Cannabis Legalization: The New Frontier

This post is the second in a series from Alexander Holburn regarding the pending legal use of non-medical cannabis in BC. Click here to read a summary of the existing laws on cannabis and the pending changes coming soon under federal and provincial legislation.

The federal government has confirmed that recreational cannabis will become legal in Canada on October 17, 2018.  The legalization of cannabis means business owners, employers, employees, landlords, tenants, as well as consumers and producers of cannabis and cannabis-related products, must consider how this new landscape affects an organization’s legal and business obligations.

Cannabis and General Business

Under the new regime, those who wish to cultivate cannabis must apply to be licenced producers, and those who wish to sell cannabis must apply to the BC Liquor Control and Licensing Branch (“LCLB”) to be a private retailer. Business owners will need to consider what business structure to operate through.

For example, a number of current dispensaries, who are eligible for consideration for a provincial license, are currently incorporated as non-profit societies. Societies are a type of structure which prohibits the distribution of profits among its members. However, cannabis producers or retailers can potentially operate as a partnership, a society, possibly a franchisee or franchisor, or an incorporated company, which could be private or publicly-traded.

Mergers and acquisitions of cannabis corporations trading on the Canadian stock exchanges have regularly been in the news as legalization nears. While the stock prices of these companies have seen fluctuations in recent months, the attractiveness of investing in publicly-traded companies remains high: in the first quarter of 2018, publicly traded cannabis companies on Canadian stock exchanges raised more than $1.4 billion in equity. Meanwhile, recent reports estimate that legalizing recreational use of cannabis could ignite this nascent Canadian industry such that its retail sales will rival those of the wine market; by 2019, the legal recreational cannabis market is expected to generate sales of up to $4.34 billion,[1] and by 2020, the retail value of the cannabis industry will approach $6.5 billion.[2]

Given the growth predictions, those operating a cannabis-related business should invest some energy in determining which business structure best supports the operation of that business.

Business Owners, Occupiers Liability and Cannabis

Whether cannabis will be treated similar to alcohol regarding social and commercial host liability is yet to be determined. However, both individuals hosting private gatherings and business owners who encourage patrons to consume products would be wise to remember that in the context of alcohol, a duty of care is placed on hosts to ensure that guests and occupiers are reasonably safe on the premises and after leaving the premises. This liability is generally lower for social hosts, and the test comes down to reasonable foreseeability, which is not present if the host is unaware of the intoxication or potential for intoxication. In a social context, there is a real risk for liability if it is reasonably foreseeable that a guest is impaired or may become impaired, and that this impairment is causally connected to an incident that causes harm.

Commercial host liability holds commercial hosts to a much higher standard than that of social hosts. Commercial host service of alcohol is heavily regulated by the LCLB and the Liquor Control and Licencing Act (“LCLA”). However, the Act does not expressly impose liability on hosts. The liability is rooted in the common law and principles of tort. In BC, it will be illegal for retailers to allow consumption of cannabis in their stores, and the sale of cannabis to intoxicated patrons will be prohibited. This prohibition may work similarly to the LCLA and expose retailers to liability if they contravene either of these provisions. It is important to remember that in the alcohol context, this duty to patrons is a positive duty, meaning the host must take steps to prevent harm to the patron and others. Whether the same duty will apply to cannabis is not yet known.

Employer-Employee Relations and Cannabis

According to the Human Resources Professionals Association, up to 45% of respondents in a recent survey believe that their current workplace policies do not adequately address potential new issues that may arise with the legalization of marijuana.[3] The main concerns for employers are employees operating motor vehicles, disciplinary procedures, decreased work performance, employees using heavy machinery and an impact on attendance. Employers attempting to implement a zero-tolerance cannabis policy will need to be cognizant of an employer’s duty to accommodate disabilities to the point of undue hardship. Undue hardship may be proven more easily in a safety-sensitive workplace, but the risk of a human rights complaint is possible. It is anticipated this is more of a concern with medical cannabis use, since a prohibition on recreational use may be comparable to a prohibition on alcohol. However, intoxication may be less apparent in those consuming cannabis than those consuming alcohol. Employers may want to consider implementing policies differentiating use of medical cannabis from recreational cannabis. For safety-sensitive workplaces, the employer must consider whether drug testing for cannabis is desirable because there is currently no test that can sufficiently determine the extent of cannabis impairment.

Strata Corporations

The forthcoming introduction of new cannabis legislation in BC means the issue of cultivating cannabis in a unit governed by a strata corporation may be more difficult to prevent and control. The provincial government has stated that strata corporations and landlords will be able to regulate and prohibit the cultivation of cannabis in units. Electricity use, humidity and nuisance are some of the reasons to allow the ban. However, as noted by the Condominium Home Owner’s Association of British Columbia, strata councils are held to a high standard, so navigating this new area of the law and the pending ability of individuals to cultivate up to four plants in their home is bound to be initially “hazy”.

Residential Tenancy

Landlords and tenants should both be aware the province’s pending laws on recreational cannabis will affect them. Regarding residential tenancies, landlords will be permitted to make changes to an existing lease to prohibit cannabis smoking if the existing lease already prohibits smoking tobacco and to prohibit the personal cultivation of cannabis, except for federally authorized medical cannabis. For new leases, the existing provisions of the Residential Tenancy Act that allow landlords and tenants to negotiate the terms of leases will apply.

Looking Ahead

Preparation and insight are necessary to ensure compliance with and successful transition under the new regulatory regime for cannabis and cannabis-related products.

If you have questions on how the pending new cannabis regulations will impact business law, securities law, strata governance, employment law, and much more, please do not hesitate to contact Scott Allen.

 

[1] A society in transition, an industry ready to bloom, Deloitte online: < http://www.deloitte.com/ca/Deloitte2018Cannabisreport >

[2] Cannabis: Almost Showtime; A Legitimate Industry with Potentially $1 Billion of EBITDA, CIBC online < https://www.investorvillage.com/uploads/82915/files/CIBC_Cannabis.pdf >

[3] Clearing the Haze: The Impacts of Marijuana in the Workplace. HRPA Online: < https://www.hrpa.ca/Documents/Public/HRPA-Clearing-The-Haze.pdf>