Marihuana for Medical Purposes Regulations

Statutory authority

Controlled Drugs and Substances Act

Sponsoring department

Department of Health

REGULATORY IMPACT ANALYSIS STATEMENT



(This statement is not part of the regulations.)

Executive summary

Issues: In 2001, the Marihuana Medical Access Regulations (MMAR) were promulgated. The MMAR sets out a scheme for Canadians to access marihuana for medical purposes, if they have the support of a medical practitioner. Over the years, stakeholders have expressed various concerns about the Marihuana Medical Access Program (the Program or MMAP). Program participants generally dislike the application process, and the fact that only a single strain of marihuana is available for purchase from Health Canada. Other stakeholders have expressed health, safety, and security concerns relating to the production of marihuana by individuals in homes and communities. Their specific concerns relate to the potential for diversion of marihuana to the illicit market due to limited security requirements, the risk of violent home invasion by criminals attempting to steal marihuana, fire hazards due to faulty or overloaded electricity installation to accommodate high intensity lighting for its cultivation, and humidity and poor air quality. Individual producers who are ill may be more vulnerable to health risks associated with mould. As more individuals receive licences to produce marihuana for medical purposes, the overall risk to Canadians increases. Rapid growth in the number of authorized users has also had significant implications for the administration of the Program, leading sometimes to long application processing times and higher Program administration costs for Health Canada. Finally, over the years, Canadian courts have found various parts of the MMAR to be invalid, resulting in changes that impact program delivery. Description: The proposed Marihuana for Medical Purposes Regulations (MMPR) would treat dried marihuana as much as possible like a medication by creating a licensing scheme for the commercial production and distribution of dried marihuana for medical purposes. The proposed MMPR would modify the New Classes of Practitioner Regulations (NCPR), the Narcotic Control Regulations (NCR) and eventually repeal the MMAR. At the same time, changes to the Marihuana Exemption (Food and Drugs Act) Regulations (MER) are also being proposed. Health Canada would no longer issue authorizations to possess marihuana for medical purposes to individuals. This is expected to make accessing marihuana for medical purposes more efficient for program participants. It would also give them more options with respect to obtaining the support of an authorized health care practitioner, more choices of strains and suppliers, and provide increased access to quality-controlled marihuana. This, as well as ending Health Canada’s role in the production and supply of marihuana, would also reduce the cost of running the Program. Following a transition period, individuals would no longer be licensed to produce marihuana, an activity which often occurs in homes. This would address the public health, safety and security concerns raised by stakeholders. The proposed MMPR would authorize three key activities: the possession of dried marihuana for medical purposes by individuals who have the support of an authorized health care practitioner; the production of dried marihuana by licensed producers; and the sale and distribution of dried marihuana by specific regulated parties to individuals who can possess it. Licensed producers would be subject to regulatory requirements related to security; good production practices; packaging, labelling and shipping; record keeping and reporting; and distribution. They would also be subject to Health Canada inspections. Cost-benefit statement: The main economic cost associated with the proposed MMPR would arise from the loss to consumers who may have to pay a higher price for dried marihuana. The analysis assumes a price increase from an estimated $1.80/g to $5.00/g in the status quo to about $7.60/g in 2014, rising to about $8.80/g, with a corresponding average annualized loss to consumers due to higher prices of approximately –$166.1M per year for 10 years. The major benefits of the proposed MMPR are projected to include reduction in safety and security risks posed by marihuana cultivation in homes, reduction in Program administrative costs, and benefit to producers due to a higher market price and a reduction in economic inefficiency from the removal of current government subsidies on marihuana sold by Health Canada. On average, the estimated total annualized benefit is $149.8M per year. Consequently, the quantitative analysis indicated an overall discounted net loss of –$109.7M for the first 10 years of the proposed MMPR (2014 to 2024) or, on average, approximately –$16.35M a year. Given the unique nature of the regulatory proposal and the need to make assumptions about some aspects of what, until now, has been an illicit market with the exception of the supply produced under licences to produce, and under contract with Health Canada, the quantitative analysis was supplemented by a comprehensive qualitative evaluation of potential benefits which could not be quantified or monetized. These were considered highly contingent on a number of economic, social and regulatory factors which have been factored into the Program evaluation, but which may not emerge until near the end of, or after, the 10-year projection period for the quantified cost-benefit analysis (CBA). The qualitative analysis, however, showed that these benefits are likely to be significant. Further detail can be found in the “Non-quantified benefits” section of this document. “One-for-One” Rule and small business lens: Canadian courts have determined that, under the Canadian Charter of Rights and Freedoms, individuals who have demonstrated a medical need for marihuana have a right to reasonable access to a legal source of marihuana for medical purposes. At the same time, marihuana is a controlled substance for which there is considerable risk of diversion to the illicit market. Thus, there is a need to ensure that sites which produce marihuana for medical purposes are secure and have secure distribution methods. Hence, while it is recognized that the proposed MMPR would impose administrative burden on business, it is also recognized that the unique and exceptional circumstances, in combination with the findings of Canadian courts that individuals who need marihuana for medical purposes have a right to reasonable access to a legal source of marihuana under the Charter, merit an exemption from the “One-for-One” Rule. Health Canada would not be required to offset the burden associated with this proposal with an equivalent reduction in administrative burden. The small business lens requirements apply to the proposed MMPR. As licensed producers are all expected to be small businesses, regulatory compliance flexibility, such as outcome-based security requirements rather than prescriptive security requirements, has been built into the proposed MMPR for all businesses. Domestic and international coordination and cooperation (if applicable): The proposal is consistent with Canada’s international trade obligations, as well as its commitment to maintain control over the production and distribution of marihuana, as required by international conventions on the control of narcotic drugs and psychotropic substances. In addition, Health Canada has notified the United States Drug Enforcement Administration that a new program is under consideration wherein individuals would no longer be licensed to produce their own marihuana and supply would come only from licensed producers. Federally, the proposed MMPR establish new requirements that are consistent with Health Canada’s responsibility to regulate activities with controlled substances. The proposal takes provincial/territorial jurisdiction into consideration, particularly concerning issues such as establishing requirements for local businesses and the delivery of health services. Performance measurement and evaluation: An evaluation of the proposed MMPR would occur five years after implementation and every five years thereafter. The evaluation would assess the achievement of outcomes of the proposed MMPR along with those of any administrative and program support systems put in place. Additionally, a formative evaluation would occur around the end of the first year of implementation. This evaluation would focus on implementation issues and identify potential risks to achieving the objectives of the regulatory reform.

Background

Marihuana for medical purposes is regulated under both the Controlled Drugs and Substances Act (CDSA) and the Food and Drugs Act (FDA). The CDSA and its regulations provide a legislative framework for the control of substances that can alter mental processes and that may produce harm to the health of an individual and to society when distributed or used without supervision. The legislative framework prohibits the possession, trafficking, production, importation and exportation of controlled substances except where authorized, such as under regulations.

The FDA and its regulations provide a framework to regulate the safety, efficacy and quality of drugs. The Food and Drug Regulations (FDR) set out a framework for the authorization of drugs for sale in Canada. Drug manufacturers submit evidence on the effectiveness, dosage, route of administration, contraindications, side effects, and quality of a drug. If Health Canada reviewers conclude that the overall benefits of the drug outweigh its risks, the product will be authorized for sale in Canada.

There are a number of products containing cannabis which have been authorized for sale under the FDR in Canada. These include

Sativex®, a buccal spray containing extracts of cannabis with standardized concentrations of delta-9-tetrahydrocannabinol (THC) and cannabidiol (CBD). It is authorized to treat certain symptoms associated with multiple sclerosis. It is also conditionally authorized for pain relief in adults with advanced cancer;

Marinol®, a capsule containing synthetic THC. It was authorized for the treatment of AIDS-related anorexia, and nausea and vomiting due to cancer chemotherapy, but was discontinued in Canada; and

Cesamet®, a capsule containing nabilone, a synthetic cannabinoid. It is authorized for the management of nausea and vomiting associated with cancer therapy.

In all of these cases, the manufacturers were required to meet the requirements of the FDA and its regulations in order to sell these products in Canada.

To date, scientific studies do not demonstrate conclusively that dried marihuana is safe and effective for medical use. Most scientific studies to date focus on chemicals sourced from marihuana, not dried marihuana itself. Consequently, dried marihuana has not been authorized as a therapeutic product in Canada or in any other country. However, Canadian courts have found that individuals who need marihuana for medical purposes have a right to reasonable access to a legal source of marihuana. Therefore, production of dried marihuana in the past was exempted from application of the FDA and its regulations with the exception of marihuana sold or imported to be used for the purpose of a clinical trial.

Canadians have been able to access dried marihuana for medical purposes since 1999, when the Marihuana Medical Access Program (the Program) was first established. At the time, individuals were authorized to possess dried marihuana and/or produce a limited number of marihuana plants for medical purposes via the issuance of an exemption under section 56 of the CDSA.

In 2000, the Ontario Court of Appeal (R. v. Parker) held that the prohibition on the possession of marihuana violated the right to liberty and security of a person under the Charter, because Mr. Parker could not find a practically available legal route to possess dried marihuana for medical purposes. In response, the MMAR were established in 2001 and set out a scheme by which seriously ill Canadians can, with the support of a medical practitioner, obtain an authorization to possess dried marihuana for their own personal medical use. Under the current MMAR, authorized persons have three options to obtain a supply of dried marihuana:

They can produce their own supply under a Personal Use Production Licence (PUPL);

They can designate an individual to produce it on their behalf under a Designated Person Production Licence (DPPL); or

They can purchase dried marihuana from Health Canada, which contracts a private company — Prairie Plant Systems Inc. (PPS) — to produce and distribute marihuana for the Program. (see footnote 1)

The supply and distribution scheme established by the MMAR has been amended several times. In some cases, this has been the result of concerns expressed by stakeholders. In others, it has been to address Court decisions that have invalidated sections of the Regulations, which have been found to hinder access.

In 2003, the Ontario Court of Appeal (Hitzig v. Canada) held that the MMAR were constitutionally defective because they did not provide for reasonable access to a legal source of supply of marihuana for medical purposes. The Court invalidated five provisions of the MMAR that it found constituted barriers to eligibility and supply but acknowledged that the Government could choose to adopt a fundamentally different approach. The MMAR were amended to give national effect to certain elements of the Court’s remedy, and also to implement an option for authorized persons to obtain access to a legal supply of dried marihuana and marihuana seeds. However, the requirements for a medical document and for a daily limit fixed by a medical practitioner were found to be reasonable by the Court.

In 2005, based on a broader review of the MMAR and on input received from stakeholders during a comprehensive consultation process, Health Canada proceeded with a second phase of amendments to the MMAR. The primary objective of the amendments was to streamline the regulatory requirements associated with applying for an authorization to possess. Both the applicant’s declaration and the medical declaration were therefore simplified. The MMAR were also amended to provide limited authority for pharmacists to supply marihuana to authorized persons. These amendments were intended to maintain an appropriate balance between providing seriously ill persons with reasonable access to a legal source of dried marihuana and the need to regulate marihuana.

In 2009, the MMAR were amended to raise the limit on the number of production licences a designated person can hold from one to two. This followed a 2008 Federal Court of Appeal decision (Sfetkopoulous v. Canada) to uphold the Federal Court’s declaration that the one producer to one user ratio set out in the MMAR unjustifiably limited the ability of authorized persons to access marihuana for medical purposes. The Federal Court was of the view that licensed producers having larger operations could make economies of scale and a level of income that would allow them to put in place quality control and security measures. The Court also observed that with fewer producers having larger operations, a system of inspection would be much easier to sustain than the current system of one consumer to one producer. The amendment was an interim measure intended to address the Court’s decision while the Program and the MMAR were being reassessed.

In 2010, Health Canada amended the MMAR to address the 2009 British Columbia Supreme Court decision (R. v. Beren) that struck down the one producer to one user ratio as well as the limit of three producers per location. The Court adopted the reasoning in Sfetkopoulos and was of the view that licensed producers having larger operations could provide an adequate supply, carry out research on the efficacy of varying strains of marihuana and make economies of scale. The Government had already addressed the producer to user ratio issue by raising the limit on the number of production licences a designated person can hold from one to two. This regulatory initiative introduced a new limit of four to the number of production licences that can be issued with reference to the same production site. In other respects, the Court ruled that the MMAR requirement for the support of a physician was justified.

The Court decisions leading to the 2009 and 2010 amendments support Health Canada’s position that dried marihuana for medical purposes should be produced and distributed as much as possible in the same manner as a medication.

Issue

Growth in Program participation has had unintended consequences for the administration of the MMAR, but more importantly, for public health, safety and security as a result of authorizing individuals to produce marihuana under PUPLs and DPPLs in private dwellings.

In 2002, 477 individuals were authorized to possess marihuana for medical purposes. As of August 13, 2012, this had grown to 21 986 individuals. If the Program continues to grow at this pace, it is estimated that by 2014, over 50 000 individuals will be authorized to possess marihuana for medical purposes.

One result of increased participation in the Program is increased application volume for Health Canada. This results in increased staffing costs, but more importantly, it results in a 10-week service standard for processing applications. Many Program participants have expressed concerns regarding the length of time it takes to obtain an authorization to possess.

Of 21 986 current Program participants, 13% access Health Canada’s supply of dried marihuana, 64% produce under a PUPL, and 16% produce under a DPPL. The remaining 7% indicate in their application that they will buy from Health Canada, but ultimately do not. Health Canada does not have access to information regarding where these Program participants obtain their supply of marihuana for medical purposes.

Increases in the number of licences, as well as the co-location of up to four licences on one site, can result in large quantities of marihuana being produced in homes and communities. In addition, the average daily amount has continually increased since 2002 to almost 10 g per day now which, if produced indoors, is approximately 49 plants. Under the MMAR, the number of plants that may be produced under a licence to produce is calculated based on the daily amount agreed upon by the medical practitioner and the applicant. Program participants who either produce their own or have designated producers are the group where the daily amount has increased the most. There are now approximately 70% who produce 25 plants or more.

Municipalities and first responders, such as fire and police officials, have raised serious public health and safety concerns regarding production of marihuana in private dwellings. Under the Program, applicants are not required to disclose their intent to produce to local authorities. Production sites, most often in private dwellings that are not constructed for large-scale horticultural production, are often in locations unknown by local authorities. Production activities are also linked to the presence of excess moisture in homes creating a risk of mould (particularly associated with drying of marihuana); electrical hazards creating a risk of fire; and exposure to toxic chemicals like pesticides and fertilizers creating risk to residents, including children. Such issues may not only have an impact on individual producers, but also potentially on those living at the same address, adjacent residential units, and/or in the surrounding community, who may not even suspect the existence of these risks. Because the MMAR were never intended to permit larger-scale marihuana production, they do not adequately address these public health, safety and security concerns. There are practical difficulties in imposing stringent quality and safety standards on production operation by producers of marihuana for medical purposes that may lack the capacity to implement them.

Police have also raised concerns that residential production activities leave the Program vulnerable to abuse, including criminal involvement and diversion to the illicit market, particularly given the attractive street value of marihuana ($10–$15/gram for dried marihuana). It is impossible to conduct effective inspection of the numerous production sites across the country, particularly given the legal requirement to either obtain permission, or a warrant, to enter a private dwelling. Finally, production in homes may leave residents and their neighbours vulnerable to violent home invasion by criminals who become aware that valuable marihuana plants are being produced and stored in the home.

Another implication of Program growth is an increase to the cost of producing and distributing dried marihuana for Health Canada. The existing supply contract has a value of $16.8 million (excluding GST) for a three-year period, ending on March 31, 2013. An additional option year has been built into the contract, and will need to be exercised. It is estimated that this additional year will cost Health Canada $9.7 million. These high contract costs are despite the fact that only a minority of Program participants indicate this supply option in their application. Health Canada heavily subsidizes the cost of marihuana for medical purposes by covering the shipping costs and charging only $5/gram, an amount substantially below the cost of production and distribution. The Government collected approximately $1,686,600 in revenue from sales of dried marihuana and seeds in the 2011–2012 fiscal year.

Objectives

The objective of the proposed MMPR is to reduce the risks to public health, security and safety of Canadians, while significantly improving the way in which individuals access marihuana for medical purposes.

To reduce the risks to public health, security and safety of Canadians, a new supply and distribution system for dried marihuana that relies on commercial production of marihuana for medical purposes would be established. Security requirements would be in place for the production site and key personnel of the licensed producer. Standards for packaging, transportation and record keeping would contribute to achieving security objectives.

The process for individuals to access marihuana for medical purposes would no longer require applying to Health Canada. Individuals would be able to obtain marihuana, of any strain commercially available, with information similar to a prescription from an authorized health care practitioner (a physician or, potentially, a nurse practitioner). Quality and sanitation standards appropriate for a product for medical use will be in place. In line with other controlled substances, personal and designated production would be phased out. This would reduce the health and safety risks to individuals and to the public while allowing for a quality-controlled and more secure product for medical use.

Health Canada would no longer receive and process applications or issue authorizations and licences, nor continue to produce and supply marihuana for medical purposes. Health Canada would not enter into future contractual arrangements for the production and distribution of marihuana for medical purposes. The new regulatory scheme returns Health Canada to its traditional role of regulator rather than producer and service provider, while striking a better balance between access and risks to public health and safety.

Description

The proposed Marihuana for Medical Purposes Regulations would authorize the following key activities:

the possession of dried marihuana by individuals who have the support of an authorized health care practitioner to use marihuana for medical purposes;

the production of dried marihuana by licensed producers only; and

the direct sale and distribution of dried marihuana by specific regulated parties to individuals who are eligible to possess it.

The proposed MMPR would also allow individuals who hold an authorization to possess under the MMAR to transition to the new framework using their authorization for up to one year after its date of issue (unless a period of usage of less than 12 months has been indicated in the medical declaration). Individuals could also transition using a medical declaration issued under the MMAR.

Licences to produce issued under the current MMAR would be phased out, while renewals would continue normally. New licences to produce would not be issued if the application is submitted after September 30, 2013, because there would not be enough time to produce a crop before the repeal of the MMAR on March 31, 2014. Licences to produce would also not be amended for a site change after September 30, 2013, for the same reason (see “Implementation, enforcement and service standards”). All licences to produce would end on March 31, 2014.

1. Possession of dried marihuana by individuals who have the support of an authorized health care practitioner

Possession of dried marihuana

Individuals would no longer have to apply to Health Canada for an authorization to possess dried marihuana for medical purposes. Instead, individuals who require marihuana for medical purposes would be able to legally possess dried marihuana if it was obtained under the proposed MMPR from a pharmacist or licensed producer with a supporting medical document from an authorized health care practitioner, or directly from an authorized health care practitioner. Similarly, an individual responsible for a person who requires marihuana for medical purposes would be able to legally possess dried marihuana under these circumstances. In both cases, individuals would be authorized to possess the lesser of 150 g or 30 times the daily quantity stipulated by the authorized health care practitioner.

Under the proposed MMPR, individuals would be able to demonstrate that they are in legal possession of dried marihuana by showing a law enforcement official a client-specific label affixed to the product, or an accompanying client-specific document, as well as an appropriate piece of photo identification (see “Packaging and labelling”). Licensed producers would also be required to confirm to a member of a Canadian police force, in the context of an investigation, whether a named individual is a registered client or an individual responsible for a registered client.

Obtaining a supply of dried marihuana

To obtain dried marihuana for medical purposes, an individual would see an authorized health care practitioner and obtain a medical document, requirements for which are specified in the proposed MMPR, signifying their support for their access to marihuana and indicating, among other things, the supported daily quantity in grams. They could then send the original medical document to a licensed producer of their choice. A medical document would allow an individual to register with a licensed producer for the period of use indicated by the authorized health care practitioner, but for no more than one year. After registering as a client, individuals would be able to order dried marihuana from the licensed producer. However, licensed producers would not be allowed to sell or provide more than 30 times the daily amount in any 30-day period, taking into consideration the expected length of time for the shipment to reach the registered client, nor would they be able to ship more than 150 g at a time. Health Canada would publish the name and contact information of each licensed producer on its Web site to help individuals select a supplier. If an individual wishes to purchase a variety of strains that are not all available from one licensed producer, the proposed MMPR would permit the individual to do so by obtaining a new medical document. They would have to discuss this with their health care practitioner. The health care practitioner would have to divide the daily quantity between multiple medical documents.

A registration would not be transferable from one licensed producer to another. If an individual wanted to change licensed producers, they would be required to obtain a new original medical document which they would use to register with a new licensed producer. This is consistent with practices for prescription narcotics, as these are not transferable from pharmacy to pharmacy. The CDSA requires individuals seeking or obtaining an authorization to obtain a controlled substance from a practitioner to disclose to the practitioner the particulars of any controlled substance they obtained or any authorization to obtain any controlled substance that they received in the 30 previous days.

As an alternative to registering with a licensed producer, individuals could obtain their supply of marihuana from a pharmacist, if the legislation and regulations in the pharmacist’s province or territory of practice allowed this. As for other narcotics, pharmacists dispensing marihuana directly would have to do so in accordance with the NCR.

Authorized health care practitioners

Health Canada maintains that the determination as to whether the use of dried marihuana for medical purposes is appropriate for a particular individual is best made through a discussion with their authorized health care practitioner. The proposed MMPR would include a new definition of authorized health care practitioner that includes physicians in all provinces and territories (P/Ts), and would also include nurse practitioners in P/Ts where supporting access to marihuana for medical purposes is included under their scope of practice or in legislation. This is consistent with Health Canada’s approach to other controlled drugs and substances used for medical purposes in the New Classes of Practitioners Regulations (NCPR).

In the NCPR, marihuana is listed as a substance that nurse practitioners are not able to prescribe; however, following consideration of feedback received during stakeholder consultations, the proposed MMPR amend the NCPR to remove this exclusion.

This role would not be expanded beyond nurse practitioners. Nurse practitioners are regulated professionals in all provinces and territories. With the exception of the Yukon, they are authorized to autonomously diagnose and treat health conditions and prescribe medications. This is because they have gained additional competencies through training and education, as well as substantial clinical experience. In most jurisdictions, they have also been deemed to have the competencies required to prescribe medications that contain controlled substances.

The proposed MMPR do not include categories of symptoms and conditions, and there would no longer be a requirement for some individuals to obtain the support of a specialist in addition to that of their primary care physician in order to access marihuana for medical purposes. An individual who needs to access dried marihuana for medical purposes could obtain a medical document from an authorized health care practitioner, or obtain dried marihuana directly from an authorized health care practitioner. The medical document would contain similar information to that on a prescription. Specifically, the authorized health care practitioner would have to indicate their licence information, the location of the medical assessment, the name and date of birth of their patient, a period of use of up to one year, and a daily quantity of marihuana in grams.

Under the current MMAR, physicians who sign medical declarations must sign a statement indicating they are aware that no notice of compliance has been issued under the FDR relating to the safety or effectiveness of dried marihuana, as well as a statement indicating that conventional treatments have been tried or considered and are ineffective or medically inappropriate. The proposed MMPR do not require authorized health care practitioners to make specific declarations with respect to the use of marihuana for medical purposes, the effectiveness or appropriateness of other therapies, or the regulatory status of marihuana. This is expected to reduce the complexity of the physician’s role in access to marihuana for medical purposes.

Authorized health care practitioners may wish to receive more comprehensive information about the potential risks and benefits of using marihuana for medical purposes in order to guide them in their discussions with their patients. Health Canada has established an expert advisory committee to assist in providing comprehensive scientific information about the uses of marihuana to authorized health care practitioners.

2. Production of dried marihuana by licensed producers

The proposed MMPR set out a licensing scheme that is intended to allow for larger-scale production, comparable to that for other narcotics used for medical purposes. This would permit commercial production while regulating the quality and security of dried marihuana, thus reducing public health, safety and security risks.

Production sites would only be located indoors, and not in a private dwelling. This would reduce the risks of diversion posed by outdoor production and the health and safety risks associated with producing marihuana in a private dwelling. Indoor production also addresses the risk of cross-contamination with other nearby crops, particularly industrial hemp.

Licensing

Either an individual or a corporation would be eligible to become a licensed producer. In their application, applicants would have to describe the activities they wish to conduct with marihuana and the purpose for conducting those activities. Licensed producers could also become licensed to conduct certain activities with standardized samples of chemicals that occur naturally in the marihuana plant in order to conduct analytical testing of dried marihuana. For example, they would need to possess pure samples of THC and cannabidiol in order to determine the percentage of THC and cannabidiol in marihuana. In the proposed MMPR, and in this document, cannabis is an inclusive term that is used to capture all of the substances in the scope of the proposed MMPR (e.g. substances such as THC and cannabidiol, as well as marihuana). (see footnote 2)

A number of conditions would have to be met before the issuance of a licence. The licensed producer would have to designate key personnel under their licence. The senior person in charge (SPIC) would have overall responsibility for management of the activities carried out at the licensed site, while the responsible person in charge (RPIC), and alternate RPICs if applicable, would supervise all activities being carried out with marihuana and cannabis other than marihuana (i.e. pure samples of THC and cannabidiol). Key personnel, along with directors and officers in the case of a corporation, would have to hold a valid security clearance, issued by the Minister of Health (see “Security” section for further detail).

The applicant for a production licence would also have to provide a written notification of their application to the local police force, local fire authority and local government. The notice would have to specify the activities for which the licence would be sought, and the address of the site at which activities would be conducted.

The applicant would have to provide information that allows Health Canada to assess whether the applicant has certain key measures in place. The applicant would have to provide the following:

a detailed description of the physical security measures that would be put in place at the site;

a detailed description of how the licensed producer would keep records of their activities with marihuana and cannabis other than marihuana;

a quality assurance report that shows that the buildings, equipment and proposed sanitation program to be used meet the good production practices (see “Good production practices” section) requirements;

a copy of the notices provided to the local police force, local fire authority, and local government;

the maximum quantity of dried marihuana to be produced and sold or provided under licence (if applicable); and

floor plans of the site.

The proposed MMPR also outline a number of reasons for which the Minister of Health (the Minister) would be required to refuse to issue, renew or amend a licence. These include

grounds to believe that false or misleading information has been provided with the application;

information received from a peace officer or other authority gives the Minister reasonable grounds to believe that the applicant has been involved in diversion of a controlled substance;

the issuance or continuation of the licence would likely create a risk to public health, safety or security, including diversion; and

key personnel do not hold a valid security clearance.

Once issued, a licence would be valid for up to three years, and could be renewed. The proposed MMPR also set out a process for amendments to any information on the licence (e.g. the licensed producer wishes to increase its production yield or change sites).

Obtaining starting materials

Licensed producers would be able to legally obtain their starting materials in several ways. With a specific authorization from Health Canada, they would be able to purchase marihuana seeds or marihuana plants from individuals who hold valid PUPLs and DPPLs, or they would be able to import marihuana with the appropriate permits (see “Import and export”). They could purchase Crown stock seeds from Health Canada. Finally, the proposed MMPR would permit licensed producers to obtain marihuana from one another or from a licensed dealer under the NCR.

Import and export

Licensed producers would be permitted to engage in the import or export of marihuana if they have obtained an import or export permit from Health Canada. The import/export permit scheme would be similar to that for other controlled substances and is intended to maintain control over the movement of controlled substances, consistent with Canada’s obligations under international conventions on the control of narcotic drugs and psychotropic substances.

Good production practices

The FDA would apply to marihuana produced under the proposed MMPR and would prohibit licensed producers from selling dried marihuana that had been produced under unsanitary conditions or that had been adulterated.

Licensed producers would also be subject to Good production practices (GPP) outlined in the proposed MMPR. These requirements would require cleanliness of the premises and equipment. The licensed producer would also be required to employ a quality assurance person with appropriate training, experience, and technical knowledge to approve the quality of dried marihuana prior to making it available for sale. Finally, licensed producers would have to test dried marihuana for microbial and chemical contaminants and ensure they are below generally accepted tolerance limits for herbal medicines for human consumption, as established in any publication referred to in Schedule B to the FDA (i.e. various pharmacopoeia and formularies). These requirements would provide individuals who require marihuana for medical purposes with access to a product that does not — by reason of the manner in which it was produced, packaged, labelled or stored — pose undue risk to the health of an individual.

To date, dried marihuana has not been subject to all requirements of the FDA and its Regulations. Therapeutic products, such as echinacea or acetaminophen used for medicinal purposes, are subject to manufacturing controls. In moving to treat marihuana like a medication and taking into consideration concerns about quality control and other aspects governed by the FDA, the FDA would apply to activities of licensed producers. The FDR would apply as set out in the new MER.

Packaging and labelling

Dried marihuana would have to be packaged in a tamper-evident and child-resistant container. The maximum package size would be 15 g. Each package would contain standard information about the product, including the weight in grams, the percentage by weight of delta-9-tetrahydrocannabinol (THC) and of cannabidiol, the packaging date, the expiry date if one has been established by stability testing, and a warning statement to “KEEP OUT OF REACH OF CHILDREN.”

The licensed producer, pharmacist, or authorized health care practitioner would also have to affix a client-specific label, similar to a patient-specific prescription drug label, to the package of dried marihuana. This label would contain the names of the client and the authorized health care practitioner who provided the medical document, the daily quantity of dried marihuana as indicated on the medical document, and the end of the validity period as indicated on the medical document. The label would also include the shipping date and the anticipated date of delivery to the registered client. The licensed producer would have to produce a separate duplicate document of this label to send to clients. This duplicate document or the product label, as well as an appropriate piece of photo identification, could serve to demonstrate legal possession (see “Possession of dried marihuana” above).

Each package of dried marihuana sold to a client would also need to be accompanied by a copy of the most current version of the Health Canada document titled Information on the Use of Marihuana for Medical Purposes. This document indicates that the safety and efficacy of dried marihuana for medical purposes has not been established and provides a summary of the known information about the uses and risks of marihuana for medical purposes so that individuals could be informed about their treatment choice.

The FDA provisions will also apply to prohibit labelling, packaging or selling in a manner that is false, misleading or likely to create an erroneous impression about the character or safety of the drug. For example, unsubstantiated health claims cannot be put on product packaging. Advertising any narcotic to the general public is prohibited under the NCR, and this prohibition would continue to apply to dried marihuana. As with other narcotics, this is intended to prevent known and potential harms to the health of Canadians who are vulnerable with respect to advertising of prescription drugs because they do not have the level of expertise to make informed choices regarding their use. To help individuals select a supplier, Health Canada would publish the name and contact information of licensed producers on its Web site.

3. Direct sale and distribution of dried marihuana to individuals authorized to possess it

Individuals who require marihuana for medical purposes have several avenues to obtain it under the proposed MMPR. Dried marihuana could be sold or provided directly to registered clients by the licensed producer through secure shipping only. It could also be sold or provided by pharmacists, authorized health care practitioners, and hospitals, who could purchase it directly from licensed producers.

Distribution through licensed producers

The primary means of distribution of dried marihuana would be directly from the licensed producer to the registered client using secure shipping methods, as the proposed MMPR do not allow for store-front or retail distribution centres. This is how PPS has distributed dried marihuana and marihuana seeds to Program participants since 2003. This method has proven to be secure and to adequately mitigate the risk of diversion.

Health Canada would not regulate the price of marihuana under the MMPR. It would be up to licensed producers to set the price.

Before selling dried marihuana to an individual, a licensed producer would have to register the individual as a client. In the process of registering a client, licensed producers would have to verify that the supporting authorized health care practitioner is entitled to practice their profession in the province in which they were consulted by the prospective client and that they have not been prohibited from prescribing narcotics. These tasks are similar to those conducted by a pharmacist when filling out a prescription. The licensed producer would also have to confirm with the office of the authorized health care practitioner that the information in the medical document, including the daily quantity, is correct and complete.

Shipping

Dried marihuana would have to be shipped directly to a registered client using a shipping service that includes a means of tracking the package during transit. It would have to be sent in only one shipment per order. Finally, dried marihuana would have to be securely packed and shipped in a container that would not allow the contents to be identified visually or by odour.

Dispensing dried marihuana through pharmacists

The current MMAR allows for pharmacists to dispense marihuana that has been produced by a licensed dealer under contract with Her Majesty in right of Canada to the holder of an authorization to possess. This provision was added in 2005 when some provinces and territories expressed an interest in allowing pharmacists to undertake this activity. While it is permitted under the current MMAR, dispensing of marihuana for medical purposes by pharmacists has never been done to date.

Under the proposed MMPR, pharmacists would have the ability to order dried marihuana from licensed producers and to dispense it for medical purposes in accordance with the NCR, provided that P/T regulations governing the practice of pharmacy permit them to do so. In P/Ts where pharmacists are authorized to dispense dried marihuana for medical purposes, individuals would be able to go to a pharmacy with their medical document to receive dried marihuana. Stakeholders, including some P/T health authorities, felt that this would bring the distribution of marihuana more in line with the distribution of narcotic medications.

Other overarching requirements

Security

According to law enforcement officials, organized crime groups are involved in the trafficking of marihuana, and the profits derived from this activity allow them to support themselves and participate in the trade of other illicit commodities. The security measures required in the proposed MMPR are therefore designed not only to ensure that licensed producers take steps to ensure the physical security of their site, but also to prevent infiltration by criminal groups who may wish to exploit the lawful production of marihuana for medical purposes for illicit purposes. In contrast, licences to produce issued under the current MMAR do not carry any prescriptive physical security requirements; therefore, the associated production sites are more vulnerable to violent intrusions, theft and diversion.

Health Canada’s Directive on Physical Security Requirements for Controlled Substances establishes security requirements for the storage of all controlled substances. These requirements are scaled to the illicit market value of the controlled substance and to the crime rates in various areas. This directive would apply to the storage of dried marihuana by licensed producers.

The proposed MMPR also set out physical security requirements for the entire site, as well as for restricted-access areas. Restricted-access areas would include all areas where a licensed activity is conducted with marihuana and cannabis other than marihuana (i.e. a lab, the production room, the area where dried marihuana is packaged and labelled). Access to these areas would have to be restricted only to individuals whose presence is required because of their work responsibilities. Licensed producers would have to put systems in place to ensure that access is controlled at all times, as well as 24-7 visual monitoring systems to detect unlawful conduct. The restricted areas would also have to be secured by an intrusion detection system that would detect attempted or actual unauthorized access to the area. The same principles of visual monitoring and intrusion detection would apply to the perimeter of the entire site. Licensed producers would also have to ensure the site and its restricted areas are designed in a manner that prevents unauthorized entry. Should an applicant for a licence fail to demonstrate that they have put in place appropriate physical security measures as outlined in the proposed MMPR, the production licence would be refused.

The proposed MMPR also include requirements that the holder of the production licence, directors and officers (in the case of a corporation) and all key personnel must hold enhanced security clearances prior to the issuance of a producer’s licence. To obtain an enhanced security clearance, these individuals would be required to submit an application with personal information and documents to Health Canada, so that checks and verifications of relevant files of law enforcement agencies could be conducted. As well as criminal record checks, these clearances would involve a global evaluation of the applicant’s potential associations with criminal or violent organizations, associations with individuals linked to such organizations, and the risk of whether the applicant might be induced to assist, abet or commit any acts that would pose a risk to the control of the production and distribution of cannabis. Should the applicant not successfully obtain a security clearance, the production licence would be refused.

Information sharing

The proposed MMPR include provisions that would require licensed producers to share information with appropriate authorities in certain circumstances. For example, as with the current MMAR, law enforcement needs a way to verify whether a named individual is a registered client of the producer. If a member of a Canadian police force requires information in the course of an investigation, a licensed producer would be required to confirm as soon as practicable whether the individual is a registered client or an individual who is responsible for a registered client and the daily quantity of dried marihuana specified in the medical document.

Record keeping

As described under the proposed MMPR, licensed producers would have to keep records of their activities with cannabis, including all transactions (sale, exportation, importation), all dried marihuana returned from clients, and an inventory of cannabis (e.g. seeds, fresh harvested marihuana, dried marihuana and packaged marihuana). All records would have to be kept for a period of at least two years, in a format that would be easily auditable, and would have to be made available to Health Canada upon request.

Regulatory and non-regulatory options considered

In addition to the proposed approach described above, the following options were considered.

Health Canada continues to authorize individuals to possess dried marihuana for medical purposes, but the current supply options would be replaced with licensed production by private industry.

Under this option, Health Canada would establish a licensing framework to allow for a commercial industry for the production and distribution of dried marihuana for medical purposes. Personal and designated production of dried marihuana for medical purposes would be eliminated, and Health Canada would no longer produce and distribute marihuana directly to individuals, eliminating related contract costs. However, Health Canada would continue to authorize individuals to possess dried marihuana for medical purposes. This would mean that individuals would have to apply to Health Canada for an authorization prior to registering as a client with a licensed producer. Health Canada would continue to issue authorization documents and maintain a database of all authorized persons.

This is not the preferred option because it is inconsistent with one of the key objectives of reform, which is to treat marihuana as much as possible like a medication. Furthermore, as the numbers of users of marihuana for medical purposes are expected to continue to grow, Health Canada would continue to incur high administrative costs by maintaining this role.

Status quo

Under this option, Health Canada would maintain the existing Program in its current form. Health Canada would continue to issue authorizations to possess, PUPLs and DPPLs to program applicants. In order to manage the expected growth in applications, Health Canada would have to review its administrative processes and its Program infrastructure to look for additional efficiencies. Given that the numbers of individuals in the Program continue to rise, costs for such a contract would also continue to rise on an annual basis.

Additionally, Health Canada could consider raising the price of dried marihuana to cover the actual cost of production and distribution.

Health Canada could also expand its capacity to inspect PUPLs and DPPLs. However, an effective inspection program for thousands of sites across the country would be costly. In addition, Health Canada’s inspectors would not be able to address public health, safety and security concerns expressed by stakeholders, such as electrical hazards, humidity and poor air quality in personal and designated production sites.

The status quo does not respond to stakeholder concerns about the health and safety risks of personal production. Also, as legal challenges against the current MMAR continue, and as the number of individuals entering the Program rises, Health Canada would face rising pressures that would be difficult to contain.

Benefits and costs

The cost-benefit analysis (CBA) was based on a projected scenario that represents the most likely outcome of the regulatory change. A sensitivity analysis of the results was undertaken for a range of key parameters to capture the effect of uncertainty for each variable used in the analysis of the estimated costs and benefits.

The study focused on the consumption of marihuana, obtained from legal sources of supply, for medical purposes. The broader issue of illicit market supply and use was considered to be outside the scope of the analysis.

Marihuana for medical purposes is not an approved therapeutic product and the scientific studies of its safety and efficacy are not conclusive. The CBA made no attempt to measure real or perceived health costs or benefits in terms of therapeutic effects or improvements to quality of life. Instead, the study relied on estimating purely economic impacts on the basis of a change in consumer surplus that could arise from the proposed MMPR.

Projected number of potential users

The number of persons using marihuana for medical purposes was projected over the 10-year forecast period, from 2014 to 2024, based on historical patterns of use under the current Program and an estimated upper limit. This limit represents the current number of people who indicate they use marihuana for medical purposes in the most recent (2011) population-level survey of Canadians aged 15 years and over.

Under both the status quo scenario and the proposed MMPR, the analysis assumed the historical growth rate in authorized users of approximately 40% per annum to continue over the policy impact period (2014–2024). Under the status quo scenario, the number of potential users of marihuana for medical purposes was projected to increase from a base number of 57 799 in 2014 to about 433 688 in 2024, slightly below the upper limit of 450 000. While the absolute number of legal users is still expected to increase over time, this increase was projected to be approximately 30% less over the 10-year period under the proposed MMPR compared to the status quo scenario. This would mean an increase from a low projected estimate of 41 384 in 2014 to approximately 308 755 users by the end of the 10th year of implementation.

Benefits

The analysis quantified and monetized the beneficial impacts of the proposed MMPR in terms of the reduction in risks associated with residential marihuana cultivation such as electrical fire hazards, potential home intrusions by criminals and the risks of sustaining serious injury or death in either case. Benefits were also estimated in terms of the economic efficiency impacts.

Reduction in residential fire risks

The focus on safety impacts was on the risk and consequence of residential fires resulting from faulty electrical wiring, overloading of electrical circuits, tampering with electrical usage monitoring and other electrical system malfunction arising from indoor marihuana cultivation. The analysis assumed that under the proposed MMPR, the risks of property damage, personal injury or death resulting from marihuana production-related fires would be significantly reduced but not completely eliminated. The social cost of adverse safety events related to the production of marihuana for medical purposes was estimated to be reduced, over the period from 2014 to 2024, by about 40% under the proposed MMPR, at a present value of $64.32 million. This represents annualized savings (avoided costs of property damage, injury and death from residential fires) of approximately $9.58 million per year for 10 years.

Reduction in risk of break-ins / home invasions

The focus of the security impacts was on the risk and consequences of home invasion, violence targeting residential production involved in misuse, and criminal activity related to marihuana distribution on the illegal market. Information from Canadian law enforcement authorities on misuse of production licences, home invasions and shootings was used as the basis to estimate the risk of violence. Overall, the analysis valued the projected reduction in the risks of break-ins / home invasions due to the proposed MMPR at $0.38 million in 2014, rising to $26.48 million in 2024. The present value of security cost-savings under the proposed MMPR was estimated at approximately $89.03 million over the policy impact period, with an average annualized value of $13.27 million. The proposed MMPR would have lower security costs (over 40% lower than under the status quo) due to the reduction in misuse activity that results from the expectation that eliminating personal and designated production in favour of a commercial licensing scheme would deter individuals interested in exploiting the Program.

Program administration cost savings

Government administration costs of the current Program have increased significantly as the number of Program participants has grown. In the absence of the proposed regulatory changes, the analysis assumed a continuation of the growth in Program applications and corresponding substantial increases in the cost to Health Canada to authorize legal possession and license production of marihuana for medical purposes. The CBA estimated that the administration cost of the current Program would increase from $20.63 million in 2014 to over $120 million in 2024, in the absence of any changes. These costs include salary, employee benefits and accommodation costs associated with dedicated staff, operations and maintenance costs, training, supplies and other corporate overhead costs.

Under the proposed MMPR, Health Canada would eliminate the role it plays in determining the eligibility of persons to access a legal supply of marihuana for medical purposes and return to its traditional role as a regulator of industry. This results in significant administrative cost savings over the policy impact period. Under the scenario assumed for the new regulated market, the regulatory proposal was estimated to lead to more than a 90% reduction in Health Canada’s administrative expenditures. The present value of administration costs savings over 10 years was estimated at $478 million. On average, the proposed MMPR would generate administrative cost savings of approximately $71.24 million per year over this period. (This estimate does not include potential savings in contract supply costs or subsidies.)

Producer surplus gains (see footnote 3)

The proposed MMPR would establish a regulated commercial market for the production and sale of marihuana for medical purposes. Private industry participation in the proposed regime is expected to yield benefits to society. Under the status quo, marihuana is either produced through private arrangements or at a cost to the taxpayer. There were no benefits to society at large beyond the benefits to the individuals involved. Under the proposed MMPR, there would be beneficial impacts for the industry, over and above the benefits to the individuals involved in the market. The analysis measured this change in welfare by estimating a change in producer surplus gains under the proposed policy. No producer surplus is derived in the status quo. The CBA found that the new regulated market would generate an overall producer surplus of $2.64 million in the first year of implementation (2014–15), rising to about $110 million in 2024 as the market expands. The present value of producer surplus gains over the policy horizon (2014–24) was estimated at $339.85 million or about $50.65 million (annualized average) per year for 10 years.

Reduction in deadweight loss (see footnote 4)

The CBA also estimated the deadweight loss under the current marihuana access regime from the effective subsidy to supply that resulted in excess demand relative to what a market equilibrium quantity would be. The value of this economic efficiency loss was relatively small as the Government supply component in the CBA model was comparatively small. The analysis assumes the imposition and payment of the regular consumption tax (HST) by consumers of marihuana under the proposed framework. Both the presence of an effective subsidy in the Government supply market for the status quo and the assumed, potential imposition of tax on purchases in the commercial market were projected to cause welfare losses to society by distorting market signals and causing sub-optimal allocation of scarce resources.

The economic efficiency loss under the status quo was estimated to be reduced by about $1.51 million during the first year of implementation (2014) of the proposed MMPR, rising to about $7.70 million in 2024. This represents an average annualized reduction of about $5.03 million or a total present value of approximately $33.74 million over 10 years. Overall, the reduction in deadweight loss is small and not a significant benefit of the regulatory change.

In total, the present value of benefits of the proposed MMPR was estimated to be $1.005 billion from 2014 to 2024. On average, this represents an annualized savings of approximately $149.77 million each year for 10 years.

Costs

The CBA projected the negative impacts of the proposed MMPR on social welfare on the basis of a change in the welfare of the individuals most directly affected by the regulatory change. Because the available scientific evidence does not conclusively support the use of dried marihuana for therapeutic purposes, the causal relationships between the use of the substance and purported medical benefits are inconclusive. Thus, the analysis measures the change in individual welfare under the policy directly by estimating the change in users’ consumer surplus. Economic theory does not require the existence of scientifically proven medical benefit in order to measure the welfare implications of a public policy change. The observation that some in society are willing to pay to obtain marihuana for medical reasons was deemed as a sufficient basis for measuring a change in consumer welfare.

Loss of consumer surplus (see footnote 5)

Consumer surplus was estimated as the area under the demand curve and above the price consumers would potentially pay for marihuana under the proposed MMPR. Under the proposed MMPR, the analysis projected a reduction in the number of legal marihuana users vis-à-vis the status quo, and a reduction in the quantity consumed due to a potential increase in the price of marihuana in the regulated market. Under this scenario, the CBA predicted a significant loss of consumer surplus from this policy change. The analysis assumes a price change from about $7.60 per gram to about $8.80 per gram over the 10-year period. This assumption reflects the potentially higher cost of producing marihuana in the new commercial market, compared to personal or designated production under the current MMAR. The higher price also reflects the potentially higher product quality due to quality control measures to limit contaminants and toxic substances and to ensure a product of consistent quality over time. The analysis assumes that this projected price change would lead to a decrease in the relative number of legal users by about 30% over the next 10 years compared to the status quo. The total quantity of marihuana consumed was also estimated to decrease. On average, the loss in consumer surplus (representing the total social costs of the proposed MMPR) was estimated to be about –$166 million per year. The present value over 10 years was estimated to be about $1.115 billion. (The study did not estimate consumer surplus for any consumption derived from illicit supply sources).

Business compliance costs

Business compliance costs were estimated as 10% of overall supply cost. Based on this, the CBA estimated that business compliance costs would be about double under the proposed MMPR. As business compliance costs are incorporated in the supply cost for both the status quo and policy cases, they do not form part of the CBA. The business compliance costs mostly fall on medium and large businesses (as opposed to smaller businesses) as the scale of licensed producer activity (in terms of employees and sales revenue) is expected to grow beyond that of a small business after two years.

Net benefits

The scenario representing the most likely outcome of the cost-benefit model was the focus of the quantified results for estimating the present value of the net benefits of the regulatory proposal. The estimated net present value (NPV) was –$109.7 million, with an annualized value of –$16.35 million. This represents an overall net loss to society due solely to a reduction in consumer surplus.

This loss in consumer surplus results from reduced relative growth in consumption and a higher supply price due mostly to the shift from cheaper home production to a commercial market with appropriate regulatory controls and oversight.

A full assessment of the sensitivity of the NPV to all key variables was undertaken using Monte Carlo probabilistic methods. The results showed that there was substantial variability in the estimate (range: –$26 billion to +$10 billion; mean: –$1,688 million).

The status quo scenario was modeled on the assumption that Government resources required to administer the current Program would continue to grow over time to fully accommodate the required Program uptake in terms of numbers of persons wanting to access a legal source of marihuana for medical purposes. The Program administration cost was projected to increase from $13.8 million (FY 2013–14) to over $120 million (FY 2023–24). In reality, it is highly unlikely that such additional resources would be available to accommodate the forecast increase in Program participation in an era of fiscal restraint.

This qualification is useful when interpreting the overall results. The impact of a resource constraint was analyzed using a simulation model. The simulation results indicated that the number of authorizations to possess in a constrained status quo scenario might be only one-third of in the unconstrained case (i.e. perhaps only 150 000 authorizations to possess could be accommodated in the current Program over the forecast period in practice, compared with the assumed unconstrained growth of up to 450 000 users).

Non-quantified benefits

Not all significant impacts of the proposed MMPR were included in the quantitative results presented above. A few of these potential impacts were not quantified due to insufficient data on which to base estimates. Others were felt to be smaller in magnitude than the costs and benefits which were estimated. Nonetheless, some were considered to be substantial over the longer term but were excluded from the quantitative analysis because they were considered highly contingent on a number of economic, social and regulatory factors and would likely start to be measurable only near the end of, or after, the 10-year projection period assumed for the quantified CBA.

These impacts were assessed qualitatively. Major attention was given to (i) additional safety and security issues, impacts and possible benefits; (ii) reductions in information, administration and other transactions costs for users, the medical community and other stakeholders; (iii) the possible longer-term benefits from the full establishment of a large, competitive and innovative legal industry for marihuana users, the economy and Canadian society; and (iv) the longer-term possibility that a fully functioning and reasonably competitive, efficient and innovative market would promote increased uptake by individuals currently accessing marihuana through the illicit market.

The results of the qualitative analysis showed potentially highly beneficial effects. The results of the qualitative assessment are included in the full CBA report, which is available upon request.

Cost-benefit statement

Content Year 1 (2014) Year 5 (2019) Year 10 (2024) Present Value Annualized Average A. Quantified impacts (million CAN$, 2012) Benefits Canadians Reduction in risk of residential fire $1.16 $7.19 $19.26 $64.32 $9.58 Reduction in risk of home invasion $0.38 $16.79 $26.48 $89.03 $13.27 Industry

(see footnote 6) Producer surplus gain $2.64 $44.33 $110.03 $339.85 $50.65 Government Program administration costs savings $18.70 $70.66 $117.50 $478.01 $71.24 Reduction in deadweight loss $1.51 $5.55 $7.70 $33.74 $5.03 Total benefits $24.40 $144.52 $281.00 $1,004.94 $149.77 Costs Consumers Loss of consumer surplus (years 3–10) $11.21 –$135.39 –$410.37 –$1,114.66 –$166.12 Net present value (NPV at 8%) –$109.72 –$16.35 B. Quantified impacts in non-$ — e.g. from a risk assessment Positive impacts Canadians Residential production licences avoided 38 481 178 451 289 065 Industry

(see footnote 7) New small businesses established 51 61 61 Negative impacts Consumers Consumers projected to pay potentially higher prices for marihuana 41 384 189 486 308 755 Relative reduction in legal consumers –16 415 –78 283 –124 933 Relative reduction in legal quantities consumed –40 838 kg –203 098 kg –357 221 kg C. Qualitative impacts Consumers Participants in MMAP: Reduced risk of illness due to mould caused by improper growing methods. Continued access to marihuana for medical purposes. Better-quality product, on average. Treatment is driven by relationship with authorized health care practitioners instead of Health Canada. Non-participants in MMAP: Potential availability of more data on impact of use of marihuana for medical purposes due to possible licensed producers (LP) R&D investments. Government: Reduced criminal activity in residential areas due to banning of legal marihuana production. Property taxes / local jobs for areas with LPs in their jurisdiction.

Note: Policy impact period from 2014 to 2024, assumed social discount rate of 8%.

Impacts on economy, businesses and consumers

Government, and ultimately, the Canadian taxpayer, are the main beneficiaries of regulatory change through the reduction in Program administration costs. Business, especially medium-sized business, is also a beneficiary in terms of producer surplus benefits and the expansion of the legal marihuana supply industry that could grow to more than $1.3 billion per year in annual sales by the end of the forecast period. It is important to note that producer surplus is not related to profitability and should not be taken as an indicator of profitability.

Users of a legal source of marihuana for medical purposes are the stakeholder group that is impacted in terms of the reduced consumer surplus. The general public, in contrast, benefits slightly in terms of reduced deadweight loss and the reduced safety costs which would be borne through residential insurance.

The principal impact on the economy would be the replacement of the current regime — a combination of personal production by private citizens and a heavily subsidized Government supply option — by a commercial industry. This would significantly reduce the burden on the Government of Canada and Canadian taxpayers. By 2024, rather than attempting to regulate potentially up to 450 000 individuals, Health Canada would likely be dealing with a significantly smaller number of licensed businesses.

It is projected that within one to two years of the industry’s establishment, licensed producers would have grown beyond the scope of small business. While there would be substantial investments required at the start-up phase, returns supported by a growing industry could potentially compensate owners of capital in a relatively short time.

Much of the societal risk and burden created by the current MMAR are created from the indirect impacts of allowing individuals to produce marihuana at home. By shifting the production of marihuana for medical purposes from seldom-inspected private homes to more rigorously regulated, secure licensed producers, these impacts would be significantly reduced or altogether eliminated.

Additionally, there is a significant impact on “enforcement clarity” for law enforcement. Since producing marihuana for medical purposes in private dwellings is legal under the existing regime, police have sometimes expressed difficulty investigating suspected illicit production sites operating under the cover of a licence. Under the proposed MMPR, all home production of marihuana would be illegal and only licensed producers would be authorized for legal production.

Health Canada anticipates that the current social ills caused by home production of marihuana for medical purposes would increase if the current Program continues. Due to the rapid growth of the Program, the adverse consequences produced by the existing Program will only compound over time. The existing Program participant base has been difficult to monitor and regulate effectively, and exponential growth will make it more so. The proposed MMPR are designed to minimize the detrimental impacts of the current MMAR.

Moreover, with commercial entities cultivating marihuana for medical purposes, it is reasonable to expect that resources would be invested in improving the quality of the product and in researching the effects of marihuana. This could result in a growing body of scientific information that could advance society’s knowledge about uses of the plant.

Impacts by region

Several regions would have negative overall impacts because they have a high concentration of Program usage; thus, they have disproportionate shares of consumer surplus reduction. These regions are British Columbia and the Atlantic (primarily Nova Scotia). Other regions would have positive overall impacts. Savings from lower administrative costs would positively impact Ontario, because the Program is largely administered from Ontario. It would also positively impact the Prairie region because that is where government-contracted marihuana production occurs.

“One-for-One” Rule

While the proposed MMPR could impose administrative burden costs on business, they would be exempted from the One-for-One Rule because they are addressing unique and exceptional circumstances. Canadian courts have found that individuals who have demonstrated a medical need for marihuana have a right under the Charter to reasonable access to a legal source of marihuana for medical purposes. Therefore, the Government must establish a legal framework which provides access to this controlled substance.

According to the United Nations World Drug Report, marihuana is the most trafficked illicit drug in North America. The Royal Canadian Mounted Police (RCMP) estimates that the illegal marihuana market in Canada alone represents a multi-billion dollar per year industry. Because marihuana is a highly divertible controlled substance, and given that all controlled substances must be tracked and reported internationally, some administrative burden is justified. Security measures therefore account for a large portion of the administrative burden on industry in the proposed MMPR. These measures are included to address the risks to public health, safety and security that are associated with marihuana production.

Additionally, as there is no licit Canadian industry for the production of marihuana for medical purposes, the proposed MMPR set out a scheme which interested individuals or corporations could elect to participate in or not — it would not place an administrative burden on any existing business activities.

Small business lens

The proposed MMPR would enable an entirely new industry to be created in Canada. There are therefore no incumbent firms directly affected by the regulatory change.

Achieving the benefits contemplated by the proposed MMPR is highly dependent on establishing a viable marihuana for medical purposes industry, with licensed producers that produce as the anticipated demand for the product increases. Based on consultations to date, it appears that all entities contemplating entry into the new market would currently qualify as small businesses. Small businesses typically have less capacity to make the investments required to comply with regulatory requirements; therefore, their viability could be disproportionately affected. The proposed MMPR, therefore, have been designed to minimize compliance and administrative burden to the greatest extent possible, based on the feedback received from potential licence applicants. The MMPR account for the need to maintain reasonable safeguards against the risks of illegal diversion of the product, entry into the market by criminal elements, and the ability of the Government to detect potential misuse of the system by users.

The impact of the regulatory burden on small businesses, however, is expected to be transitory. Projections indicate that, due to the significant size of the potential legal market, within two years of implementation, competent licensed producers could earn returns that can compensate for the initial outlay on regulatory-related and other start-up costs, and could also potentially have experienced growth in their businesses to no longer be designated small businesses.

Regulatory flexibility analysis statement

According to Health Canada’s analysis using the Regulatory Cost Calculator, the two most significant cost drivers for businesses under the proposed MMPR are “equipment” (included in compliance cost) and “record keeping” (administrative costs). Equipment costs include security-related expenditures required by the proposed MMPR.

Security-related costs were the most important equipment-related costs contributing to the business compliance burden. These costs include securing production facilities from external threats, installation and operation of surveillance systems, personnel access control and ongoing site monitoring to prevent unlawful access.

In general, the security of the entire regulated supply system from infiltration by criminals or from abuse and exploitation was considered by far the greatest risk faced by the new regime. Thus, the initial option considered proposed stringent, prescriptive requirements and controls around production, sale and distribution of marihuana as the way to mitigate these risks. However, these requirements were eventually rejected in favour of greater supply flexibility and a performance-based production security standard which achieves the same objectives but minimizes the compliance burden on potential businesses. The original option estimated compliance costs based on the prescriptive requirements. The flexible option assumes that small businesses would tailor their compliance costs in a more efficient way to meet the performance standards outlined in the proposed MMPR.

Similarly, costs associated with maintaining and reporting activities with marihuana were the most significant administrative cost identified in the Department’s analysis. As part of the options considered for LPs to track and maintain a record of their activities, the initial option considered requiring a centralized reporting and patient tracking database system to further mitigate the risks of diversion and abuse. This would have entailed a corresponding investment in IT infrastructure and high maintenance and operational costs to be incurred by all LPs. The initial option cost estimate is higher partly because of the higher administrative burden imposed by this requirement. The proposed MMPR, conversely, include record-keeping costs associated only with patient registration and the supply of orders. This does not include any capital, maintenance or other operational expenditures related to record-keeping or other tracking systems since none is specifically imposed by the proposed MMPR. The flexible option, therefore, has lower business administrative costs.

Another provision made to ensure regulatory flexibility for businesses is the requirement under the flexible option for LP licences to be renewed up to every three years as opposed to annually, as considered under the initial option.

Finally, the above consideration notwithstanding, the recommended flexible option may still appear to be imposing heavy compliance and administrative burdens on potential small business LP, upon closer examination. However, it should be noted that the requirements included in the proposed MMPR are considered necessary to achieving the goal of reducing the potential for abuse and exploitation of the proposed system and reducing the risks to public safety and security, while still maintaining access to marihuana for medical purposes for Canadians with medical need.

Information Initial Option Flexible Option Short description (Highly Prescriptive Security and Heavy Administrative Burden) (Performance-based Security Standard and Moderate Administrative Burden ) Number of small businesses impacted 51 51 type of value Annualized Average (2012) Present Value (2012) Annualized Average (2012) Present Value (2012) Compliance costs $19,996,731 $140,448,670 $14,680,923 $103,112,659 Administrative costs $129,698 $910,947 $93,993 $660,168 Total costs (all small businesses) $20,126,429 $141,359,618 $14,774,916 $103,772,827 Total cost per small business $394,636 $2,771,757 $289,704 $2,034,761 Risk considerations Balances the need to control the risks of diversion and the risks to safety and security of the public with the need to encourage private sector participation by reducing start-up and overall costs of doing business in a new regulated market

Note: Costs have been estimated using the Standard Cost Model. Detailed calculations are available upon request.

The flexible option is recommended. Please see Annex A for the small business lens checklist.

Consultation

Following the announcement of the proposed changes to the Program by the Minister of Health on June 17, 2011 (the original proposal), a consultation document was posted on the Health Canada Web site and a 45-day public consultation was launched. Health Canada also organized targeted stakeholder consultations between August and November 2011 to gather comments on the proposed improvements to the Program. In addition, Health Canada has notified the United States Drug Enforcement Administration and the International Narcotics Control Board that a new program is under consideration wherein individuals would no longer be licensed to produce their own marihuana and supply would come from licensed producers.

A detailed summary of these consultations was published in June 2012. Most stakeholder groups welcomed Health Canada’s efforts to create a regulated industry. In particular, law enforcement, municipal governments and fire officials were supportive of the plans to eliminate personal and designated production in dwellings and to establish a commercial market. A large number of entities expressed an interest in becoming licensed to produce under the proposed regulatory framework. Program participants, however, indicated that they did not want to give up the ability to produce their own marihuana, and expressed concerns that they would face higher costs for marihuana for medical purposes in the future. The medical community voiced its continued concerns with the lack of scientific evidence regarding the use of marihuana for medical purposes.

The full consultation report can be found on the Health Canada Web site at www.hc-sc.gc.ca/dhp-mps/consultation/marihuana/_2011/program/consult_reform-eng.php.

Rationale

In recent years, a wide range of stakeholders have voiced concerns about the MMAP. Concerns include the risk of diversion of marihuana, the complexity and timeliness of the application and authorization process, health, safety and security issues associated with the production of marihuana in homes and communities, and the lack of adequate scientific evidence for the medical use of marihuana. A new regulatory framework is required to address these and other issues by providing an effective means of access to marihuana for medical purposes while continuing to regulate marihuana as a controlled substance.

The proposed MMPR would impose a significant compliance and administrative burden on businesses that may wish to enter the proposed market. However, the requirements included in the proposed MMPR are considered necessary to achieving the goal of reducing the potential for abuse and exploitation of the proposed system and reducing the risks to public health, safety and security, while still maintaining reasonable access to a legal source of marihuana for medical purposes, as per the decisions of Canadian courts, for Canadians with medical need.

The proposed MMPR would provide a more efficient way of accessing marihuana for medical purposes, particularly by affording individuals with medical need increased choice in terms of authorized health care practitioners, marihuana strains, and suppliers. Eliminating licensed marihuana production in homes would eliminate public health, safety and security concerns relating to those licensed activities, as well as eliminate ambiguities for law enforcement. Finally, the elimination of Health Canada’s role in authorizing individual access to marihuana for medical purposes, and production and distribution of marihuana, would significantly reduce the cost of administering the current Program.

Implementation, enforcement and service standards

Repeal of the MMAR

The proposed MMPR include a number of consequential changes to the MMAR, as well as two transitional registration schemes that would allow for gradual transition to the new regulatory regime. Upon coming into force, the proposed MMPR would allow the holder of an authorization to possess to obtain their supply of marihuana from a licensed producer by registering as a client with that producer. Similarly, an individual who had obtained a medical declaration from their medical practitioner under the MMAR could register as a client with a licensed producer instead of applying to Health Canada for an authorization to possess.

The MMAR would be repealed on March 31, 2014. At that point, all authorizations and licences issued under the MMAR would no longer be valid. However, individuals would be authorized to use their expired authorizations to possess to register as a client with a licensed producer for up to one year after their date of issue, unless a period of usage of less than 12 months has been indicated in the medical declaration.

New PUPL and DPPL would no longer be issued if the application is submitted after September 30, 2013. Similarly, existing PUPL and DPPL holders would not be able to change the location of their production site on the licence as of the same date. This is to avoid situations where a person receives a PUPL or DPPL as their supply option, but would not be able to produce a crop before the repeal of the MMAR.

Compliance and enforcement

In general, compliance and enforcement activities would be subject to the broader Health Canada compliance and enforcement policy for controlled substances and precursors. Compliance verification would largely take the form of pre-licensing inspections, and inspections of licensed sites. Inspections would occur under existing legislative authorities. Compliance would be assessed against the proposed MMPR, the FDA, the NCR, and, during transition, the MMAR, as well as any relevant directives and guidelines. Potential responses to non-compliance could include placing conditions on a licence, the full or partial suspension of a licence, the revocation of a licence or permit, and the refusal to issue, amend, or renew a licence, or prosecution under the CDSA or FDA.

Performance measurement and evaluation

Health Canada has developed a Performance Measurement and Evaluation Plan (PMEP) to measure the performance and conduct an evaluation of the proposed MMPR. This plan specifies the methods selected for ongoing monitoring of the proposed MMPR, performance targets, indicators and data sources. These would be comprehensively tracked as part of the performance measurement strategy outlined in the PMEP. This PMEP is available upon request.

Contact

Medical Marihuana Regulatory Reform

Controlled Substances and Tobacco Directorate

Healthy Environments and Consumer Safety Branch

Health Canada

Address locator AL3503D

Ottawa, Ontario

K1A 0K9

Fax: 613-941-7240

Email:consultations-marihuana@hc-sc.gc.ca

Annex A: Small Business Lens Checklist

Small business lens checklist

1. Name of the sponsoring regulatory organization

Health Canada

2. Title of the regulatory proposal (should match the RIAS title)

Marihuana for Medical Purposes Regulations

3. Is the checklist submitted with a RIAS for the Canada Gazette, Part Ⅰ or Part Ⅱ?

Note: Checklists should be submitted to TBS-RAS along with the RIAS for the Canada Gazette, Part Ⅰ, when seeking TBS-RAS approval. If the small business lens is applicable to a proposal that is exempted from prepublication in the Canada Gazette, the checklist is to be submitted along with the RIAS for publication in the Canada Gazette, Part Ⅱ.

Canada Gazette , Part Ⅰ

Canada Gazette, Part Ⅱ

4. Date finalized copy received by TBS-RAS (DD/MM/YYYY): 01/10/2012

If the answer to any of the questions is no or N/A, please include a short justification in the box below the question.

A. Small business regulatory design

I Communication and transparency Yes No N/A 1. Are the proposed regulations or requirements easily understandable in everyday language? Text in the MMPR has been drafted to be as clear as possible. However, the MMPR would establish a brand new commercial industry producing a controlled substance. As such, these Regulations are complex, since they regulate both how marihuana is to be produced, how consumers access marihuana, and security and record-keeping requirements which allow Health Canada to report to international agencies and to perform compliance and enforcement activities with the aim of preventing diversion of marihuana to the illicit market. Participants in this market may not have had any experience in operating in a regulated industry before, and therefore, there may still be some challenges for them in understanding the requirements. Where possible, however, plain language guidance documents are being developed in order to clearly communicate what is required from businesses. 2. Is there a clear connection between the requirements and the purpose (or intent) of the proposed regulations? As described in the RIAS, and as also previously communicated in public consultations, there are clear reasons for the regulatory change which is being made. 3. Will there be an implementation plan that includes communications and compliance promotion activities, that informs small business of a regulatory change and guides them on how to comply with it (information sessions, sample assessments, toolkits, Web sites, etc.)? As these Regulations create a brand new industry, an extensive communication plan has been developed for program participants and potential license holders. The marihuana for medical purposes section of the Health Canada Web site is being revised to be clearer, and to make information for all stakeholders easier to find. Guidance documents for specific technical requirements of the Regulations are in development and would be ready by the time the Regulations are fully in force. 4. If new forms, reports or processes are introduced, are they consistent in appearance and format with other relevant government forms, reports or processes? Many of the processes and documents for licensed producers would be analogous to current processes and documents used for other regulated parties who conduct activities with controlled substances. As much as possible, the marihuana-related documentation would be similar to what already exists. II Simplification and streamlining Yes No N/A 1. Will streamlined processes be put in place (e.g. through BizTalk, Canada Border Services Agency single window) to collect information from small businesses where possible? Electronic systems are currently in development, with proposed implementation in spring 2014. Links between the Office of Controlled Substances and other applicable processes are being explored currently. 2. Have opportunities to align with other obligations imposed on business by federal, provincial, municipal or international or multinational regulatory bodies been assessed? MMPR regulatory requirements for authorized health care practitioners and pharmacists align with those already in place for similar activities conducted under the NCR. Where possible, rather than develop unique requirements under the MMPR, other existing obligations have been considered. As an example, rather than specifying zoning requirements for the location of sites where marihuana is to be produced in the MMPR, only municipal by-laws governing location would apply. 3. Has the impact of the proposed regulations on international or interprovincial trade been assessed? Health Canada has consulted with the Department of Foreign Affairs and International Trade regarding international obligations. Mechanisms for import and export have been included in the proposed MMPR. 4. If the data or information, other than personal information, required to comply with the proposed regulations is already collected by another department or jurisdiction, will this information be obtained from that department or jurisdiction instead of requesting the same information from small businesses or other stakeholders? (The collection, retention, use, disclosure and disposal of personal information are all subject to the requirements of the Privacy Act. Any questions with respect to compliance with the Privacy Act should be referred to the department’s or agency’s ATIP office or legal services unit.) As this is a new industry and new regulatory scheme, the information required is not collected by any other department or jurisdiction. 5. Will forms be pre-populated with information or data already available to the department to reduce the time and cost necessary to complete them? (Example: When a business completes an online application for a licence, upon entering an identifier or a name, the system pre-populates the application with the applicant’s personal particulars such as contact information, date, etc. when that information is already available to the department.) This information would not be available to the Department on initial license application from a business. However, this would be possible when licenses are renewed. 6. Will electronic reporting and data collection be used, including electronic validation and confirmation of receipt of reports where appropriate? Electronic systems are currently in development, with proposed implementation in spring 2014. 7. Will reporting, if required by the proposed regulations, be aligned with generally used business processes or international standards if possible? This is a unique regulatory scheme and a brand new industry for which there are no domestic or international equivalents. 8. If additional forms are required, can they be streamlined with existing forms that must be completed for other government information requirements? This is a unique regulatory scheme which does not overlap with other government programs. III Implementation, compliance and service standards Yes No N/A 1. Has consideration been given to small businesses in remote areas, with special consideration to those that do not have access to high-speed (broadband) Internet? The proposed Regulations have been drafted to provide flexibility for all involved businesses. A key activity for the industry would be reporting transactions and activities with forms of marihuana. The Regulations do not specify that these data need to be reported electronically, and so there are other means of reporting for businesses without broadband. 2. If regulatory authorizations (e.g. licences, permits or certifications) are introduced, will service standards addressing timeliness of decision making be developed that are inclusive of complaints about poor service? Service standards for licensing and other activities would be developed. As this is a new industry and a new regulatory scheme, the Department would need to reassess these standards after an initial period of time to ensure that they are reasonable. This reassessment would also address any complaints received, and make corresponding adjustments. 3. Is there a clearly identified contact point or help desk for small businesses and other stakeholders? The Office of Controlled Substances in the Health Environments and Consumer Safety Branch of Health Canada would be clearly identified as the single point of contact for stakeholders in all materials.

B. Regulatory flexibility analysis and reverse onus

IV Regulatory flexibility analysis Yes No N/A 1. Does the RIAS identify at least one flexible option that has lower compliance or administrative costs for small businesses in the small business lens section? Examples of flexible options to minimize costs are as follows: Longer time periods to comply with the requirements, longer transition periods or temporary exemptions;

Performance-based standards;

Partial or complete exemptions from compliance, especially for firms that have good track records (legal advice should be sought when considering such an option);

Reduced compliance costs;

Reduced fees or other charges or penalties;

Use of market incentives;

A range of options to comply with requirements, including lower-cost options;

Simplified and less frequent reporting obligations and inspections; and

Licences granted on a permanent basis or renewed less frequently. Regulatory compliance flexibility is provided for all businesses in the design of the proposed MMPR. As an example, while the type of information to be kept in records has been defined by the proposed MMPR, how that information is to be stored and processed was not specified, other than it be in a form that is auditable. Another example comes from the physical security requirements for the site where marihuana is grown, which are outcome-based (e.g. prevent unauthorized access), rather than prescriptive 