Expansion for cannabis companies must include foreign markets

International trade is crucial for the success of Canadian cannabis companies, even though exporting in the highly regulated industry presents significant challenges, say lawyers familiar with international trade and cannabis regulations.

“The question is not going to be whether or not Canadian companies are going to be successful in other jurisdictions,” says Martha Harrison, a partner at McCarthy Tétrault LLP in Toronto, who practises regulatory and international trade law.

“The question is going to be the levels and magnitudes of their success,” she says.

“We’re really looking from a national policy perspective, as well as from a corporate policy perspective, like industry leaders around the world. Other jurisdictions are looking to us both in the private sector and the public sector to help them frame their own regimes.”

Jesse Goldman, a partner in international trade at Borden Ladner Gervais LLP in Toronto, says Canada has become “the world’s petri dish for developing cannabis.”

“There’s a moment in time here for Canadian producers. They’ve got a head start. Canada’s got a more robust, sophisticated, regulatory regime than anywhere,” says Goldman.

“Toronto really has become the cannabis capital of the world,” says Eric Foster, a partner at Dentons LLP in Toronto.

Much of his work involves helping Canadian cannabis companies expand outside of Canada or working with foreign companies who want a presence here.

Canadian companies need to expand beyond domestic borders if they want to increase their business, Foster says.

“Increasingly, I think anybody involved in the industry realizes that Canada has a bit of a first-mover advantage here, but we have to be able to leverage it,” he says.

“And the way to leverage it is not focusing on pure cultivation in Canada.”

Canada may have a sophisticated regulatory system for cannabis, but it can be a difficult place to run a business solely focused on cultivation, he says.

The consumer market is smaller; the climate means plants need to be grown indoors, and running greenhouses can be expensive, says Foster. 

Some have raised concerns that Canada’s domestic laws about cannabis are at odds with international commitments, says Harrison.

The United Nations’ Single Convention on Narcotic Drugs of 1961, to which Canada is a signatory, currently lists cannabis and cannabis resin in its most restrictive category, viewing it as a harmful drug with little or no medicinal value.

The convention was amended by the 1972 Protocol, the Convention on Psychotropic Substances of 1971 and the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988.

“There’s certainly a position at international law to take that Canada is off-side of its treaty obligations by liberalizing the regime to the extent that it has,” says Harrison.

“There are a number of trading partners that remain uncomfortable with the liberalization of their domestic regimes, which would encourage international trade because they are signatories to these treaties.”

In January, the World Health Organization recommended cannabis and cannabis resin no longer be listed in the most restrictive category of drugs under the convention.

Its report noted the medical benefits of cannabis, including for treating pain, epilepsy and conditions associated with multiple sclerosis.

For these reasons, the WHO Expert Committee on Drug Dependence recommended “cannabis and cannabis resin be scheduled at a level of control that will prevent harm caused by cannabis use and at the same time will not act as a barrier to access and to research and development of cannabis for medical-related use.”

The recommendations have not yet been implemented. But if they are, it could mean more markets could become available for medical cannabis grown in Canada.

Canada’s current cannabis regime doesn’t allow “for free international trade of cannabis products,” says Harrison.

This gives Canadian products a greater market advantage domestically.

This could cause difficulties if the demand for recreational cannabis outstrips the supply, says Harrison.

She says it’s possible that a “disgruntled” international supplier or government could allege Canada is breaching national treatment provisions by not allowing international recreational cannabis products into the domestic market.

“I anticipate that Canada is going to be potentially called to task as it continues to liberalize within its own borders but does not reciprocate the liberalization with regard to trade,” says Harrison.