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On Wednesday, Health Canada announced a significant overhaul to the cannabis licensing process, which will prevent people without a “fully built site” from applying for a licence. Applicants already in the queue will also be subject to a “high-level review,” to assess the viability of their applications.

The move is an attempt to unclog the application system, speeding up processing times for the most prepared applicants, and shuffling those who aren’t ready to the back of the queue.

The change has effectively removed the industry’s training wheels: companies can no longer submit a half-baked application to Health Canada and refine their site plan and business plan through a back-and-forth process with the regulator. In that sense, the change will make cannabis more like other mature regulated industries. At the same time, the licensing overhaul has dramatically increased the up-front cost of submitting an application, and may make it more challenging for applicants to raise money.

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Here are some key takeaways related to the change:

Who will be impacted by the “high-level review”?

There are more than 700 licence applications in the queue, said Joanne Garrah, the director of licensing and security for Health Canada’s Cannabis Branch, during a Wednesday teleconference. Of those, around 580 are likely to be subject to the “high-level review.”

Approximately 80 others have already received confirmation of readiness letters, and won’t have to go through the high-level review.

"If you’re already one of the 70 or 80 applicants who have received a confirmation of readiness letter, and you’re in the CTLS [Cannabis Tracking and Licensing System], nothing changes for you. You need to proceed as you’ve already been asked to do in providing the evidence package,” said Todd Cain, director general of licensing and medical access for Health Canada’s Cannabis Branch

In addition, there are about 70 companies that received confirmation of readiness letters under the ACMPR licensing regime but who have not transitioned into the CTLS. These companies will not be subject to the high-level review, upon entering the CTLS.

What does the high-level review entail?

According to Ms. Garrah, Health Canada will assess:

  1. The classes of licence: “Just making sure… they have the appropriate combination of licence classes within the application.”
  2. Site appropriateness: “Is it in fact a real site? Do we have information regarding the location? Is there any indication the site is associated with or located in a dwelling?”
  3. Security clearances: “It will be important to us to make sure that the company or the applicant has indicated or identified within their organizational structure, the key individuals that would be required to hold a security clearance... that those individuals have been appropriately identified, and that security clearances have been filed for them.”
  4. Municipal approvals: “Whether or not the notices that are required to local governments… have been appropriately filed.”

Companies that make it through the high-level review will be issued a “status update letter... indicating [Health Canada] has no concerns with what is proposed in the application.” They will then be placed in a queue, in which “the Department will review the application in detail, in priority based on the original application date.

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Are there any changes to processing times?

Health Canada is hoping to speed up the time it takes to move a licence application through the system. That’s largely because it will not accept an application until a facility is complete.

“Once we receive the information package to support that the site is fully built out, we expect to be able to hit a service standard of 60 business days for the active review of application, once a reviewer has been assigned, in addition to any time it takes for requests for more information,” said Mr. Cain.

Health Canada still expects to take 30 days to screen an application when it’s first submitted.

"Just to be very clear: 30 days for screening. We're still not able to make a prediction on how long an application may be in queue… Once an application moves from the queue with an evidence package into final review, 60 business days," said Mr. Cain.

Is there any change to the security clearance process?

"At the moment, we are prioritizing the processing of security clearance applications… for individuals and applicants that have evidence packages associated with their sites,” said Mr. Cain.

This won’t change under the new system, according to Zara Munir, operational compliance manager at Cannabis Compliance Inc.

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“It’s still the same process.... The only difference is previously your security clearances would be submitted and the processing of the security clearance would begin right away, or when it gets to the active review stage. Now ... security clearance will still begin once submitted, but now you’re just submitting at a much later point in the process,” Ms. Munir said.

This could increase the value of people who already have security clearance, said Ranjeev Dhillon, a partner with McCarthy Tétrault LLP.

"You don't want to have a site built out, having spent all that money, and then you don't have security cleared personnel,” Mr. Dhillon said. "I think that market [for people with security clearances] is starting to already evolve, based on the rules that came in in October. The value of people that have security clearance has always been high, but I think it's very high now."

Are micro licences impacted as well?

Yes, although Health Canada has promised to “implement additional measures to support applicants applying for a micro-class licence.”

Because micro sites are considerably smaller and have lower security infrastructure requirements, would-be micro growers and processors may find it easier to complete their build-outs prior to licence submission, said Ms. Munir.

That said, the upfront cost of a micro-cultivation facility is estimated at between $1- and $2-million, and many small scale cannabis entrepreneurs are having trouble accessing capital. The new rules may make this harder.

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“Anyone who does not have their own funding, going out and getting funding is definitely going to be much more difficult. I think it’s going to distinguish who is serious about the business and who might not be able to take it to that level,” Ms. Munir said.

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