Food companies interested in entering the cannabis industry face hurdles around packaging, manufacturing sites and limited sales opportunities for CBD products, under Health Canada’s new edible-marijuana regulations that were released on Friday.
Over the past year, traditional food and beverage companies have taken a keen interest in the sector, lining up partnerships and developing recipes ahead of edibles becoming legal in late 2019. On Friday, however, Health Canada reiterated its conservative approach to edibles, first unveiled in December, which caused food and beverage companies to rethink their approach to the new market opportunity.
The final regulations for edibles, extracts and topical products are almost identical to the draft regulations released in December. Along with putting strict limits on branding and advertising, found elsewhere in the legal-cannabis regime, the final rules reiterated the requirement that cannabis products be produced in separate buildings from regular food products.
The rule, Health Canada said, was introduced “to mitigate against the risks of cross-contamination between ingredients and products, and the increased risk of mislabelling and product mix-ups.”
"That site piece remains a challenge as far as we can see,” said Michi Furuya Chang, senior vice-president, Public Policy and Regulatory Affairs with the Food and Consumer Products Of Canada, which lobbied on behalf of its membership during Health Canada’s consultation on the regulations.
“Before one could apply for a licence, you would have to have that separate facility built, ready to go, meeting all the requirements. So the initial up-front investment − and it’s a significant investment all in the hopes that you’ll get a licence − is definitely a continuing concern."
When the separate-site rule was announced in December, a number of companies had to shift their strategy, said Chad Finkelstein, a lawyer with Dale & Lessmann LLP, who has clients in both the food and cannabis industries.
Before December, "a lot of manufacturers thought, ‘I will get a separate set of equipment and I will do my own processing for these products.’ The volume of companies that were planning on getting licensed for that purpose really dropped off,” Mr. Finkelstein said.
“They pivoted to being more focused on product development and aligning themselves with someone who was going to be licensed to do the manufacturing.”
Another concern is Health Canada’s rules around dosing, which caps the amount of THC per package of edibles at 10 milligrams.
The rule makes sense to start with, to ensure people aren’t eating or drinking more THC than they can handle, said Peter Neal, whose natural-food company Neal Brothers Inc. has a joint venture with the licensed cannabis producer HEXO Corp. But longer term, the extra packaging needed because of the low dosages will create environmental problems and higher costs.
"I’m hoping that Health Canada will keep an eye on it and review it every six months or so … There’s only so much in terms of [cost of goods sold] and packaging that you can spread out over a 10-milligram package, to the point where there’s a value proposition that doesn’t make sense for consumers,” Mr. Neal said.
One key question that remains, even after the publication of the final rules, is how Health Canada intends to regulate cannabidiol (CBD), the non-intoxicating cannabinoid that’s becoming increasingly popular as a food additive and in health and beauty products. CBD remains regulated under the Cannabis Act, meaning that it can only be sold alongside other cannabis products in licensed dispensaries.
In May, the Canadian Health Food Association and Canadian Hemp Trade Alliance, put out a white paper warning that Canadian farmers and food manufacturers risk missing out on a major consumer trend if CBD is not reclassified as a natural health product so it can be sold over the counter in pharmacies and in health food stores.
A Health Canada official said on Friday that it “remains committed to conducting further public consultation, to determine how best to provide regulatory oversight … [for] the use of CBD in products that would be used for therapeutic purposes." He did not, however, give any timelines for the consultation.
Despite the restrictive regulations and current limits on CBD sales channels, there are plenty of opportunities for small food and beverage companies who are nimble and able to partner with cannabis firms, said Brian Sterling, CEO of SCS Consulting, a food-industry consulting firm. It’s unlikely, however, that large Canadian food manufacturers will get involved in the industry any time soon.
“I think the larger firms … the Maple Leafs and the Krafts of the world, they won’t be overwhelmed by this whole thing. They’re going to look at this and say, ‘With all the other stuff I’m trying to do, with plant-based proteins and lower sugar and getting rid of artificial flavours and all the other stuff that is in our product pipeline already, why would we want to add cannabis?'” Mr. Sterling said.