On April 13, 2017, the federal government introduced Bill C-45 in the House of Commons. This proposed legislation marks an important step towards the Liberal government’s promise to legalize and regulate the possession, sale, and distribution of cannabis in Canada before July 1, 2018. As the bill currently stands, upon coming into force, Canadians over the age of 18 will be able to legally purchase cannabis from provincially authorized retailers.
While Canadians have been able to access cannabis for medical purposes for some time (and producers have been able to apply to Health Canada for a licence to cultivate marijuana for medical purposes), the proposed legislation is expected to greatly increase the number of Canadians seeking to purchase marijuana. Market data from Health Canada indicates that the amount of cannabis sold to clients for medical purposes by licensed producers had ballooned from 408 kg in the first quarter of 2014 to over 5,000 kg in the third quarter of 2016. With the Cannabis Act poised to open the marijuana market for purposes outside of medicinal use, the industry’s client base is set to expand once again. In anticipation of the increased demand, entrepreneurs and start-up corporations have flocked to capitalize on the soon to be established market.
There are currently several large public Canadian corporations operating in the medical marijuana production field, some of which have indicated plans for expansion when recreational use is legalized, but there may still be space for smaller private companies in the industry. Recently, several “streaming” companies have been launched which will provide financing and strategic support for entrepreneurs attempting to break into the Canadian marijuana market.
This streaming business model, where financing is provided to a start-up in exchange for a portion of the start-up’s future product at a fixed price (or a percentage of the start-up’s future profits from that product), has most often been seen in the mining industry but appears to also be an attractive source of financing in the budding Canadian marijuana sector.
As several important aspects of the Liberal’s legislative regime remain to be finalized (for example, the proposed federal legislation allows a person to sell or distribute cannabis only if that person is authorized to sell cannabis under a provincial Act and the provinces have yet to indicate who will be allowed to sell marijuana), entrepreneurs may experience difficulties obtaining financing from more traditional sources in the face of regulatory uncertainty. The “streaming” companies benefit from the arrangement by establishing a stable production supply and access to a greater variety of products which will, presumably, better position the corporations to interact with provincial distributors.
While the launch of Canadian marijuana streaming corporations promises to provide an alternative avenue of financing for start-ups, the uncertainty surrounding the government’s legislative regime leaves the exact details surrounding the legal sale of cannabis somewhat of a mystery. With the introduction and first reading of Bill C-45 having occurred only on April 13, 2017, there remains a significant number of questions to be answered before the legislation comes into force.
The author would like to thank Corey McClary, Articling Student, for his assistance in preparing this legal update.
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