New rules could put spotlight on key investors of private pot firms

Regulations from Health Canada intend to offer clarity on legal cannabis regime

The federal government has rolled out new marijuana regulations that could force privately held cannabis companies to divulge details of their major investors.

After passage of the federal government’s legalization legislation this month, Health Canada announced Wednesday new regulations under the Cannabis Act that aim to flesh out the incoming legal recreational cannabis regime.

The regulations include several classes of licences for certain activities, such as cultivation and sale. The rules, however, also cover a far wider swath of minutiae for legalized pot, including obligations for record-keeping and the type of data that must be provided to the government.

For private cannabis companies, that could mean giving the federal government information related to their big investors.

Under the act, the federal health minister could already require applicants for a marijuana-related licence to hand over financial information. But government officials say the regulations would also require that privately held licenceholders report information about financial transactions with “key” investors on an annual basis.

According to the officials, those backers would be someone whose investments, loans or ownership interests have put them in a position to exercise control over a licence-holder. And under the regulations, the information that must be recorded and reported to the federal government could include details about the amount of an investment or loan, the benefit received as a result, and whether the benefit has been assigned to another person.

“We’ve taken a public health approach to the legalization and strict regulation of cannabis to ensure that proper precautions are in place to protect Canadians, especially youth,” Ginette Petitpas Taylor, the federal health minister, said in a release. “The Cannabis Act and its regulations provide strict national standards and oversight for the production, distribution and sale of legal, quality-controlled cannabis, which will help protect public health and safety.”

Despite the long list of dos and don’ts, representatives of the Canadian cannabis industry did not sound surprised about what was included in the regulations.

Allan Rewak, executive director of the Cannabis Canada Council, the trade association of the country ’s licensed producers of medicinal marijuana, said the regulations were “very much in line” with the federal government’s legalization legislation. “The council and its membership are reviewing (the regulations) so as to make a positive contribution and achieve our mutual objectives of seamlessly introducing a better-regulated cannabis system that keeps profits away from organized crime and cannabis away from kids,” Rewak said.

We’ve taken a public health approach ... to ensure that proper precautions are in place to protect Canadians.

The regulations do fill in some blanks left after the Cannabis Act passed this month. The bill laid the groundwork for production and distribution of marijuana in Canada after nearly a century-long prohibition on the drug.

For example, the government says that the legislation will allow adults to cultivate up to four plants per household, with provinces and territories permitted to layer their own rules on top of that. The law also includes criminal offences for selling marijuana to minors and provides the groundwork for a “cannabis tracking system” that would help with enforcement.

According to government officials, the regulations announced Wednesday are to come into force on Oct. 17, the same day as the federal Cannabis Act kicks in.

The regulations do appear to allow for outdoor cultivation, which, despite Canada’s oftencold climate, could have an impact on pot prices, according to some analysts. A recent research note from Canaccord Genuity said the addition of outdoor growing in the country “could see production costs decline substantially lower.”

“Although a lower cost base could help pad margins in the short-term, we believe the addition of outdoor grow in Canada is more likely to expedite commoditization of the flower and could put substantial pressure on pricing,” wrote analysts Neil Maruoka and Matt Bottomley.

But Cam Battley, chief corporate officer at Aurora Cannabis Inc., said the regulations “were pretty much as expected.”

“It gives us increasing clarity on what the market environment will be like post-legalization,” Battley said. “And we’re just raring to go.”