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The Hazy State Of Marihuana Regulation In Canada

First, it should be said that the possession and consumption of recreational marihuana in Canada is unquestionably illegal. The law is clear. Marihuana has long been a controlled substance listed in Schedule 2 of the Federal Controlled Drugs & Substances Act (the "CDSA"). However, in 2000, the Ontario Court of Appeal ruled in a case called R. v. Parker (2000) 49 O.R. (3d) 481 (C.A.) that the prohibition on possession, production, and sale of marihuana was unconstitutional because it did not contain an exception for people who required marihuana for treatment of medical conditions. The result of the Parker ruling was the Federal government introducing the Medical Marihuana Access Regulations (the "MMAR") in 2001.

Federal Regulation

The MMAR: Cheap and Easy Access to Medical Marihuana

The MMAR created a licensing scheme allowing individuals with a prescription to obtain an Authorization to Possess, or an "ATP". An ATP allowed its holder to obtain medical marihuana through three different avenues: a Personal-Use Production Licence, a Designated-Person Production Licence, or by purchasing dried marihuana directly from Health Canada, which contracted with a private company to produce and distribute marihuana.

The MMAR regime was criticized for allegedly allowing for the diversion of marihuana into the black market, as well as for its lack of quality and content control mechanisms. Further, medical professionals were reluctant to prescribe products of unknown origin and strength. For these reasons, among many, the MMAR system was seen by the Federal government as lax and ineffective.

The MMPR: Creating a Commercial Medical Marihuana Industry

The Federal government replaced the MMAR with the Marihuana for Medical Purposes Regulation (the "MMPR"), which came into force in April 2014. The MMPR required that all medical marihuana users purchase their marihuana from authorized, large-scale producers. Health Canada's stated goal in enacting the MMPR was to create a regulated, commercial, medical marihuana industry.

The MMPR purported to repeal all existing ATPs, Personal-Use Production Licences and Designated-Person Production Licences as of March 31, 2014. However, a stay was ordered in 2014 which protected existing users from the changing scheme, and on February 24, 2016, the Federal Court of Canada ruled that the MMPR was unconstitutional in that it infringed on medical marihuana users' rights to liberty and of security of the person (Allard v. Canada, 2016 FC 236). The thrust of the decision was that the new MMPR scheme, where marihuana is produced by for-profit facilities, does not guarantee that marihuana will be available in the necessary quantity, strain, or quality and at an acceptable price, compared to the personal production options under the old MMAR. The court found that some individuals could lose access to their medical marihuana supply or could be forced to break the law by continuing to produce their own medicine or purchase their product illegally. The court found that the infringement of the medical marihuana users' section 7 Charter rights violated our principles of fundamental justice, because the MMPR are arbitrary and overbroad. The Allard decision gives the federal government six (6) months to redraft the MMPR in a manner responsive to the finding that the current regulations are unconstitutional.

It is not clear how the February 2016 ruling in Allard v. Canada will impact the fledgling medical marihuana industry. For the moment, it means that MMPR licensed producers will not enjoy a statutory monopoly on production and sale.

Municipal Participation

Canada's Greenest City: The Vancouver Story

Separate and apart from the MMPR system is the "dispensary" system in Vancouver and elsewhere, which exists without approval or oversite by the Federal or Provincial governments. These are independently run marihuana retail outlets which sell directly to members of the public who present prescriptions.

The City of Vancouver has seen a 100% increase in the number of dispensaries operating in the City over the past year. In June 2015, after publication of a special report and public consultation, the City passed marihuana-related business regulations that permit dispensaries to obtain special business licences. To enable these dispensaries, the City created a new permitted use under the City's Zoning and Development Bylaw and a new business licence category under the Licence Bylaw.

The City seemingly recognizes that it does not have any jurisdiction over the production or sale of marihuana, but argues that it has powers to regulate business and land use which empower it to license these businesses (and collect a hefty license fee). Further, the City has stated that it aims to "achieve a careful balance between ensuring adequate availability of medical marihuana for those in need and community health, safety, security, aesthetics, equity, and enjoyment of property".1

Interestingly, the Vancouver Police Deputy Chief, Doug LePard, recently discussed the City's licensing regime for dispensaries and was quoted as saying: "the (municipal) regulatory scheme deals with land use and cannot make legal what is currently illegal in the CDSA. In other words, Vancouver's new bylaw cannot bring the marihuana dispensaries into compliance with drug laws, and selling marihuana remains a criminal offence."2

That said, the VPD has not moved to shutter the dispensaries currently operating within the City, and has indicated in the past that they do not have the resources to do so. Consequently, it seems the dispensaries will be left alone, for now, to the extent they comply with municipal zoning and business bylaws.

Going Forward

While the new Liberal government has indicated that it intends to legalize marihuana, there is no clear timeline regarding when this significant step will take place. In the meantime, participants in the medical marihuana industry, and those that interact with participants in the medical marihuana industry, will (a) be watching how the Federal Government redrafts the MMRP, and (b) have innumerable questions about their own risks and rewards from getting in on the ground floor. For example, consider the following questions:

  • Is an insurance policy voided, or is coverage under the policy excluded, if a landlord rents premises to a medical marihuana dispensary that is licensed by the City but not compliant with the MMPR?
  • Is a person working at a medical marihuana dispensary licensed by the City an employee within the meaning of the Employment Standards Act, R.S.B.C. 1996, c. 113? What rights do these workers have if they are laid off by a dispensary owner?
  • Are the profits of a medical marihuana dispensary licensed by the City considered "proceeds of crime"?
  • What steps should businesses take to protect themselves before entering into agreements with medical marihuana dispensaries (whether the agreements are for loans, leases, or the provision of services)?
  • Does the VPD have jurisdiction to raid medical marihuana dispensaries that are licensed by the City, even when the marihuana dispensaries are operating in compliance with City bylaws and business licences?
  • How will the Federal government amend the MMPR in light of the Allard decision? Will licences to produce issued under the current MMPR be continued under the amended regime, when it comes into force?

The Canadian business community will continue to consider all of these key issues, and others, as they are addressed in new policies, laws, and court decisions. Right now, this new industry is in rapid transition, and participation may have enormous risks and rewards for anyone involved.