One of the biggest barriers in Canada’s cannabis market?
One of the biggest barriers in Canada’s cannabis market is the lack of available genetic variety. Licensed producers of cannabis in Canada are permitted to produce cannabis, but are severely restricted in terms of their access to genetics.
The term “genetics”, as used here, refers to unique strains of cannabis plants and seeds, which can be crossbred to produce even more unique strains. Under current law as of the date of this writing, holders of production licenses must acquire their strains from other license holders, effectively creating a “closed system” that makes it impossible for new strains to enter the legal cannabis market. This is a frustrating situation for licensed producers, as there are tens of thousands of varieties of cannabis available in the illicit market, which legal producers have no access to. However, the new laws and regulations that will come into force on October 17, 2018, will allow the introduction of new genetic material under the legal umbrella, albeit in a limited manner.
The new Cannabis Act will grant applicants of cultivation licenses (described more fully below) a brief window of opportunity, at the time that the producer applies for a licence, to bring illicit plants and seeds with them into the legal system as long as the illicit strains are declared to Health Canada at the time the producer submits a licence application. Once the genetic material is declared, it will become part of the legal cannabis ecosystem and no longer be considered illicit.
Furthermore, the material will become freely tradeable between producers, who can cross-breed and develop new strains from the formerly illicit materials. This should significantly expand the genetic material available to producers going forward.
The Cannabis Act also contains a number of other elements that will increase the available genetics supply. The introduction of new licence classes, particularly the nursery licence, will ensure that diversity continues to increase for the foreseeable future. Research licences will also enable the creation and manipulation of synthetic cannabinoids (as opposed to phytocannabinoids, which occur naturally in plants). Import and export permits may also allow new genetic material to enter Canada from foreign jurisdictions for scientific and medical purposes. The details of the framework are discussed below.
1: New cultivation license classes
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The Cannabis Act introduces two new types of cultivation licenses – craft licenses and nursery licences. Craft licenses (or micro-cultivation licenses) are intended to allow small private growers to enter the market. Nursery licence holders will only be permitted to sell plants and seeds. They will also be permitted to alter the chemical and physical properties of cannabis for testing purposes.
Under the one-time exemption referred to above, applicants for cultivation licences (whether standard cultivation licences, craft licences or nursery licences) will be required to submit to Health Canada a declaration of any illicit genetics they possess. The declaration must be submitted at the same time as the licence application. Once the declaration is submitted and the licence application is approved, the (formerly) illicit plants and seeds will be considered compliant with the law.
Once the formerly-illicit genetic materials have entered the legal cannabis ecosystem, they can be transferred to other licensees through intra-industry sales.
2: Intra-industry sales
Licensed producers will be able to sell plants and seeds to each other, although the specific types of intra-industry sales that will be permitted will depend on the class of licence held. However, all types of licence holders will be permitted to purchase plants and seeds from craft and nursery licence holders.
3: Research laboratories
Holders of research licences will be permitted to produce cannabis for research purposes, and may be authorized to sell cannabis plants and seeds to holders of a cultivation licence. This should also enable the development and distribution of new genetics.
4: Import permits
The Cannabis Act allows for issuance of import permits to licensees, as long as the importation is done for medical or scientific purposes. This may allow licensees – for example, holders of a research licence – to import genetics from non-Canadian jurisdictions for the purpose of developing new strains.
It will be important for licensees to be aware of protected plant varieties in order to reduce their risk of intellectual property infringement. In addition, licensees will have the ability to obtain protection for any new varieties that they create lawfully, whether that be from genetic modification in a laboratory setting or from traditional cross-breeding. For example, new plants can be protected in Canada by patents and/or by plant breeders’ rights certificates. These two regimes provide distinct and potentially overlapping protection for new plant varieties, methods of making the plants and products of the plants, such as oils with specific cannabinoid profiles.
[Publisher’s Note: This column is co-written by Fiona Brown, a partner at Aird & Berlis and a member of the Cannabis Group, and Gaurav Gopinath. Guarav is a JD/MBA student from the University of Toronto who also works with the Cannabis Group at Aird & Berlis.]
Fiona Brown is a partner at Aird & Berlis and a member of the Cannabis Group. Fiona provides a broad range of services to participants ... <Read more about Fiona Brown>