are eligible to apply for a security clearance to only those individuals who are required to hold a security clearance as described in section 2.3.5 of this consultation paper:

Individuals occupying a “key position” in the organization.

Directors and officers; any shareholders that own more than 25% of the organization (if it is privately held) or more than 25% of a privately held parent company; and individuals in a position to legally bind the licence applicant or holder.

Individuals identified by the Minister of Health as requiring a security clearance based on the nature of their position and the level of risk associated with same.

The regulations would provide that an individual would not be eligible to apply for a security clearance if, in the preceding five years, the individual had been refused a security clearance or had their security clearance cancelled. It is also proposed that the holder of a valid security clearance be required to notify the Minister of Health if they are charged with any offence under the Criminal Code, the proposed Cannabis Act, the CDSA or the Food and Drugs Act. Based on this new information, the Minister of Health could suspend the security clearance (as set out in section 3.7). It is proposed that the Minister would specify the information that an individual would be required to submit in an application for a security clearance in an administrative document (such as an application guide, published on Health Canada's website). In general, it is proposed that the information required be consistent with the current requirements set out in the ACMPR. In addition, it is proposed an applicant would be required to provide information about any previous criminal charges, including those that did not result in a conviction.

4. Cannabis Tracking System

The proposed Cannabis Act authorizes the Minister to establish and maintain a national Cannabis Tracking System. The purpose of this system would be to track cannabis throughout the supply chain to help prevent diversion of cannabis into, and out of, the legal market. A ministerial order would set out who would be required to report into the system, as well as the information that would need to be reported. It is proposed that any person authorized to conduct activities with cannabis (whether federally or at the provincial or territorial level) would be required to report into the Cannabis Tracking System.

4.1 Context

Part 6 of the proposed Cannabis Act authorizes the Minister of Health to establish and maintain a national Cannabis Tracking System (CTS) to enable the tracking of cannabis throughout the supply chain. Combined with the physical and personnel security requirements for licensees set out in section 2.3 of this consultation paper, the CTS would help prevent cannabis in the legal supply chain from being diverted to an illegal market or activity, as well as help to prevent illegal cannabis from being a source of supply in the legal market.

In order to establish and maintain the CTS, the proposed Act would provide the Minister of Health with the authority to make a ministerial order that would require certain persons named in the order to report specific information about their authorized activities with cannabis, in the form and manner specified by the Minister. In this context, the ministerial order would be similar to a regulation made by the Governor in Council, in that it would establish legal obligations that would need to be respected. The Minister of Health could not require the reporting of any personal information about consumers who purchase cannabis at the retail level.

The CTS would enable a single reporting platform to track the movement of cannabis throughout the supply chain that could be used by various government authorities to verify compliance or prevent non-compliance with other federal, provincial, or territorial laws respecting cannabis.

4.2 Persons Required to Report

It is proposed that the ministerial order would require any class of person authorized to conduct activities with cannabis, either through the proposed Cannabis Act or through provincial or territorial legislation, to report the information described in section 4.3 into the CTS.

4.3 Required Information

It is proposed that the ministerial order would require the reporting of all transactions involving all cannabis (with the exception of industrial hemp as defined in section 2.2.4 of this consultation paper). More specifically, this would include details (such as amounts by lot/batch) on:

Cannabis sown, propagated and harvested;

Cannabis obtained, returned, ordered, delivered, sent, and sold;

Cannabis destroyed;

Cannabis used at each stage of production (such as when it is transformed from one product class or form into another, or when it is chemically synthesized);

Cannabis used in research and development; and

Loss and theft.

Monthly tracking has been in place for current licensed producers since October 2013. This reporting mechanism provides Health Canada with data regarding cultivation and production, volumes of inventories and sales, number of shipments, and amount destroyed. This monthly tracking process represents the basis for what the ministerial order may require in terms of reporting. Health Canada will explore how the current monthly reporting requirements can be expanded to capture data at various points in the overall supply chain.

For industrial hemp, it is proposed that licence holders would only need to report transactions involving the transfer of leaves, flowers and branches to another licence holder (and they would not need to report the destruction of this material in the CTS should they choose not to sell it).

4.4 Frequency of Reporting

It is proposed that the CTS would be a data collection tool that would show, across the supply chain, both inventory and production levels, as well as high-level movements of cannabis (for example, from cultivator to processor, from processor to a provincial distributor, or from within the province or territory to retailer, etc.). The CTS would expand on the current reporting process used by licensed producers of cannabis for medical purposes under the ACMPR. Information would need to be reported on a monthly basis, with the exception of losses and thefts, which would be required to be reported within 10 days of detection.

4.5 Disclosure of Information

The proposed Cannabis Act would provide the Minister of Health with the authority to share information in the CTS with other government authorities under certain circumstances. These include, for example, disclosing information to a provincial or territorial government for the purpose of enforcing a provincial or territorial law authorizing the wholesale distribution or retail sale of cannabis.

The proposed Cannabis Act would provide the Governor in Council with the authority to specify additional circumstances under which the Minister of Health may disclose information in the CTS. It is proposed that the regulations specify that the Minister may disclose information to a provincial or territorial government for the purpose of administering cannabis-related public health programs or activities.

4.6 Submission of Information

The reporting process would include an online portal that would be accessible to federally-, provincially-, and territorially-regulated parties and would allow these parties to report their data online. The data would then be captured in a case management system, where Health Canada could verify, and analyze, as required, the data received.

5 Cannabis Products

It