Administrative monetary penalties under the Cannabis Act

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Introduction

Disclaimer: This document is provided for informational purposes only. It is not intended to provide legal advice regarding the interpretation or application of the Cannabis Act and applicable regulations. The reader is encouraged to consult the Cannabis Act and its regulations. In the event of discrepancy between the legislation and this document, the legislation shall prevail. The reader is also encouraged to consult any other legislation that may apply to them or their activities, such as any applicable federal, provincial or territorial legislation. Health Canada reserves the right to modify this document as appropriate and without notice.

Health Canada manages risks posed to public health and public safety in connection with cannabis through a variety of compliance and enforcement activities, including: compliance promotion; compliance monitoring; and enforcement actions. Health Canada considers many factors to inform its compliance monitoring and enforcement activities, and to determine the most appropriate level of intervention, including public health and public safety, behaviour of the regulated party; compliance history and other factors such as the need to maintain public confidence in the integrity of the regulatory regime. Health Canada may utilize a number of enforcement action(s) and/or tool(s), depending on the circumstances and facts of each situation, to address non-compliance. Please refer to the Cannabis Compliance and Enforcement Policy for more information.

1.0 Administrative monetary penalties at a glance

Administrative monetary penalties (AMPs) are financial penalties that are imposed on regulated parties in response to a violation of certain provisions of the Cannabis Act, the Cannabis Regulations, or certain Ministerial Orders in the Act. They are sanctions imposed through an administrative process, not prosecutions in a court of law.

The objective of AMPs is to promote compliance with the Cannabis Act including regulations or Ministerial orders made under the authorities provided in the Act. The AMP framework has been established under Part 10 of the Cannabis Act to promote compliance with the Cannabis Act and is administered by Health Canada. The AMP Framework does not apply to contraventions of Division 1 of Part 1 of the Act, which are criminal offences that are exclusively subject to criminal penalties.

AMPs are one of the compliance measures that can be initiated by Health Canada. Not all instances of non-compliance may result in an AMP, nor would an AMP necessarily be the first – or only – enforcement option pursued. As described in the Compliance and Enforcement Policy for the Cannabis Act, the Act contains a number of enforcement tools that may be considered in determining the appropriate actions to prevent or address non-compliance, based on a case-by-case review of the situation, and all relevant facts and information. These include measures ranging from compliance promotion and awareness, which are intended to educate and prevent non-compliance, up to measures intended to correct non-compliance or address a public health or safety risk, such as the issuance of a warning letter, suspension or revocation of a federal licence, or the issuance of a ministerial order.

If Health Canada issues an AMP, it must do so within six months of becoming aware of the non-compliance.

The AMP provisions in the Cannabis Act may refer to actions taken by the Minister. Many powers, duties and functions of the Minister related to AMPs, such as issuing the Notice of Violation (NoV), entering into a compliance agreement, or conducting a review, would be delegated to officials in the Department of Health. For the review processes set out in the Act, these will be conducted by a delegated official not involved in the issuance of the Notice of Violation, entering into a compliance agreement, or operations and decision-making related to cannabis licensing, compliance or enforcement.

As with any administrative process and regulatory decisions it takes, when undertaking activities such as issuing a Notice of Violation or a review of an AMP decision, Health Canada will take measures to ensure that the Act and regulations are applied in a fair, consistent and impartial manner. Furthermore, the activities will be carried out by qualified and authorized personnel in ways that are reasonable, professional, unbiased and unprejudiced. Health Canada will take steps to ensure that the decision-making process is clear and understandable to everyone by providing access to relevant, useful and timely information while respecting privacy rights. The review process also provides persons with an opportunity to be heard. Health Canada decisions may also be subject to judicial review.

2.0 How an AMP is issued

Where Health Canada has reasonable grounds to believe that a person (which can be an individual or an organization) has committed a violation, the department may issue a Notice of Violation (NoV).

A NoV is a written notice that communicates the details of the alleged violation. It includes:

the person’s name (individual or organization)

the alleged violation

the penalty for the violation

how and when the AMP must be paid.

The NoV also includes other information for responding to the NoV and summarizes in plain language the rights and obligations applicable to the person (which can be an individual or organization)named in the NoV, including the right to have the acts or omissions that constitute the alleged violation or the amount of the penalty reviewed and the procedure for requesting that Ministerial review.

3.0 How the penalty is determined

For each case, subsection 112(3) of the Act requires that the penalty is determined by taking into account the following factors:

The person’s history of compliance or non-compliance with the provisions of the Act or regulations The nature and scope of the violation Whether the person made reasonable efforts to mitigate or reverse the effects of the violation Whether the person derived any competitive or economic benefit from the violation, and Any other prescribed criteria (at present there are no other prescribed criteria).

Based on the individual circumstances of the alleged violation, each determining factor is assessed using a score, and a cumulative score is determined.

Table 1: Penalty calculation table Factor Definition Score History No history of non-compliance with the Act or the regulations. +0 Some history of non-compliance with the Act or the regulations +2 Significant history of non-compliance with the Act or the regulations. +4 Nature and scope The violation is not likely to cause adverse public health and/or public safety consequences. +1 The violation is likely to or has caused minor to moderate adverse public health and/or public safety consequences. +2 The violation is likely to or has caused severe adverse public health and/or public safety consequences. +4 Efforts to mitigate or reverse All reasonable efforts were made to mitigate or reverse the effects of the violation. +0 Some reasonable efforts were made to mitigate or reverse the effects of the violation. +2 No reasonable efforts were made to mitigate or reverse the effects of the violation. +4 Competitive or economic benefit No competitive or economic benefit was derived from the violation. +0 Some competitive or economic benefit from the violation was derived. +2 Significant competitive or economic benefit from the violation was derived. +4

Note: More information on the application of determining factors can be found in Annex A.

Penalties are calculated by adding the score for each factor to arrive at a cumulative score.

Each cumulative score falls within a penalty range, depending on the factors as noted above. The range provides an indication of an appropriate penalty based on the cumulative score, which is also assessed for overall consistency with the purpose of a penalty as set out at subsection 111(2). The maximum penalty is $1,000,000 per violation, as per section 111(1) of the Cannabis Act. These ranges are outlined in Table 2: Penalty Ranges.

Table 2: Penalty ranges Cumulative score Penalty range (Minimum—Maximum) 1-4 $1,000 to $74,000 5-6 $74,001 to $123,000 7-8 $123,001 to $196,000 9-10 $196,001 to $306,000 11-12 $306,001 to $471,000 13-14 $471,001 to $719,000 16 $719,001 to $1,000,000

Note: By adding the score for each factor a cumulative score of 15 is mathematically unattainable.

4.0 Options in response to a Notice of Violation

Persons receiving a Notice of Violation (NoV) may choose to:

Pay the penalty as identified in the NoV by the date indicated. If the penalty is $5,000 or more, request to enter into a compliance agreement. Compliance with the terms of a compliance agreement could reduce the amount of the penalty. Request a Ministerial review of the penalty amount or of the facts of the violation.

4.1 Paying the penalty

The payment may be made by cheque, online payment or wire payment in Canadians funds to the Receiver General of Canada, as outlined in the NoV.

4.2 Compliance agreement

A person who receives an AMP of $5,000 or more may request to enter into a compliance agreement with Health Canada.

A compliance agreement is a written agreement between Health Canada and the person who has received the NoV. Compliance agreements can include any, terms and conditions that are satisfactory to the Minister. Health Canada may also refuse to enter into a compliance agreement.

The compliance agreement may amend the penalty amount to recognize efforts that the person has made to address the non-compliance. By entering into a compliance agreement, the person is deemed to have committed the violation and it becomes part of their compliance history. Health Canada may include a provision in the compliance agreement for a reasonable security deposit, as a guarantee that the person will comply.

If the person does not comply with the agreement within the established time frame, the person is liable to pay twice the amount of the penalty set out in the NoV, in which case the $1 million dollar penalty cap does not apply or any security deposit is forfeited.

4.3 Review by Minister

A person who receives a NoV has the right to ask Health Canada to review the amount of the penalty or the facts of the alleged violation.Footnote 1

The review would be conducted by a delegated official not involved in the issuance of a Notice of Violation, entering into a compliance agreement, or operations and decision-making related to cannabis licensing, compliance or enforcement. The review would examine issues raised by the person (i.e., whether the person that requested the review committed the violation, and whether the amount of the penalty was determined in accordance with the Act and the regulations). The resulting decision will be communicated to the person in writing, including the amount of penalty to be paid, if any.

To request a review, the person should email the request to cannabis@canada.ca. The email should include a copy of the NoV as well as a detailed description of the rationale for the review and any supporting documents. Should email not be available, Health Canada may be contacted directly by phone at 1-866-337-7705 for more guidance.

5.0 Public notice

In the interest of furthering the purpose of the AMP framework to promote compliance, and to promote public transparency with regard to AMPs, Health Canada may publish NoVs or information related to AMPs. This information may include the name of the person (individual or organization) named in the NoV, the nature of the violation, the amount of the penalty, as well as the status of each NoV.

6.0 Contact us

For general inquiries about AMPs or NoVs, contact the Cannabis Compliance Clerk by email: cannabis@canada.ca

For other general questions about the Cannabis Act and the regulations contact Controlled Substances and Cannabis Branch by email: cannabis@canada.ca or alternatively, by phone at: 1-866-337-7705.

Annex A Application of the determining factors

Subsection 112(3) of the Act requires that the penalty be determined by taking into account the following factors:

The person’s Footnote 2 history of compliance or non-compliance with the provisions of the Act or of the Regulations The nature and scope of the violation Whether the person made reasonable efforts to mitigate or reverse the effects of the violation Whether the person derived any competitive or economic benefit from the violation Any other prescribed criteria (at present there are no other prescribed criteria).

Health Canada recognizes that the circumstances of every case of non-compliance are different and that no two cases are identical. As such, the overall merits of each individual case must be assessed by the decision-maker in accordance with the facts that are presented. In this context, the exercise of discretion by the decision-maker is also an important element of the overall AMPs framework.

In making a penalty determination, Health Canada has a responsibility to document the facts and details that support the score that it assesses for each of the determining factors. The table below highlights some of the key considerations that have the potential to impact the assessment of the score for each determining factor, subject to the facts of the case and the exercise of discretion by the decision maker.

Health Canada would indicate in the Notice of Violation (NoV) how each factor was assessed in relation to the facts of each individual case.

1.0 Determining factors

1.1 History

The person’s history of compliance or non-compliance with the provisions of the Act or of the regulations includes previous non-compliance with the Cannabis Act and its regulations by the person named in the NoV.

Compliance history does not include non-compliance with the Controlled Drugs and Substances Act or previous regulations that governed cannabis for medical purposes in Canada. Possible scores are 0, 2 and 4. The following points are meant to highlight the score range:

No history of non-compliance (+0)

Some history of non-compliance (+2)

Significant history of non-compliance (+4)

The circumstances of each previous non-compliance are unique. For that reason, and to preserve the discretion of the decision-maker, Health Canada is not assigning a score based purely on the number of historical non-compliance incidents. Rather, the decision maker will consider questions, such as:

What is the overall history of compliance vs. non-compliance?

What is the number and severity of previous non-compliance instances?

What is the nature of previous non-compliance? For example, repeated violations of the same nature could signify that the person is treating AMPs as a “cost of doing business.” This is not consistent with the purpose of AMPs, which is to promote compliance; therefore an increased score may be appropriate in the circumstances.

How has the person responded to previous compliance and enforcement actions? For example, has the individual generally been responsive to Health Canada’s concerns where applicable?

Other factors considered relevant by the decision-maker.

1.2 Nature and scope of the violation

Nature and scope of the violation refers to the actual or potential for adverse consequences to public health and/or public safety to occur as a result of the violation. Possible scores are 1, 2 and 4. The following points are meant to highlight the score range:

The violation is not likely to cause adverse public health and/or public safety consequences (+1)

The violation is likely to or has caused minor to moderate adverse public health and/or public safety consequences (+2)

The violation is likely to or has caused severe adverse public health and/or public safety (+4) consequences.

The score starts at +1 for nature and scope because every violation has some potential public health or public safety consequences. As such, the scoring does not start at zero. The decision maker will consider questions such as:

What is the nature and degree of the problem or potential problem?

What is the nature of the population at risk?

What is the size of the population at risk?

Have there been any adverse health consequences that have occurred, for example, from using the product, if applicable?

Other factors may be considered relevant by the decision maker.

1.3 Efforts to mitigate or reverse the effects of the violation

Efforts to mitigate or reverse refer to actions taken by the person to reduce the effects of the violation being considered. Possible scores are 0, 2 and 4. The following points are meant to highlight the score range:

All reasonable efforts were made to mitigate or reverse the effects of the violation (+0)

Some reasonable efforts were made to mitigate or reverse the effects of the violation (+2)

No reasonable efforts were made to mitigate or reverse the effects of the violation (+4)

The decision maker will consider questions such as:

Has the person pro-actively sought to identify and remedy the root cause of the violation (if applicable)?

Where applicable, has the person been cooperative with Health Canada in determining the necessary actions that need to be taken to reverse or mitigate the effects of a violation?

Has the person taken immediate action to mitigate or reverse the effects of the violation? For example, depending on the specific violation, actions could include issuing a voluntary product recall, immediately removing or making changes to promotional material, paying for the immediate repair or replacement of necessary equipment.

Has the person initiated an action plan to prevent a re-occurrence of the violation?

Other factors considered relevant by the decision-maker.

1.4 Competitive or economic benefit

Competitive or economic benefit refers to the advantage a person gains from the violation. This could include increased revenue, increased brand awareness, increased market share, among other possible benefits. Possible scores are 0, 2 and 4. The following points are meant to highlight the score range:

No competitive or economic benefit was derived from the violation (+0)

Some competitive or economic benefit from the violation was derived (+2)

Significant competitive or economic benefit from the violation was derived (+4)

The decision maker will consider questions such as:

Did the violation allow the person to: Reduce the costs of operation? Increase revenues? Promote a product to persons that they are not permitted to under the Act and Regulations?

What was the magnitude of the competitive or economic benefit?

Other factors considered relevant by the decision-maker.