Cannabis Tracking System Order: SOR/2019-202

Canada Gazette, Part II, Volume 153, Number 13

Registration

SOR/2019-202 June 12, 2019

CANNABIS ACT

The Minister of Border Security and Organized Crime Reduction, pursuant to subsection 82(1) of the Cannabis Act footnote a, makes the annexed Cannabis Tracking System Order.

Ottawa, May 31, 2019

William Sterling Blair
Minister of Border Security and Organized Crime Reduction

Cannabis Tracking System Order

Interpretation

Definitions

1 (1) The following definitions apply in this Order.

Interpretation

(2) For the purposes of this Order,

Federal Licences

Information to be provided

2 (1) A holder of a licence for cultivation, a licence for processing or a licence for sale for medical purposes that authorizes the possession of cannabis must, no later than the 15th day of each month, provide the Minister with the following information, as applicable, in respect of the site specified in the licence:

Number, quantity and book value by class

(2) In respect of cannabis products,

Quantity and book value by class

(3) In respect of unpackaged cannabis,

Number and book value by province and class

(4) In respect of the cannabis products referred to in paragraph (1)(f),

Quantity and book value by province and class

(5) In respect of the unpackaged cannabis referred to in paragraph (1)(i),

Cessation of activities

(6) A holder of a licence for cultivation, a licence for processing or a licence for sale for medical purposes that ceases to conduct all the activities authorized by the licence must, within 15 days after the day on which the activities cease, provide any information that has yet to be provided under subsection (1) in respect of the previous month, as well as information in respect of the month in which the activities cease.

Additional information

3 (1) The information that is provided under section 2 must be accompanied by the following information:

Surface area — calculation

(2) If the surface area referred to in paragraph (1)(d) consists of multiple surfaces, such as surfaces arranged above one another, the area of each surface must be included in the calculation of the total surface area.

Sale Authorized Under Provincial Act

Public body

4 (1) A public body that is authorized under an Act of a province to sell cannabis must, no later than the 15th day of each month, provide the following information to the Minister in respect of each location at which the body sells cannabis or from which it sends or delivers cannabis:

Number and book value — not in inventory

(2) In respect of the cannabis products referred to in paragraph (1)(d),

Number, quantity and book value — cannabis products in inventory

(3) In respect of the cannabis products referred to in paragraph (1)(e),

Cessation of activities

(4) A public body referred to in subsection (1) that ceases to conduct all authorized activities at a location must, within 15 days after the day on which the activities cease, provide any information that has yet to be provided under that subsection in respect of the previous month, as well as information in respect of the month in which the activities cease.

Person other than public body

5 (1) Subject to subsection (5), a person — other than a public body — that is authorized under an Act of a province to sell cannabis must, no later than the 10th day of each month, provide the following information, in writing, to the public body referred to in subsection (2), in respect of each location in the province at which they are authorized to sell cannabis or from which they send or deliver it:

Public body

(2) The public body to which the information must be provided is

Number and book value — not in inventory

(3) In respect of the cannabis products referred to in paragraph (1)(d),

Number, quantity and book value — cannabis products in inventory

(4) In respect of the cannabis products referred to in paragraph (1)(e),

Conditions

(5) A person is required to provide the information referred to in subsection (1) only if

Condition no longer met

(6) If the condition set out in paragraph (5)(a) ceases to be met, the Minister must ensure that a notice to that effect is published on the Government of Canada website or is provided to the affected persons as soon as feasible.

Cessation of activities

(7) A person referred to in subsection (1) that ceases to conduct all authorized activities at a location must, within 15 days after the day on which the activities cease, provide any information that has yet to be provided under that subsection in respect of the previous month, as well as information in respect of the month in which the activities cease.

General Provisions

Manner of providing information

6 A holder of a licence, or a public body, that is required to provide information under this Order must

Retention

7 (1) A person that is required to provide information under this Order must ensure that

Continued retention

(2) If a person is no longer required to provide information under this Order, they must ensure that the requirements set out in subsection (1) are complied with until the end of the applicable retention period.

Repeal

8 The Cannabis Tracking System Order footnote 1 is repealed.

Coming into Force

Regulations Amending the Cannabis Regulations (New Classes of Cannabis)

9 This Order comes into force on the day on which the Regulations Amending the Cannabis Regulations (New Classes of Cannabis), other than subsection 1(2) of those Regulations, come into force, but if this Order is registered after that day, it comes into force on the day on which it is registered.

SCHEDULE 1

(Subsections 2(2) and (4), 4(2) and (3) and 5(3) and (4))

Cannabis Products

Item

Column 1

Class of Cannabis Products

Column 2

Unit of Measurement

1

cannabis plant seeds

number of seeds

2

cannabis plants

number of plants

3

fresh cannabis as defined in subsection 1(1) of the Regulations

kilograms

4

dried cannabis

kilograms

5

edible cannabis that is in solid form at a temperature of 22 ± 2°C

kilograms

6

edible cannabis that is not in solid form at a temperature of 22 ± 2°C

kilograms

7

cannabis extract that is intended for inhalation

kilograms

8

cannabis extract that is intended for ingestion as defined in subsection 1(2) of the Regulations

kilograms

9

cannabis extract that is intended for nasal, rectal or vaginal use

kilograms

10

cannabis topical as defined in subsection 1(1) of the Regulations

kilograms

11

any other class of cannabis products

kilograms

SCHEDULE 2

(Paragraphs 2(1)(h), 2(3)(a) and (b) and subsection 2(5))

Unpackaged Cannabis

Item

Column 1

Class of Unpackaged Cannabis

Column 2

Unit of Measurement

1

cannabis plant seeds

kilograms

2

cannabis plants that are not budding or flowering

number of plants

3

cannabis plants that are budding or flowering

number of plants

4

fresh cannabis as defined in subsection 1(1) of the Regulations

kilograms

5

dried cannabis

kilograms

6

flowering heads, leaves and branches of industrial hemp, as defined in subsection 1(2) of the Industrial Hemp Regulations, sold by a holder of a licence under those Regulations

kilograms

7

cannabis used in the production of cannabis of a class that is set out in any of items 8 to 14

kilograms

8

edible cannabis that is in solid form at a temperature of 22 ± 2°C

kilograms

9

edible cannabis that is not in solid form at a temperature of 22 ± 2°C

kilograms

10

cannabis extract that is intended for inhalation

kilograms

11

cannabis extract that is intended for ingestion as defined in subsection 1(2) of the Regulations

kilograms

12

cannabis extract that is intended for nasal, rectal or vaginal use

kilograms

13

cannabis topical as defined in subsection 1(1) of the Regulations

kilograms

14

any other class of unpackaged cannabis

kilograms

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

No later than one year following the coming into force of the Cannabis Act, the legal sale of three new classes of cannabis (“edible cannabis,” “cannabis extracts,” and “cannabis topicals”) will be authorized. Coinciding with amendments to the Cannabis Regulations that are required to address the unique public health and public safety risks of these new classes of cannabis, a new Ministerial Order is also necessary to include the new classes in the Cannabis Tracking System (CTS).

This new ministerial order, the Cannabis Tracking System Order, will come into force alongside the Regulations Amending the Cannabis Regulations (New Classes of Cannabis) on October 17, 2019.

Background

On April 13, 2017, the Government of Canada introduced Bill C-45 (the Cannabis Act) in the House of Commons. The Act received royal assent on June 21, 2018, and, along with the Cannabis Regulations, was brought into force on October 17, 2018.

The Cannabis Regulations establish six classes of federal licences (cultivation, processing, sale, analytical testing, research, and cannabis drug licences) that authorize specific activities with cannabis, as well as subclasses of licences for cultivation (standard cultivation, micro-cultivation, and nursery) and processing (standard processing and micro-processing).

Canada’s provinces and territories (P/Ts) have enacted legislation in support of the Cannabis Act and have implemented retail and distribution systems, of varying complexities, within their jurisdictions. Nationally, there is a mix of public and private distributors and retailers (some jurisdictions have elected to introduce hybrid public/private models). Together, federally, provincially and territorially authorized entities play an important role in the national cannabis supply chain, ensuring that an adequate supply of legal, quality-controlled cannabis is accessible to adults and Canadians consuming cannabis for medical purposes across the country.

In addition to providing for a legal supply of cannabis in Canada, the Cannabis Act seeks to reduce and deter illegal activities in relation to cannabis through a range of measures, including effective monitoring and oversight, and appropriate sanctions and enforcement measures. To support this purpose, the Cannabis Act provides the Minister responsible for the administration of the Cannabis Act with the authority to

The Government of Canada published the original CTS Ministerial Order in the Canada Gazette, Part II, on September 5, 2018. The Order came into force on October 17, 2018, along with the Cannabis Act. The data collected through the CTS is used by authorities to: track the high-level movement of cannabis across the country (e.g. from cultivator to processor, from processor to province or territory, from within the province or territory to retailer, through to sales); to detect potential diversion from, or inversion to, the regulated market; and to verify compliance and prevent non-compliance.

The Regulations Amending the Cannabis Regulations (New Classes of Cannabis) contain a series of targeted amendments to the Cannabis Regulations that address the public health and public safety risks associated with edible cannabis, cannabis extracts, and cannabis topical. The amendments will also enable a comprehensive range of cannabis product forms, consistent with the objective of enabling the legal industry to displace the illegal industry.

Objectives

The objective of the Order remains unchanged, which is to require the provision of information (including cannabis production, inventories, distribution and sales) from reporting parties, supporting the broader goal of tracking the high-level movement of cannabis throughout the supply chain. The new Order will continue to work in an integrated way with other regulatory measures designed to help prevent inversion of illegal cannabis into, and diversion of cannabis out of, the legal market, including compliance and enforcement regimes and rigorous physical and personal security, record keeping and other requirements set out in federal and provincial/territorial legislation.

Description

The new Order will apply to

As with the original Order, the new Order does not apply to holders of federally issued cannabis drug licences, and licences for industrial hemp cultivation, research, or analytical testing. Record keeping and reporting requirements for these classes of licence holders are specified in the Cannabis Regulations, some of which were amended in the Regulations Amending the Cannabis Regulations (New Classes of Cannabis). Further reporting requirements could be added as specific conditions to a licence if deemed necessary. Separate mechanisms have been put in place to require designated public bodies in relevant jurisdictions to report to the Minister responsible for administration of the Cannabis Act information provided to them by private distributors and retailers. This information is communicated publicly on Health Canada’s website, as well as directly to affected parties.

Individuals and organizations subject to this Order will be required to report on the quantity of cannabis that is

In addition to providing information on the quantity of cannabis, entities to which the new Order applies are also required to report on the value, in Canadian dollars, of certain quantities of cannabis, namely cannabis that is

The new Order also requires the provision of information related to the number of packaged units of cannabis products.

The new Order does not require the reporting of any personal information about consumers who purchase cannabis at the retail level.

As is currently the case, all reporting parties must report electronically, through the Cannabis Tracking and Licensing System (CTLS), a web-based application and case management tool designed for the submission of cannabis licence applications and amendment requests, and monthly tracking information. The CTLS will be updated to allow for the submission of the data elements prescribed by the new Order. Within the CTLS, reporting parties will still be able to choose the reporting method that is preferable to them — data can be submitted manually using fillable fields or via a file upload.

The new Order continues to require that holders of licences for cannabis cultivation, processing, and/or sale for medical purposes and public P/T bodies report no later than the 15th day of the month immediately following the reporting period. Private retailers and distributors are required to report no later than the 10th day of the month to the public P/T bodies (on the condition that a mechanism is in place obligating the P/T public body to transmit the information to the Minister and that the private retailers and distributors are notified of the mechanism). In all cases, relevant records, reports and data will need to be retained for two years after they were required to be provided, in order to enable auditing.

“One-for-One” Rule

The “One-for-One” Rule requires that if a new administrative burden results from the introduction of a new regulation, departments must offset that new burden by removing a regulation from their stock of existing regulations. The purpose of the rule is to strictly control any new administrative burden resulting from regulations on a business. For purposes of the “One-for-One” Rule, a business does not include an organization that engages in activities for a public purpose, such as a provincial government, ministry or Crown corporation. The “One-for-One” Rule applies and the new Order will be an “IN.”

Assessment

Consistent with the assumptions made in the cost-benefit analysis of the Regulations Amending the Cannabis Regulations (New Classes of Cannabis), it is assumed that all holders of a cannabis licence that authorizes processing activities would manufacture the new classes of cannabis. It is also assumed that the reporting requirements for licence holders for non-processing activities (i.e. cultivation) would be similar to those under the original Order and as such, the impact is expected to be negligible. Therefore, it is assumed that cultivators would not incur incremental costs under the new Order. It is also expected that all P/T authorized distributors and retailers will buy and sell all of the new cannabis classes and would therefore incur incremental costs under the new Order.

Currently, parties subject to the Order must report not only the same information on cannabis quantities to Statistics Canada under the Statistics Act, but must also report to them the value, in Canadian dollars, associated with each quantity. When the new Order comes into force, which will require reporting of dollar values, Health Canada will share the data it collects with Statistics Canada as set out under an interdepartmental data sharing Memorandum of Understanding. As such, parties subject to the Order will no longer be required to report any information directly to Statistics Canada. As a result, there will be some cost savings.

An estimated 1 915 entities will incur incremental administrative costs over the 10-year period from 2019–2020 to 2028–2029. This includes an estimated 435 licensed processors and an estimated 1 265 private provincially authorized distributors and retailers that are expected to participate in the cannabis market. Incremental costs to these parties are related to the time and effort to compile, validate, format and submit the information to Health Canada or a public P/T body.

The estimated number of federal licence holders was forecasted using legal supply projections following the coming into force of the Cannabis Act, together with historical experience licensing producers under the former Access to Cannabis for Medical Purposes Regulations (e.g. licence processing time, time required to construct facilities). It is consistent with the estimate used to inform the cost-benefit analysis for the Cannabis Regulations. The estimated number of P/T authorized distributors and retailers was generated using publicly available information from provinces and territories on the size and scale of their projected retail model, together with information on retail growth experience in the State of Colorado.

It is estimated that the new Ministerial Order would result in a net cost to Canadians of approximately $2.0 million net present value (PV) over 10 years, in 2018 dollars (or $296,856 annually). These costs, which would be borne by licenced processors, public and private retailers, and public P/T bodies, are associated with costs to compile the required information.

The net impact (net present value) is comprised of an estimated total cost of $3.6 million (or $517,851 annually) PV over 10 years, and a total benefit of $1.6 million (or $221,266 annually) PV over 10 years. While the total costs are attributed to licensed processors and P/T authorized private retailers, the total benefits are attributed to all federal licence holders subject to the Order, as well to P/T authorized private and public retailers, and public P/T bodies. The total benefits would result from cost savings for the impacted stakeholders from no longer being required to compile and submit similar information to Statistics Canada. In accordance with the Red Tape Reduction Act and the Red Tape Reduction Regulations, the administrative burden costs on all affected industry stakeholders were estimated over a 10-year period (2019–2020 to 2028–2029), and presented in constant 2012 dollars, consistent with Treasury Board Secretariat guidelines. The total IN created by the regulations would be $245,936 annualized, or $228 per business. Because the requirements to compile and submit information to Statistics Canada were not counted as IN at the time of the creation of the CTS the cost reduction due their removal cannot be counted as an OUT.

Small business lens

The purpose of the small business lens is to provide for a thorough analysis of small business realities to inform regulatory design, and to consider risk-based alternate compliance approaches that minimize costs for small business. The lens is mandatory for all regulatory proposals that impact small business and that have nationwide cost impacts of over $1 million annually. As the nationwide cost impacts for this proposal are less than $1 million annually, the small business lens is not mandatory. However, as the cannabis industry is currently comprised mostly of small businesses, their needs have been carefully considered throughout the development of the new Order. Based on internal Health Canada data and input from responses to questionnaires that were distributed to industry stakeholders in February 2018 and February 2019, it is assumed that 90% of licence holders will meet the definition of small business throughout the period from 2019–2020 to 2028–2029.

As part of the implementation approach, the new Order was designed to minimize reporting burden and to continue to provide flexibility in the submission of the required data. The number of potential data elements in the new Order has increased to allow for the tracking of the new classes of cannabis. As well, it better accounts for real-world transaction scenarios and business to business relationships while still maintaining a focus on the minimum data required to trace the flow of cannabis throughout the supply chain and monitor for potential diversion to, and inversion from, the illegal market.

The number of data points that any given party will be required to report will vary depending on the number and types of licences the party holds and the scale and complexity of their operations. For example, it was estimated that a typical micro-cultivator would report a maximum of 70 data points; P/T authorized distributors and retailers would, however, report less than 300 data points; and a standard processor would report approximately 1 165 data points.

As is currently the case, reporting parties will be able to submit data manually using fillable fields in the CTLS, or upload a data file. This is intended to accommodate varying degrees of capacity and technological sophistication on the part of reporting parties across the supply chain. The data file allows public P/T bodies or federal licence holders with more than one licensed facility to report data for multiple licensed facilities at once. Most internal inventory systems can easily be configured to export data to the required file format. A reporting tool will be made available to help reporting parties prepare the data file in the proper format.

Given that most parties will have some form of electronic inventory system in place to track inventory and inform business decisions, the incremental cost to small businesses of complying with the new Order should be limited.

Engagement and feedback

60-day consultation on the strict regulation of additional cannabis products

On December 20, 2018, Health Canada launched a public consultation to solicit input and views on proposed amendments to the Cannabis Regulations to address the public health and safety risks of edible cannabis, cannabis extracts, and cannabis topicals. The proposed amendments were published in the Canada Gazette, Part I, on December 22, 2018. The Regulatory Impact Analysis Statement that accompanied the proposed amendments indicated to stakeholders Health Canada’s intention to update the Order to reflect the new classes of cannabis.

Federal-Provincial-Territorial Working Group

In the fall of 2017, a Federal-Provincial-Territorial Working Group was established to inform the development of the CTS. Since then, the working group has met monthly via teleconference to discuss the implementation of the CTS as well as the design of the new Order’s data requirements.

Ongoing feedback and engagement with industry

Health Canada officials responsible for administering the CTS have had ongoing engagement with reporting parties. The engagements have served to clarify the reporting requirements, identify reporting challenges and to enable reporting parties to make suggestions to improve the reporting system.

Rationale

As set out in Section 7 of the Cannabis Act, the purpose of the Act is to protect public health and public safety, including providing for the legal production of cannabis to reduce illegal activities in relation to cannabis. The Order and the associated tracking system are consistent with these purposes and comprise one element of a comprehensive regulatory framework that works in an integrated way to support the Government’s public health and public safety goals of restricting youth access to cannabis, minimizing the harms of cannabis use, and preventing criminals and organized crime from profiting from the production of cannabis.

Expected costs and benefits

There are anticipated costs to licensed processors, public and private retailers, and public P/T bodies (described under the “One-for-One” Rule) to comply with the new Order. There are also costs to the federal government to maintain the system and verify and process the data received. However, the resulting benefits, which include enabling the high-level tracking of cannabis throughout the supply chain, monitoring for potential cannabis diversion and inversion, and contributing to the displacement of the illegal market for cannabis, have been assessed to outweigh the costs.

The shift from having to report to both Health Canada and Statistics Canada to only having to report to Health Canada will facilitate timely reporting and help reduce the administrative burden on the industry.

Implementation, compliance and enforcement, and service standards

The successful implementation of the new Order depends on the ability of reporting parties to comply with its requirements accurately and in a timely manner.

Health Canada has a series of supports in place for users of the system, including

Health Canada officials have a range of authorities to enforce compliance with the Order, including

Standard operating procedures and protocols for data storage, management, and sharing have been established and will enable Health Canada to ensure that the data provided is stored securely and can only be accessed by authorized personnel.

Contact

John Clare
Acting Director General
Strategic Policy Directorate
Controlled Substances and Cannabis Branch
Health Canada
K1A 0K9
Email: hc.ctls-bi-sscdl-ie.sc@canada.ca