There were numerous regulatory developments in the cannabis industry in 2019, including the official launch of “Cannabis 2.0” (the legal regime for cannabis edibles, extracts and topicals). We also saw the onset of a public health scare regarding vaping-related illness. As a result of the rapidly changing regulatory regime, Canada experienced some of the growing pains expected with being the first G7 nation to roll out a national recreational cannabis regulatory regime. In 2020, we expect to see additional regulatory developments that will further impact the emerging cannabis industry.
Under the federal Cannabis Act, each province has the power to enact legislation to govern the distribution of cannabis within its province. This has resulted in each province having a distinct regulatory regime and model for the distribution of cannabis. Certain provinces seem to have fared better during the first full year of legal recreational cannabis, although retail distribution within Canada, and certain provinces in particular, was far from smooth. We saw an expected initial supply shortage of cannabis, followed by a comparatively unexpected oversupply of cannabis, resulting in many of the provincial distributors returning product and many licensed producers of cannabis (LPs) reducing sales estimates for the years ahead. LPs have consistently pointed to the slow rollout of retail stores in Ontario and Québec as a primary factor for why sales figures have been underwhelming and why certain LPs have produced excess inventory. Ontario recently announced that it will scrap the current lottery system for cannabis retailers, which has largely been perceived as a failure, and open the market for private cannabis retailers.
In 2020, we expect to see a rapid rollout of retail stores in Ontario, providing new economic opportunities for private businesses, while also combatting the proliferation of the illicit market. While nothing definitive has been announced, there has also been speculation about several provinces abandoning their wholesale distribution model and allowing licensed retailers to purchase cannabis from LPs directly (rather than having a government monopoly acting as intermediary). In this regard, we expect that provincial governments will start to collaborate to develop models for the distribution of cannabis that may prove more beneficial for their population and economy. While it is unlikely that all provinces will align their cannabis regulatory regimes, we do expect that certain provinces will take steps to revise their regulations based on lessons that can be learned from the provinces where cannabis distribution has been deemed most successful.
While cannabis edibles, extracts and topicals (colloquially referred to as “Cannabis 2.0”) technically became legal in late 2019, the majority of the Cannabis 2.0 rollout will occur in 2020. As with any new commercial product, we expect there to be intense scrutiny of the distribution and impact of these products, as well as potential regulatory responses. For example, there have been reported cases of e-cigarette or vaping product lung injury with an apparent association with cannabis vaping products. In response to this, we have already seen the Provinces of Nova Scotia, Newfoundland, Québec and Alberta make announcements either completely prohibiting, restricting or delaying the sales of cannabis vaping products in their province. We expect that all provincial governments will be keeping a close watch on further developments with respect to Cannabis 2.0 products, and in particular, vaping products, and that other Canadian provinces may implement regulatory changes with respect to such products.
Additionally, LPs and other cannabis industry stakeholders have long pointed to the strict limitations on the marketing and promotion of cannabis products as having a significant adverse impact on their ability to grow their businesses. While we do not expect that changes to the marketing regime for cannabis products to be imminent, we expect that cannabis industry stakeholders will continue to vigorously lobby for the loosening of the regulatory regime as the sector rapidly develops into a more traditional consumer packaged goods industry.
Cannabis is one of the most rapidly growing areas of law in Canada and around the world. Doubtless, regulatory trends affecting cannabis beyond those identified here will emerge. While we cannot know with certainty what the future has in store, Dentons expects that regulatory developments will focus on three key areas: addressing health and safety concerns; accelerating the growth and competitiveness of industry stakeholders; and eradicating the illicit market through measures taken to enhance the accessibility and affordability of legal cannabis.
To read the comprehensive Dentons’ pick of Canadian Regulatory Trends to Watch in 2020 report, click here.
This post was originally published on dentons.com.
