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Legal Matters: Regulatory and business challenges of COVID-19

The impact of COVID-19 has been felt in a multitude of industries, and Canadian cannabis producers are no exception. Cannabis retail stores have had some contradicting directives from governments as to whether they can continue to operate during the pandemic, while cannabis producers were deemed an essential service from the outset and continue to operate across the country – but not without challenges, some of which are currently felt while others are likely to materialize in the near future.

Operational challenges
Cultivation of cannabis requires the physical attendance of employees, and therefore causes concerns with regard to the spread of COVID-19. Employers face the challenge of trying to meet the demand for cannabis products in an environment that necessitates modifications to regular operations. Social distancing, personal protective equipment and increased sanitation practices have become the new reality and are critical for producers to avoid a potential outbreak in their facilities.

Certain security-cleared individuals are critical to a cannabis producer’s organization. To assist in the continued operation while mitigating the risks of COVID-19, Health Canada temporarily allowed cannabis producers to designate alternate individuals to take over security-cleared roles, such as responsible persons, master growers and heads of security, where the cannabis producer does not have sufficient personnel due to self-isolation or illness. All alternates must be reported to Health Canada with the name of the individual, their role and the date upon which they will assume the role. It is up to the producer to ensure the individual is capable of fulfilling the role and that such individual has not previously had a security clearance refused, suspended or cancelled.

Regulatory changes
Due to an increased need to focus resources on the COVID-19 pandemic, Health Canada has made adjustments to its operations and servicing of the cannabis regulatory regime. In a letter to cannabis producers in March, Health Canada indicated that amendments to existing licenses and security clearance applications would take priority, likely meaning that applications in the queue for new facilities will be further delayed. Cannabis producers will have to face the reality that not all projects will be able to progress at the same pace during this period and that operations could be halted for longer than expected where regulatory approval is required. Cannabis producers may email HC.licensing-cannabis-licenses.SC@canada.ca to identify critical amendments required to support operations at this time.

Sales and financing
Although there have been reports of increased cannabis sales recently, the long-term economic impact of the pandemic is uncertain. Any restrictions on retailers or decreased production output will likely result in reduced revenues. The general uncertainty of the pandemic has made it even more difficult to raise financing, meaning that many companies may potentially face bankruptcy without sufficient cash flow to sustain them through an extended period of reduced revenue.

Cannabis producers, like many other businesses, will look to alternative financing and are seeking financial assistance from the government during this period. Several programs exist for loan financing, wage subsidy and even rent assistance to those businesses that qualify and apply. Additionally, payment of sales taxes, customs duties and income taxes have been delayed to provide companies with additional relief. Cannabis producers are encouraged to seek guidance on the support available to them.

Matt Maurer is the vice-chair of the Cannabis Law Group at Torkin Manes LLP in Toronto.
Vlad Mihaescu is an associate in the Business Law and Cannabis Law Groups at Torkin Manes.