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Frequently asked questions
- #1What’s the state of the UN’s scheduling?
- #2Can Canadian firms invest in U.S. cannabis assets?
- #3What are the different license categories?
- #4How does the new excise tax for concentrates work?
- #5How large is the black market in Canada?
- #6What medical conditions have good evidence of treatment with cannabis?
- #7Can you patent cannabis-related products in the U.S.?
- #8What are top-selling products according to mature U.S. markets?
- #9How many states have legal medical or recreational cannabis?
- #10What’s the status of CBD in the U.S. post-Farm Bill?
- #11What are the grey areas in Health Canada’s marketing rules?
- #12What’s allowed for stores and grow facilities on First Nations land?
What’s the state of the UN’s scheduling?
In international law, cannabis is primarily governed by two United Nations treaties:
The Single Convention on Narcotic Drugs (1961)
- Cannabis is categorized under Schedule I and Schedule II, suggesting that “is particularly liable to abuse and to produce ill effects” and that “such liability is not offset by substantial therapeutic advantages.”
The Convention on Psychotropic Substances (1971)
- Tetrahydrocannabinol (THC) is categorized as a Schedule I, which prohibits “all use except for scientific and very limited medical purposes.”
In the decades since the treaties were adopted, there have been several attempts to move cannabis and THC into less-restrictive schedules. These efforts have been unsuccessful, leaving countries such as Canada and Uruguay to move ahead with cannabis reform in direct contravention of the UN treaties.
The latest push for change comes after the World Health Organization’s Expert Committee on Drug Dependence conducted scientific reviews of cannabis and cannabinoids such as CBD in 2018.
The Expert Committee concluded:
- CBD not liable to produce ill-effects: “CBD exhibits no effects indicative of any abuse or dependence potential.”
- Prevent harm, without limiting access: "In line with the above, cannabis and cannabis resin should be scheduled at a level of control that will prevent harm caused by cannabis use and at the same time will not act as a barrier to access and to research and development of cannabis-related preparation for medical use.”
Rescheduling recommendations from the WHO have no power. Scheduling decisions are made by the United Nations Commission on Narcotic Drugs, a body made made up of 53 countries, which meets once a year in Vienna to discuss changes to the 1961 and 1971 treaties.
The Commission did not discuss either CBD or cannabis when it met in March.
Can Canadian firms invest in U.S. cannabis assets?
There is no prohibition on Canadian companies operating in the U.S. cannabis industry, although there are risks. Cannabis remains a Schedule I drug at a federal level in the United States.
The main barrier to Canadian firms operating south of the border has to do with listing rules.
- The TMX Group, which runs the TSX and TSX-V, does not allow listed companies to participate in businesses deemed to be illegal at a country-level. Nasdaq and NYSE have similar rules.
- Smaller Canadian exchanges, such as the CSE and the NEO, do allow listed companies to operate in the U.S., so long as they disclose the risks to investors. This flexibility has made the CSE in particular, the exchange of choice for U.S. companies looking to go public.
However: things are beginning to change:
- The 2018 U.S. Farm Bill, which passed in December, removed hemp-derived CBD from the Controlled Substance Act. While CBD remains regulated by the FDA, it is no longer a Schedule I drug, allowing companies listed on major exchanges to begin making CBD/hemp investments.
- Two other pieces of legislation, the STATES Act and the SAFE Banking Act, are currently before U.S. Congress. The STATES Act would stop federal cannabis prohibition from applying to states that have legalized the drug on a state-level. The SAFE Banking Act would allow cannabis companies access to federally regulated financial services.
- Canadian firms are finding ways to take conditional positions in U.S. cannabis companies without contravening listing rules. Most notable is Canopy Growth Corp. (CGC-N), which spent US$300-million to acquire the rights to buy U.S. firm Acreage Holdings (ACRG-U-CN) at a future date. The conditional contract will trigger upon changes to U.S. federal law, such as the STATES Act or the SAFE Banking Act.
What are the different license categories?
When you apply for a license to either grow, sell, or produce cannabis products you must also obtain a general cannabis licence from the Government of Canada. This essentially sets you up for the payment of excises to the Canada Revenue Agency.
Next, there are eight licence categories:
The growing of hemp requires a completely different class of licence, as detailed by Health Canada.
How does the new excise tax for concentrates work?
Dried flower taxes of $1 per gram or 10 per cent of a wholesale price – whichever is higher – simply will not work in the concentrate world. In the 2019 federal budget, the government announced a different taxation system for concentrates based on potency.
The new rules:
- Beginning May 1st, 2019 for currently legal ingestible cannabis oils (and cannabis-infused foods, drinks and vape products when they become available in late 2019) producers will pay one cent per milligram of THC in a finished product once that product is sold to a distributor.
- For example: If a producer were to sell a bottle of oil capsules containing 500 milligrams of THC, they would pay an excise tax of $5 on that product.
How large is the black market in Canada?
When cannabis for recreational use became legal on Oct. 17, 2018, Statistics Canada began to incorporate the economic activity associated with marijuana into Canada’s national accounts.
In the final three months of 2018 Statscan reported that cannabis accounted for 0.4 per cent of GDP for a total of $2.2-billion in economic activity.
Of that GDP total:
- Illegal cannabis: 65 per cent ($1.4-billion)
- Legal cannabis: 35 per cent ($770-million)
Statscan says annual household spending on cannabis (expressed in nominal terms) totalled $5.9-billion.
Of that household spending total:
- Illegal cannabis: about 80 per cent ($4.7-billion)
- Legal cannabis: about 20 per cent ($1.2-billion)
What medical conditions have good evidence of treatment with cannabis?
While cannabis is widely used for medical purposes, the clinical trials needed to answer questions about efficacy, dosing, and risks remain relatively limited. Many of the health claims made by cannabis companies are more anecdotal than scientific.
In 2017, the National Academies of Sciences, Engineering, and Medicine in the United States published a comprehensive literature review, looking at the evidence of therapeutic effects of cannabis on different indications. This provides the most comprehensive look at the state of cannabis medical science.
Conclusive or substantial evidence that cannabis or cannabinoids are effective:
- For the treatment of chronic pain in adults (cannabis)
- As antiemetics in the treatment of chemotherapy-induced nausea and vomiting (oral cannabinoids)
- For improving patient-reported multiple sclerosis spasticity symptoms (oral cannabinoids)
- Improving short-term sleep outcomes in individuals with sleep disturbance associated with obstructive sleep apnea syndrome, fibromyalgia, chronic pain, and multiple sclerosis (cannabinoids, primarily nabiximols).
- Increasing appetite and decreasing weight loss associated with HIV/AIDS (cannabis and oral cannabinoids)
- Improving clinician-measured multiple sclerosis spasticity symptoms (oral cannabinoids)
- Improving symptoms of Tourette syndrome (THC capsules)
- Improving anxiety symptoms, as assessed by a public speaking test, in individuals with social anxiety disorders (cannabidiol)
- Improving symptoms of posttraumatic stress disorder (nabilone; a single, small fair-quality trial)
- Better outcomes (i.e., mortality, disability) after a traumatic brain injury or intracranial hemorrhage
At the time of the review, it was reported that there was “insufficient evidence to support or refute the conclusion that cannabis or cannabinoids are an effective treatment” for epilepsy. Since the publication, clinical trials by GW Pharmaceuticals has provided evidence that cannabidiol is effective in treating certain rare forms of childhood epilepsy. GW’s drug Epidiolex received FDA approval in 2018.
Limited evidence that cannabis or cannabinoids are ineffective for:
- Improving symptoms associated with dementia (cannabinoids)
- Improving intraocular pressure associated with glaucoma (cannabinoids)
- Reducing depressive symptoms in individuals with chronic pain or multiple sclerosis (nabiximols, dronabinol, and nabilone)
Can you patent cannabis-related products in the U.S.?
It is a common misconception within the cannabis industry that because cannabis itself remains illegal at the federal level that the United States Patent and Trademark Office (U.S. PTO) will not issue patents for cannabis-related inventions.
However, the PTO has in fact been issuing cannabis-related patents for decades, the earliest of which dating back to the 1970s. As more states have established legal recreational cannabis markets, more and more patents are being issued to the sector.
- In 2016, 14 patents with the words ‘cannabis’ or ‘marijuana’ in their summaries were issued.
- In 2018: 39 patents were issued.
In terms of the types of products that can be patented, intellectual property lawyers say they can “run the gamut” from production, cultivation and processing technologies and methods to specific strains of the cannabis plant itself.
What are top-selling products according to mature U.S. markets?
Limited data exists on the subject, but from the evidence that is available it appears non-smokable forms of cannabis such as edibles, beverages and vape products increase in popularity as a market evolves.
Denver-based market research firm BDS Analytics found sales of cannabis-infused foods in Arizona, California, Colorado and Oregon grew by more than 56 per cent over the first ten months of 2018.
- Sales of vape-based products such as pens and cartridges grew at an even faster rate, going from US$61.8-million in total sales generated from those four states over the month of January to nearly US$112-million in October, representing an increase of 81 per cent over that time.
- Dried flower sales increased over that period as well, but with growth of just 25 per cent from January to October, smokable bud seems to pale in comparison to the popularity of non-combustible products.
More recently, Seattle-based analytics firm Headset found the market share for dried cannabis flowers in Colorado, Washington, Nevada and California fell from roughly 80 per cent in 2014 to 43 per cent during the first two months of 2019. Extract-based products such as vape pens, edibles, capsules and topicals seem to significantly cannibalize demand for dried flower products as they become more available.
How many U.S. states have legal medical or recreational cannabis?
As of April 1, 2019:
- Medical regimes: 33 states plus the District of Columbia
- Recreational use: 10 states plus the District of Columbia
Legislative changes are proceeding rapidly in several other states.
What’s the status of CBD in the U.S. post-Farm Bill?
The United States federally legalized industrial hemp production with the Farm Bill in December 2018.
Under the Farm Bill:
- Hemp-derived CBD is legal; cannabis-derived CBD remains illegal at the federal level. The FDA currently prohibits the sale of food, supplements, and beverages containing non-intoxicating CBD extract. This is, as the FDA has written, because "CBD and THC are active ingredients in FDA-approved drug products,” such as Epidiolex. The agency has sent warning letters to several companies for making unsubstantiated health claims around CBD. The FDA set its first public hearing on the legalization of CBD-infused food and drinks for May 31, 2019.
- It is not yet legal for the U.S. to import hemp-derived CBD, although it is legal within the borders of some states where medical and/or recreational marijuana is permitted, but it cannot be moved across state or federal borders.
- Under the Farm Bill, state departments of agriculture must devise a plan that must be submitted to the USDA. A state’s plan to license and regulate hemp can only commence once USDA approves that state’s plan. “In states opting not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators in those states must apply for licenses and comply with a federally-run program.”
What are the grey areas in Health Canada’s marketing rules?
The Cannabis Act prohibits several traditional advertising techniques such as cannabis product and service promotion, and presenting it in a way that evokes a positive or negative emotion about a way of life that could be seen as glamorous, exciting or daring in order not to appeal to minors.
Many rules are unclear, or easily bypassed, for example:
- Offering price discounts and online product sale announcements are subject to interpretation.
- Online promotional blogs are easily accessed.
- Online age gates in use are easily bypassed without requiring proof of identification.
While the act is federally regulated, it is up to provincial governments to determine how cannabis is distributed and sold, and business owners differ in their interpretations about what is permitted.
What’s allowed for stores and grow facilities on First Nations land?
Several First Nations state it is their sovereign right to establish their own licensing system on reservation land. While some retail cannabis stores have opened on First Nations land either without licences or with licences issued by their own government, others have opted to do so only after obtaining Health Canada licences. Cannabis producers that opt to grow product on First Nations land without Health Canada permits, however, cannot sell into the federally recognized legal supply chain while stores that do not have federal retail licences cannot buy pot from Health Canada licensed producers.