“I will not comply” – In cannabis, you should
February 25, 2022 By Matt Maurer
Compliance is defined as the action or fact of complying with a wish or command. If you are working in the cannabis industry, compliance is a necessary fact of life.
Federal licence holders must comply with a long list of rules and commands in order to become licensed. Retailers who are authorized to sell cannabis by a province or territory are in a similar boat. Although navigating the various rules can be a challenge, the overwhelming majority of companies are able to comply with the requirements in order to obtain a licence.
However, compliance does not end with licensing. In fact, many would argue that compliance only begins with licensing.
For federal licence holders, compliance is an ongoing part of doing business. Detailed rules pertaining to manufacturing, packaging and labelling, record keeping requirements, and promotion are just some examples of areas that require ongoing compliance from federal licence holders.
Observationally, it appears that the vast majority of federal licence holders struggle very little as it relates to compliance with the operations of their facilities.
Perhaps this is due to the existence of standard operating procedures, or perhaps it is due to the routine and (what can be) repetitive nature of the operations within a facility.
Regardless of the cause, with some exceptions, it certainly seems that once licence holders are up and running they are able to effectively manage their operational compliance requirements. The same does not always appear to be true for non-operational compliance requirements.
Non-operational compliance requirements would include areas such as promotion and relationships with other entities in the cannabis industry. Given space limitations, this article will discuss only promotion as an example of where licence holders appear to routinely struggle with non-compliance, innocently or intentionally.
We see this frequently when it comes to promotional activities. Despite the fact that the rules pertaining to promotion appear in the same place (the Cannabis Act) as those relating to operational compliance, and despite the fact that the promotional requirements are far shorter and more concise than operational requirements, licence holders appear to have a more difficult time adhering to the promotional rules than they do the operational rules.
There could be many different reasons for this. It is possible that significant attention is paid to the rules and compliance during the licensing process, given that compliance is critical to licensing. Similarly, ongoing operational compliance is critical to maintaining the licence, as well as selling products in a fashion that is acceptable to the provincial and territorial boards (i.e. meeting proper packaging requirements).
On the other hand, promotional rules are, to some extent, irrelevant during the licensing process and are detached from the day-to-day operations from the facilities.
This may mean that decision makers are not aware of the promotional rules in the same fashion as they are operational rules, or that they are not as familiar with how the promotional rules function.
Alternatively, it may be the case that licence holders are simply prepared to disregard promotional rules, or push the envelope with them, more than they are prepared to do with operational rules. Monitoring and enforcement of promotional rules has been sporadic at best to date (although it has picked up significantly of late), and it may be the case that licence holders are prepared to accept the potential consequences of going offside the rules (warnings and possibly a fine) in light of the benefits that are gained (e.g. more brand awareness, more product sales).
Whatever the reasons may be, licence holders would be well served to follow non-operational rules with the same diligence as they do with operational rules. While enforcement has been sporadic to date, warning letters from Health Canada are showing up in mailboxes with much more frequent occurrence.
In addition to the risk of monetary penalties, there is a cost built in to having to deal with the regulator. Depending on the nature of the offence, the time and effort required to investigate what happened, devise a strategy, respond to the regulator, and ultimately work towards a satisfactory resolution with them, can be very extensive. If a licence holder decides to bring in counsel to help address the issue, there is a direct out-of-pocket cost now associated with non-compliance.
Even if the licence holder has in-house legal assistance, utilizing counsel to deal with compliance issues takes them away from their normal duties, which are likely focused tasks that are much more critical to the operations and growth of the business.
Non-compliance is an entirely avoidable activity that at best, leaves the licence holder potentially exposed to consequences from the regulator and at worst, puts the licence holder in a financial position that is far worse than if the licence holder would have just met their compliance obligations in the first instance.
While it is tempting to take short cuts here and there, by and large we find that those short cuts come back to haunt the licence holder, with the end result being that the consequences completely erode any benefit that was obtained by taking the short cut in the first place.
Matt Maurer is a partner and co-chair of the Cannabis Law Group at Torkin Manes LLP in Toronto.
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