Canada: Navigating The ‘Great Marihuana Gold Rush’

In July 2013, new regulations relating to the use and production of medical marihuana came into force.  The Marihuana for Medical Purposes Regulations (MMPR) significantly overhaul the previous statutory regime regulating medical marihuana in Canada.

The new regulations privatize the production and distribution of marihuana by creating conditions for large scale production.  By 2024, the medical marihuana supply industry is expected to generate $1.3 billion in domestic annual sales.  Considering that the new regulations also allow for the import and export of medical marihuana, the global annual sales figure may be even larger.  Media has already dubbed this new phase in Canada's medical marihuana history as the "the great marihuana gold rush of our generation".

At the end of May 2014, Health Canada had received 858 applications by individuals and corporations to become authorized producers.  With approximately 25 new applications every week, Health Canada has been unable to process these applications in a timely manner; and as a result, only 13 authorized Licensed Producers are listed on Health Canada's website. These companies are at various stages in their operability; some are fully operational and may even be listed on trading indexes like the TSX-V, while others are still establishing their operations. With demand for medical marihuana expected to increase significantly under the new regulations, those companies with a head start may be able to capitalize. The effect of this incentive is already visible in the market, with aggressive growth strategies being pursued (see, for example, Tweed Marijuana's and Supreme Pharmaceuticals' recent acquisitions)

The licensed producers range from small, privately funded operations to large corporations raising funds from venture capitalists and through public offerings.  Most interestingly, a junior mining company recently abandoned their mining operations to begin operating a medical marihuana business; their stock price increased 2,600% in the nine weeks following this decision.  However, the complex regulatory regime makes it difficult for anyone to enter this market.

The regulations, and the accompanying application process, are quite onerous, and include conditions for becoming a licensed producer, permitted activities, and other obligations. For example, the application to become a producer requires obtaining security clearances for personnel, identifying substances that will be present on site, filing site and security information, notifying local government, law enforcement and emergency service authorities, providing a quality assurance pre-licensing report, and proposing a record keeping method.

However, the application process and regulations are not the only considerations potential applicants should be concerned with; protecting one's strains from unlicensed use is crucial if one is to secure a competitive advantage. Although higher-life forms, such as plants, are not patentable in Canada, it is possible to patent key genes or cells of a plant.  If drafted correctly, a patent can effectively provide protection to the rights holder for the whole plant or strain. In addition, novel development techniques associated with operations, and new products incorporating the active forms of medical marihuana, may also be patentable.

Specific strains of marihuana can also be protected under the Plant Breeders' Right Act. If an applicant can prove that their variety is new, distinct, has uniform characteristics and is stable, they may obtain an exclusive right to sell and produce the variety in Canada for up to 18 years.

Businesses considering operating in this space will be best served by investigating the use of patents, plant breeder's rights, trademarks and trade-secrets to protect their brand and know-how from competitors, to give them a competitive advantage, and even to pursue licensing opportunities for their proprietary strains or operation techniques.

For more on the commercialization of medical marihuana in Canada, please see our earlier post on this blog.

The author wishes to thank Rayomond Dinshaw, summer student, for his assistance in preparing this legal update.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

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