Since 2013, Health Canada has been accepting applications from individuals and corporations wanting to become producers of medical marijuana. The regulations came into force in June of 2013, and are called the Marihuana for Medical Purposes Regulations. I wanted to write a “How To” article about what it takes to get into this growing industry, what some of the common misperceptions are, and what is happening in 2016.
The new regulations (MMPR) were intended to replace the Marihuana Medical Access Regulations (MMAR) in 2013, phasing out the latter over a short timeframe. Under the MMAR, cultivators could grow for themselves, and people could designate them to grow on their behalf (as designated growers). These MMAR cultivators were all over the country, with little inspection from the federal government. Health Canada introduced the MMPR in order to keep the number of producers smaller and more tightly monitored, with higher security and quality standards. At the time, the Harper Government felt the MMAR allowed for too much freedom in cultivation, giving way to supplying the black market. Justified or not, this was the thought of the day.
Today, the MMAR still survives due a court injunction, but the best contacts I have in the industry suggest its days are finished. Traces of the MMAR may still survive (such as an individual growing for just themselves), but we do expect the MMAR to be finished in 2016.
Right now, other than the MMAR cultivators in existence (which is not many), the only legitimate/legal way for a Canadian to purchase medical marijuana is to buy from a licensed producer under the MMPR. These producers have a licence from the federal government (from the Office of Medical Cannabis in Ottawa, and have passed through rigorous screening to be where they are today. They are inspected on a monthly basis usually, and must maintain exceptional inventory tracking of their product. Currently there are 27 licensed producers of medical marijuana (full list can be found here), half of which are also licensed to manufacture cannabis oil.
Under the current MMPR system, a Canadian obtains something equivalent to a prescription from a medical doctor for medical marijuana, and submits these to a licensed producer. The consumer can only purchase from one producer at a time. There is a monthly limit to the amount of product that can be ordered (based on the doctor’s note), and all product is shipped through the mail or courier. No purchasing is allowed in person, or through retail locations. This is currently the only legal method of purchasing medical marijuana under the MMPR.
The other way for a Canadian to obtain medical marijuana is from dispensaries, which are illegal albeit tolerated places of business, mostly in the City of Vancouver (note well: not the greater Vancouver area, just Vancouver proper). Dispensaries source their product however they can, which is always from illegal sources. (We’re not making judgments here, just describing the situation legally.) The future of the medical marijuana dispensary system is very uncertain. At present, fewer than a dozen of the dispensaries in Vancouver qualify for zoning permits, not to mention what Health Canada has planned for the industry.
What about the future? Dispensaries, pharmacies, production, agricultural production … There are many unknowns about how Canada will regulate marijuana on a recreational level, but we do know that it is indeed coming. It isn’t an If, it’s a When and a How. But medical marijuana, in my opinion, will continue being cultivated and produced as it currently is, likely running in parallel with a recreational model. Again, no one knows, but I have good reason to believe this. (Read about my speculations on the future of the marijuana industry here.) Ultimately, I believe that medical marijuana has an unquestionably good outlook for the future, and that the MMPR will continue being the model for the most part. Let’s assume this moving forward. So at this point, you’re thinking you want to become a licensed producer of medical marijuana under the MMPR. What does it take?
Any individual can apply. You don’t need to have a company (though it helps). You have to spend the majority of your time in Canada (residency requirement). You can’t have a criminal record (or, at least not related to drugs or serious offences).
To become a licensed producer, you have to make an application with Health Canada. In this application, you have to provide information about your senior staff, especially the qualifications of your Quality Assurance Person (more on this below). You also have to provide an address for the proposed facility location, as well as a detailed floor plan of the facility. You will have to provide a substantial amount of documentation on your quality procedures (37 to 45 procedures in total), some of which are more than 50 pages in length. You will also have to provide a detailed security plan on how your facility will satisfy the security requirements, in addition to having security procedures for operations. In a nutshell, this is what you have to provide.
To date, Health Canada has accepted over 1600 applications to become licensed producers. Of these, 27 are licensed, and around 100 applications are at the final stage. The failure rate is very high, and the primary reason is the quality of documentation (especially the quality procedures) is poor. A good number of files have been refused because the proposed location of the facility doesn’t pass their security requirements (e.g., next door to a shopping mall). Also, many applications fail because the Quality Assurance Person (QAP) isn’t qualified for the role.
The quality documentation, as well as the qualifications of the QAP, are the primary reasons for failure. In short, the proposal has to be on par with what you would see in a pharmaceutical manufacturing facility. Health Canada does not define the requirements very carefully on their website, because they are only licensing high tier applicants. Unless you have someone with substantial proficiency in pharmaceutical quality system documentation, you will need a company like us to provide this to you.
You do not have to hire any staff, nor do you have to purchase/lease the location. At minimum, you have to identify your QAP on paper and demonstrate how they’re qualified under the MMPR. For the application, you need to identify a senior contact person as well as at least one floor manager. For the location, while you do not need to purchase or lease the land yet, you do need permission from the current land owner to have this business there (in writing); this usually means you own/lease the land/facility, but not necessarily. Ultimately you don’t want to lose this location while you’re in queue; if you do, you will mostly be starting from scratch.
How much does it cost to become a licensed producer? Generally speaking, if you already own the building and land, you should be forecasting between $80 and $150 per square foot of finished facility space. This would mean a 10,000 sqft facility would need between $800k and $1.5M to get this business off the ground. It’s always possible to build/renovate for less, but the costs add up quickly enough to keep small players out of the game. The Harper Government never intended this to be an industry model adaptable to small scales – it’s why they proposed the MMPR in the first place; that’s what the MMAR used to be.
Do you renovate your facility right away? What’s the timeframe for getting approved? What can I do to increase my chances of getting licensed quickly? Great questions. Let me try to answer these. First, becoming an LP is not a start-up business for an individual; you’ll need significant capital to get this off the ground. It doesn’t cost as much to make an application – and in theory you can get pre-approved ahead of building out – but at some point before you renovate and buy equipment you’ll need to secure capital. How easy is it to raise $2M for a start-up business in an emerging industry? If you wouldn’t know where to start, it probably isn’t the time for you to get into the industry. Having said that, where there’s a will there’s a way, and I wouldn’t discourage anyone with a passion for this industry from making an application.
Timeframes for approval are hard to predict. In 2015, Health Canada only licensed 2 new producers (the other 2 were second sites for existing producers). Contrast this to the 17 licences they issued in 2014. Historically, the process according to Health Canada could take 1.5 to 2 years from start to finish, but their target is 180 days (i.e., 180 days when they’re actively working on the file, subject to much interpretation). In our experience, it should take around 9 to 12 months to go through their review process, after which you should expect an invitation for inspection (at which time you can build/renovate as long as you need before inviting them for the inspection). The licence would be issued 3 to 6 months after this. All in, it’s probably a two year process. Having said this, it’s hard to predict what will happen in 2016 – there are significant improvements in review times already being seen, and the Trudeau government is expected to handle everything in a friendlier manner.
You don’t have to build out or renovate right away. But you do have to propose everything on paper (which is what we do for you). Once you get to a final stage in the process, you’ll have ample time to renovate, build, buy equipment, hire staff, etc. But note that you shouldn’t change your overall proposal at that point – your QAP should be the same person, your procedures should match your application, your floor plan should be the same.
How much does it cost to make an application? Consultants and lawyers will cost around $100,000 total (including our fees). You also have to sit on some land for a while, whatever that cost would be for you. That would be the minimum investment to get to a late stage in the application process. Can you make an application for less? Absolutely not. The fail rate is 95% or higher. Paying for the right experts upfront is the only way to give yourself a fighting chance.
The hard part right now about becoming an LP? Waiting. Waiting without knowing what Health Canada is doing with your file. You can ask them, they’ll just tell you it’s under review. You get feedback from time to time, but the waiting is the hardest part. Having said that, we have had many clients get to the final stage, when things start to get real.
NHP Consulting has been recruited by some of the highest calibre applicants in Canada to build their quality systems and prepare their applications on their behalf. We haven’t lost any files to date. Our staff have the specific experience and qualifications needed to shepherd you through the process gracefully and with few hassles.