Canadian Law Group

Cannabis – How to Invest and Operate in Canada

Now is the time for Cannabis investors in the United States to consider Canadian expansion, given the recent Federal legalization of marijuana in Canada in October 2018. While 47 U.S. states have passed laws legalizing cannabis to varying degrees, federally it remains a Schedule 1 drug and all use, possession, sale or distribution remains a federal crime in the U.S. As the second country in the World (after Uruguay) to legalize marijuana, Canada is benefitting from a “first mover advantage”. Canadian cannabis producers have scored massive million dollar contracts with foreign governments for medical marijuana as early as January 2018 (Germany, Australia, New Zealand, Czech Republic) with demand exploding as more and more countries legalize medical marijuana. 

To start business operations in Canada, a license from both the Canada Revenue Agency and Health Canada are required.

1.  Health Canada License

The Cannabis Act and its Regulations provide the framework for legal access to cannabis for adults and they control and regulate its production, distribution and sale. Health Canada in its application instructions also suggests becoming familiar with relevant federal and provincial, territorial, municipal and indigenous government legislation depending on where you intend to operate your business. After deciding which type of license to apply for, Health Canada requires licensee applicants to create an account in the Cannabis Tracking and Licensing System (CTLS) to submit their application which includes additional submission criteria.

2.  Canada Revenue Agency (CRA) License

In Canada, under the Excise Act, 2001, you must apply for a cannabis license if you are cultivating (growing), producing or packaging cannabis products. Even if you have a Health Canada license, you must apply for a CRA license for both medical and non-medical (recreational) purposes. A number of individuals are excluded from the requirement to apply for a license, for example an individual who cultivates cannabis products for their own personal use, in accordance with the Cannabis Act.

Licenses are valid for two (2) years and do not renew automatically. There are strict deadlines in place to secure a renewal (presently 30 days before expiration). A number of eligibility criteria must be satisfied to obtain the license. Security ranging from a minimum $5000 CAD to $5 million CAD is required for licensees, depending on whether the applicant licensee is cultivating, producing or packaging cannabis products.

Form LC300 is the required Application Form to determine cannabis licensee eligibility, while supplementary documentation and forms may be applicable. Managing a license once it is issued carries additional responsibilities which should be reviewed carefully by interested licensees (ex. calculating duties on cannabis, registering for the cannabis stamping regime etc.). Your license can be suspended or canceled by the CRA if you fail to meet the conditions to be a licensee at any time, while you are required to report changes to the information provided in your application to the CRA.

Jill M. Williamson, Esq. Head Partner of CKR Law in Seattle, represents Cannabis investors in Washington State, U.S.A.

She notes: “Even for entrepreneurs who want to rely upon state legalization, it is still not possible to conduct transactions that cross state lines.  This makes it impossible for businesses to scale and necessarily limits investment potential in the U.S.  In addition, by definition, Schedule 1 drugs have “no accepted medical use.”  This makes it extremely difficult to obtain approvals to conduct research on potential medical applications for cannabis.  Canada presents the opportunity to move North, grow a business, conduct research, create new products and stand poised to move into a US market when that becomes available.”

James D. Snyder, Esq. Partner at CKR Law in San Diego, and Strategic Cannabis Business Counsel, adds the following regarding his home State of California and the burgeoning market in Canada:

“Although California’s multibillion dollar cannabis market is attractive to cannabis business entrepreneurs, it makes a lot of sense for businesses to consider markets like Canada given the challenges that U.S. cannabis businesses face at the Federal level.  Moreover, in States like California, the complexities in establishing a cannabis business and obtaining appropriate licenses from the State and its municipalities can seem daunting at times.  While California has made progress, it is far from a certainty that an entrepreneur can obtain appropriate licenses to establish a Cannabis business in the State and it remains a challenge to establish such a business in a particular part of the State where a business owner may want to do business (the majority of municipalities in California continue to prohibit commercial Cannabis activity). Considering a market like Canada, where the license regime is far simpler and more expedited than a U.S. State like California, can therefore be an effective option for many Cannabis business entrepreneurs to consider as a point of entry into the Cannabis market.”

We highly recommend you consult a legal professional to assist you in applying for both licenses in Canada, as non-compliance carries severe consequences in both countries.

For more information, please contact Véronique Malka, Chair of the Canadian Law Group of CKR Law LLP.: vmalka@ckrlaw.com.

DISCLAIMER: This article is not intended to provide legal advice, and no legal or business decision should be made based on its contents.