2015/3/9 - Update 2015/3/12
How to do business in medical marijuana like big pharma
An interview with Hugo Alves, a Toronto lawyer who actually does this.
Hugo Alves is a lawyer at Bennett Jones in Toronto, where he and his colleague, Michael D. Lickver, were instrumental in setting up a practice serving the new medical cannabis industry.
Alves acquired firsthand knowledge of the ins and outs of setting up a regulated industry - which he defines as an industry where changes in regulations have created a new market - while participating in the Kyoto Protocol, which established a mechanism for trading emissions, and Ontario Green Energy, where the basis for a renewable energy industry was developed.
"We took the view that the hub of the industry will be the production of the cannabis, that's what the government is regulating, but there's lot's of spokes that come off that hub. Our approach is that we want to know about, participate in, and have clients in every industry vertical, not just the hub but all of its spokes, because that how we're going to build real industry-wide perspective, expertise and knowledge."
The Marihuana for Medical Purposes Regulations (MMPR) was enacted on June 10, 2013. The regulations create the framework for a medical cannabis commercial industry that is responsible for medical marijuana production and distribution. It replaces the Marihuana Medical Access Regulations (MMAR), which was repealed in March 2013 and allowed for personal and designated production by individuals in their homes.
According to the Nielsen company, the volume of analgesics sold in the US in 2013 was 806,819,9916 and a staggering 1,186,097,743 of cough and cold medicine. So when Canada's commercial medical marijuana industry was created, there was a rush not seen since prohibition was lifted. But the free-for-all did not last very long, as the MMPR 's stringent rules stopped many in their tracks.
"The numbers vary a bit but everyone agrees that there were over a thousand applications submitted; of those, a third was either rejected or withdrawn for having incomplete applications, and about another third failed at the security clearance check which is part of the regulatory review process. So, conventional wisdom is that there are somewhere between 300 to 400 applications that Health Canada is actively considering for a license." says Alves.
There is no denying that the regulatory review process is far from being quick- and- easy. With the new MMPR, the federal government has placed the emphasis on regulating production and distribution, and in particular making sure production is in line with big pharma; which means setting big pharma standards, and treating cannabis like any other pharmaceutical.
The first step in becoming a licensed producer is completing the application form, which in itself is a fairly intensive process that involves a team of advisers or consultants.
"First of all, you'll need to find a quality assurance person (QA) to be part of your team; QAs play a very key role because they are the only person in the regulated process who can actually authorize the marijuana for sale to patients. So Health Canada quite rightly places a lot of emphasis on making sure this team member meets the requirements of the MMPR," says Alvez.
The requirements for the (QA) have been refined since the inception of the regulatory process, as Health Canada learned more about the hurdles faced by producers, but the basic requirements have to do, as in most job applications, with educational background and experience. On the one hand QAs have to understand plant matter and be able to interpret scientific lab tests, and on the other they have to have held a senior quality assurance job in another industry where there was the possibility of a recall.
According to Alves, "candidates who would have been involved in mock recalls, been trained in recall procedures or have actually gone through some recall procedure in their work experience, would be be viewed as an asset. That's because Health Canada really wants to make sure that the people they approve for that role are not only scientific people who understand plant matter and can interpret tests, but that they actually know how to implement a quality assurance process, follow standard operating procedures and good production practices, and that in the event that they have to implement a product recall they know how to implement that recall in an efficient manner."
Applicants also needs to enlist a design-build consultant to provide comprehensive drawings of the licensed producer's facility. "This is everything from your workflow area to where your vault is going to be, your growing rooms, your mother rooms. You need to provide detailed drawings of what your facility is going to look like."
Then there's usually a security consultant to advise on what security measures are needed to comply with the security directives incorporated into the MMPR.
"This is everything from designing where you are going to place your facility on the land in order to provide the best choke point for intruders; what your fences are going to look like, how many cameras you are going to have for full coverage; what sort of system of restricted access and logging entry and departure from restricted areas are going to be put in place . The security person is also a key member of the team."says Alves.
Finally, the MMPR has very rigorous rules on the record keeping and tracking of product. So, unless you want to do this manually, the services of a software solution advisor should be retained to round up your advisory team. Every part of the growing, sale, and - if needed - recall cycles has to be entered, monitored and tracked. Luckily software solutions outfits, such as BioTrack THC in the US and Benchmark Labs and Grow One in Canada, who provide customized software that will literally track product from seed to sale, are popping up here and there.
"These are very important to help in the preparation of sections 10 and 11 of your MMPR application, as they deliver all the detail in terms of how the system works and who does it in a such a way as to be fully auditable by the minister at any given time, under any given situation, " says Alves.
Ok. Say you passed all the hurdles and are now a licensed producer ready to sell your very regulated cannabis to those in need. If you think you can just plunk an ad in the Star to attract customers, think again.
Cannabis is a narcotic, which means it is subject to the advertising regulations of the Food & Drugs Act, the Control Drugs and Substances Act, the Narcotic Control Regulation and the MMPR regulations, and what all those statutes prohibit is any advertising that is promotional in nature.
"Let me give you some examples, says Alvez. "It would be ok to say things like 'We produce medical cannabis which is subject to Health Canada (HC) quality controls'; probably not as good to say, 'We produce the best medical cannabis in the world'. Statements about how it tastes, or about the ailments it can treat are also generally considered promotional. What HC wants you to restrict the information to is really non-promotional information such as brand name, THC content and price per gram."
"So it really restricts the ability of a corporation to develop a brand presence, making it very hard for a licensed producer to become the Coca-Cola of cannabis. Although the marketing restrictions are the same for everyone not just for licensed producers, the key differentiator is that if you are an independent internet platform that is engaged in trying to build your brand in the medical cannabis space, you are not going to be subject to the scariest of all the penalties that can be imposed under the licensed regime, which is the revocation or suspension of the license granted to you," says Alvez.
Like in any other industry, licensed producers of medical cannabis will need insurance coverage; and because these operations are operations like any other, there are insurance policies that you can buy; general comprehensive liability policies, or product liability policies; but increasingly there are insurance brokers who are working with various various underwriting groups to create wording specifically for the MMPR.
According to Alves, "although the risks are similar to other industries, there are some that are very specific to medical cannabis production, because at the end of the day you are dealing with a plant and that plant is a narcotic."
Health Canada (HC) spot-checks
Once you get your license you can expect spot inspections from HC. They just show up at your facility, and are basically doing an audit every time they come, to determine if you are following the standard operating procedures that you presented to HC and that HC approved to give you a license. Everything, from whether you are following the proper sanitation procedures, to whether the frame rate/second of your security camera is sufficient to clearly record movement, is under the microscope.
A case is currently being heard by BC Supreme Court that challenges the constitutionality of the MMPR. The case was brought on by former medical marijuana users who oppose the new rules which would force them to give up growing their own pot and buy only from large-scale federally licensed commercial growers.
"The outcome is hard to call," says Alves. "There is no unanimous consensus even within our office as to which argument will win the day. But what is clear, and both parties have gone on record as saying so, is that whoever wins this trial will appeal. So we could be in a situation where the MMAR and the MMPR continue live side by side for another year and a half until the case works through court."
According to Alves, if the MMPR is struck down as unconstitutional then Canada would revert to the MMAR and presumably the government would try again. However, it is unlikely to see that happening since the main arguments on which the MMAR patients have based their claims are principally ones of access and cost.
"The access arguments is just a matter of allowing the industry to scale up and I think there is a school of thought out there that says that if all the licensed holders were to produce at maximum capacity we would have more supply than demand; so the access argument is one that can easily counteracted by allowing the MMPR more time to develop. As for the the cost issue, it can be remedied by offering subsidies and compassion programs. It is very difficult to see the government reverting back to the old system.There we just too many things that the government found problematic with that system for it to revert to that option," he says
The other court case which is being heard next month, will have a more immediate impact on the industry; it is the Smith case which is being heard by the Supreme Court, the highest court in the land. It challenges the constitutionality of prohibiting a patient who has been prescribed medical cannabis access to cannabis in a derivative form; whether that is an oil, a cream or an edible form.
"Again, there is no unanimous consent as to who is going to win this case. I think the government will have a hard time dealing with the constitutionality issue here, but if the government is unsuccessful, I would suspect the Supreme Court will suspend its judgement for a year to allow the federal government to pass regulation allowing for derivative products. This isn turn will create some very complicated regulatory issues but also some very important practical market issues. Derivative forms of cannabis form 60% plus of the US market. They are a market vertical which is very desirable from a patient care and consumer perspective."
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MED-MAR - Part 1 -: How to do business in medical marijuana like big pharma
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MED-MAR - Part 3: Medical marijuana, food, and the final frontier
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