Canada: Exporting Cannabis From Canada

A Licensed Producer (LP) can obtain a permit from the federal Minister of Health to export cannabis internationally from Canada to a single and specified importer. While export permits can currently only be used to export cannabis for medical purposes, some LPs are committing considerable resources on their international exportation efforts because of the current and potential future international opportunities within the global cannabis market. Additional regulatory information regarding cannabis exportation can be found in Subdivision G of the Access to Cannabis for Medical Purposes Regulations (ACMPR).

In Canada, there are a growing number of medical cannabis patients, with roughly 130,000 patients registered at the end of 2016. According to a report by Canaccord Genuity, over 50,000 kilograms of medical cannabis are projected to be sold by LPs in Canada in 2017, which would result in revenue of almost $400 million, assuming an average sale price of $7.50 per gram1. According to that same Canaccord report, revenue for Canadian LPs could reach $1.5 billion by 20242. Despite a large emerging market in Canada, the international market for medical cannabis may be substantially larger. Privateer CEO, Brendan Kennedy, estimates that the international medical cannabis market could reach $100 billion in annual retail value in the next five to ten years.3

Accordingly, some LPs, including the Cronos Group and Tilray, foresee the international medical and pharmaceutical cannabis market having significant long-term business potential by capturing a considerable proportion of total global cannabis revenue.4 As a result, LPs entering into commercial export agreements are placing an emphasis on developing strong international business relationships, being the first to market in certain international jurisdictions, and establishing distribution networks in order to capitalize on the opportunities in this relatively new industry.

While a legal recreational cannabis market is anticipated in Canada in approximately 18-24 months, even in a full-use adult recreational market, Canada's population of just over 35 million is dwarfed by the growing international population that can, or will soon be able to, legally consume medical and/or recreational cannabis. In the event that Canada permits recreational cannabis exportation at some point in the future, there may be some significant advantages for LPs that have already made ongoing investments to build their exportation experience and international relationships in the medical cannabis market.

LPs are increasingly entering into commercial agreements for international distribution of cannabis for medical purposes and clinical research studies. A major factor allowing for these opportunities is that LPs are operating under a world-leading regulatory scheme for medical cannabis under the ACMPR, which is often an influential or determinative factor for other governments looking to import medical cannabis and/or create their own regulatory system for medical cannabis usage.5 Canada is a leading jurisdiction in the production of large-scale pharmaceutical-grade quality cannabis, compared to food-grade quality cannabis that is often produced in other jurisdictions.6 In addition, robust capital markets activity has allowed Canadian LPs to significantly increase their production capacity and internal efficiencies, as Canadian LPs mature and grow into sophisticated corporate entities.

Export Considerations

LPs should consider the following when exploring international exportation opportunities:

Obligations under International Treaties

International trade in cannabis is controlled under the Single Convention on Narcotic Drugs, 1961, as amended by the Protocol Amending the Single Convention on Narcotic Drugs (1972). In addition, Canada is a signatory to the Convention on Psychotropic Substances, 1971, and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988.

Conditions Precedent under the ACMPR

Health Canada administers the export of medical cannabis, with the support of the Canada Border Services Agency (the CBSA). In order to export medical cannabis, LPs are required to provide a copy of the import permit issued by a competent authority in the jurisdiction of final destination and to make a declaration that a shipment does not contravene the laws of the jurisdiction of the final destination or any country of transit or transhipment.

Moreover, the jurisdiction of import may impose additional obligations on a Canadian exporter that are separate and distinct from the specific requirements in the medical cannabis sector. Canadian LPs must recognize these international trade issues as these complexities may result in additional costs or undue delays with respect to the delivery of their products. Canadian LPs should address each of these considerations in the context of any commercial agreements with respect to the export of medical cannabis.

Reporting Obligations

A Canadian LP that exports medical cannabis is required to comply with the same reporting requirements applicable to other Canadian exporters, including but not limited to, the CBSA under the Reporting of Exported Good Regulations and the Minister of Health under the ACMPR. In addition, Canadian LPs must maintain all records in connection with the exportation for six years following the date of export.

Timing Considerations

An export permit granted under the ACMPR will expire on the earliest of: (i) the 120th day after the effective date; (ii) December 31 of the year of the effective date; (iii) the expiry date of the import permit; (iv) the date on which the export permit is suspended or revoked; and (v) the expiry date of the LP license to which the export permit pertains.

Stock Exchange or Other Regulatory Approvals

Canadian LPs may need to obtain approval and/or give undertakings to the relevant listing exchange in order to obtain an export permit. As an emerging industry, Canadian LPs that are publicly traded are subject to significant regulation which may impact the LPs international exportation opportunities.

Other Considerations

According to Health Canada, cannabis is a narcotic and has the potential for serious public health, safety and security risks. Except for the limited products with a Drug Identification Number, cannabis's efficacy and safety has not been established and it has not received approval under the Food and Drugs Act. Its abuse has broad societal and economic consequences and can result in harm to health and to society when diverted or misused.7

Import and export can undermine the regime's public health and safety objectives by exacerbating risks related to higher inventory levels, large shipments over long distances and the inability to apply Canada's strict security requirements beyond Canada's borders.8

Risks

Compliance with the relevant ACMPR provisions and the Narcotic Control Regulations is crucial for Canadian LPs. Non-compliance with ACMPR regulations could lead to significant consequences for an LP, including, but not limited to, removal of its ACMPR license.

While the export market for medical cannabis in Canada continues to evolve, the following are recent examples of Canadian LPs that have obtained export permits, related agreements, or other ventures connected to the international distribution of cannabis:

Licensed Producer International Presence
Tilray New Zealand (Middlemore Hospital)
Australia
Chile (Alef Biotechnology SpA)
Brazil (Alef Biotechnology SpA)
Croatia (Croatian Institute of Immunology)
Canopy Growth Corp. Germany (MedCann GmbH Pharma and Nutraceuticals)
Brazil (Bedrocan Brazil and Entourage Phytolab S.A.)
Australia (AusCann Group Holdings Ltd.)
Peace Naturals (Cronos Group) Germany (Pedanios GmbH)
Mettrum Health Corporation Australia (Department of Agriculture)
Aphria Inc. Australia (Medlab Clinical Limited)

This article was written with the helpful contribution of Michael Garbuz (Articling Student).

Footnotes

1. Maruoka, Neil, and Matt Bottomley. Canadian Cannabis - Initiation of Coverage. Toronto: Canaccord Genuity, 13 March 2017.

2. Ibid.

3. https://www.leafly.com/news/industry/legal-international-cannabis-trade-already-exists-mapped.

4. Ibid.

5. http://www.theglobeandmail.com/news/toronto/canadas-medical-pot-companies-aim-to-grow-export-business/article31088427/.

6 . Ibid.

7. http://www.hc-sc.gc.ca/dhp-mps/marihuana/info/licencedproducer-producteurautorise/import-eng.php.

8. Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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