Cannabis Tracking System Order: SOR/2018-178

Canada Gazette, Part II, Volume 152, Number 18

Registration

August 24, 2018

CANNABIS ACT

The Minister of Health, pursuant to subsection 82(1) of the Cannabis Actfootnote a, makes the annexed Cannabis Tracking System Order.

Ottawa, August 21, 2018

Ginette C. Petitpas Taylor
Minister of Health

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:

Quantity by class of finished cannabis

(2) The quantities of finished cannabis referred to in paragraphs (1)(a), (c) and (e) must be provided for each class of finished cannabis specified in column 1 of Schedule 1 and be expressed in the applicable unit of measurement specified in column 2.

Quantity by class of unfinished cannabis

(3) The quantities of unfinished cannabis referred to in paragraphs (1)(b), (d) and (g) must be provided for each class of unfinished cannabis specified in column 1 of Schedule 2 and be expressed in the applicable unit of measurement specified in column 2.

Quantity by province and class

(4) The quantities of finished cannabis referred to in paragraph (1)(f) must be

Cessation of activities

(5) A holder of a licence that ceases to conduct activities under the licence must 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, within 15 days after the day on which the activities cease.

Additional information

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

Sale Authorized Under Provincial Act

Public body

4 (1) Subject to section 6, 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:

Quantity by class

(2) The quantities of cannabis referred to in paragraphs (1)(a) to (d) must be provided for each class of finished cannabis specified in column 1 of Schedule 1 and be expressed in the applicable unit of measurement specified in column 2.

Cessation of activities

(3) A public body referred to in subsection (1) that ceases to conduct 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 (4) and section 6, a person — other than a public body — that is authorized under an Act of a province to sell cannabis must provide, no later than the 10th day of each month and in respect of each location in the province at which they are authorized to sell cannabis or from which they send or deliver it, the following information, in writing, to the public body referred to in subsection (2):

Public body

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

Quantity by class

(3) The quantities of cannabis referred to in paragraphs (1)(a) to (d) must be provided for each class of finished cannabis specified in column 1 of Schedule 1 and be expressed in the applicable unit of measurement specified in column 2.

Conditions

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

Condition no longer met

(5) If the condition set out in paragraph (4)(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

(6) A person referred to in subsection (1) that ceases to conduct 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.

Exception — locations without inventory

6 Information is not required to be provided under subsection 4(1) or 5(1) in respect of a location where cannabis is sold but is not maintained in inventory.

General Provisions

Manner of providing information

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

Retention

8 (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.

Coming into Force

October 17, 2018

9 This Order comes into force on the later of October 17, 2018 and the day on which it is registered.

SCHEDULE 1

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

Finished Cannabis
Item Column 1
Class of Finished Cannabis		 Column 2
Unit of Measurement
1 dried cannabis kilograms
2 cannabis oil litres
3 fresh cannabis kilograms
4 cannabis plants number of plants
5 cannabis plant seeds number of seeds

SCHEDULE 2

(Subsection 2(3))

Unfinished Cannabis
Item Column 1
Class of unfinished cannabis		 Column 2
Unit of Measurement
1 dried cannabis kilograms
2 cannabis oil litres
3 fresh cannabis kilograms
4 cannabis plants number of plants
5 cannabis plant seeds kilograms
6 any other class of unfinished cannabis kilograms

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

The Cannabis Act creates a new, comprehensive national framework to provide restricted access to regulated cannabis, and to control its production, distribution, sale, import, export and possession. Under the Act, provinces and territories (P/Ts) will oversee the distribution and retail aspects of the cannabis supply chain, and could tailor certain rules in their respective jurisdictions. The shift to the new legal framework will significantly increase the number of licensed parties authorized to carry out activities with cannabis across Canada, and expand and diversify the supply chain that exists today under the Access to Cannabis for Medical Purposes Regulations.

As part of the new control framework, the Cannabis Act provides the Minister of Health with the authority to

This Ministerial Order will come into force alongside the Cannabis Act on October 17, 2018.

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 will come into force on October 17, 2018.

On July 11, 2018, the Cannabis Regulations were published in the Canada Gazette, Part II. This regulatory framework will establish the rules and standards that will apply to the authorized production, distribution, sale, importation and exportation of cannabis, as well as other related activities respecting the classes of cannabis (i.e. dried cannabis, fresh cannabis, cannabis oil, cannabis plants, and cannabis seeds) that will be permitted to be sold by a person authorized under the Cannabis Act when the Act and the Cannabis Regulations come into force on October 17, 2018.

Until the Cannabis Act comes into force, cannabis is subject to both the Controlled Drugs and Substances Act (CDSA) and the Food and Drugs Act (FDA), unless it is exempted. Under the CDSA, activities with cannabis are prohibited except as authorized under the Regulations, through an exemption for medical or scientific purposes, or if an exemption is otherwise in the public interest. Under the CDSA, the Access to Cannabis for Medical Purposes Regulations (ACMPR) set out a framework to provide individuals with access to cannabis for medical purposes.

A monthly reporting regime for federally licensed producers (LPs) of cannabis for medical purposes has been in place since October 2013. Under the ACMPR, as a condition of their licence, LPs must report production, sales, inventory, client registrations and other related information to Health Canada on a monthly basis. LPs submit these monthly reports via email, using a spreadsheet template provided by the department. Health Canada uses this data primarily to monitor medical access (including the adequacy of cannabis supply) under the Regulations, as well as to monitor the theft, loss and destruction of cannabis as one component of an integrated regulatory program that is designed to protect public health and safety. Key metrics are aggregated and posted quarterly on the Health Canada website.

The coming into force of the new legal framework under the Cannabis Act will significantly increase the number of licensed parties authorized to carry out activities with cannabis across Canada, and expand and diversify the supply chain that exists today under the Access to Cannabis for Medical Purposes Regulations. Today, there is a single class of federal licence holders — the licensed producer — which may be licensed to conduct different activities under a single licence. The Cannabis Regulations will create six classes of federal licence holders (cultivation, processing, sale, analytical testing, research, and cannabis drug licences) that will authorize specific activities with cannabis, and new subclasses of licences for cultivation (standard cultivation, micro-cultivation, and nursery) and processing (standing processing, and micro-processing). In addition, each P/T has introduced legislation and is standing up retail and distribution systems 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, these federally and provincially authorized entities will play an important role in the national cannabis supply chain, ensuring an adequate supply of legal, quality-controlled cannabis is accessible to adults across the country.

In addition to providing for a licit supply of cannabis in Canada, the Cannabis Act seeks to reduce and deter illicit 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 of Health with the authority to

To collect cannabis tracking information from specific reporting parties, Health Canada has developed a single reporting platform, the Cannabis Tracking and Licensing System (CTLS) — a web-based data collection tool that will serve as a portal for the reporting of production, inventory, distribution and sales data from entities across the country that are authorized under a federal or P/T Act to conduct activities with cannabis, and a platform to facilitate the aggregation and analysis of this data by authorized Health Canada personnel.

The data collected through the CTLS will be used by government 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 of, or inversion to, the illegal market; and to verify compliance and prevent non-compliance. These reporting requirements, which seek to provide for effective oversight of the cannabis market, while minimizing the reporting burden on licensees, build on lessons learned under the ACMPR.

Objectives

The objective of the Cannabis Tracking System Order is to compel 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 Order will 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 P/T legislation.

Description

Given the objective of the Order, and based on an assessment of risk, the Order applies to

The 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. Further reporting requirements could be added as specific conditions to a licence if deemed necessary. Separate mechanisms will be put in place to require designated public bodies in relevant jurisdictions to report information provided to them by private distributors and retailers to the Minister of Health. This information will be communicated on Health Canada’s website, as well as directly to impacted parties.

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

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

All reporting parties must report electronically, through the CTLS, which has been designed to make their use of the online system as efficient and intuitive as possible. Within the CTLS, reporting parties will be able to choose the reporting method that is preferable to them — data can be submitted manually using fillable fields on the secure web application, or via a file upload. The data will then be captured in a centralized database, where authorized Health Canada personnel will be able to access the system to consolidate, verify and analyze the data, as required.

The Order requires that holders of federally issued 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 conditions that a mechanism is in place obligating the P/T public body to transmit the information to the Minister and that they are notified of the mechanism). In all cases, relevant records, reports and data will need to be retained for at least 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 from existing regulations, and also remove 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

Because the reporting requirements under the Order are very similar to those under the ACMPR, existing federal licence holders — that is, entities that entered the legal cannabis market prior to the coming into force of the Cannabis Act and the Cannabis Regulations — are not expected to incur any incremental administrative costs.

An estimated 950 new entities will incur incremental administrative costs. Over the 10-year period of 2018–2019 to 2027–2028, this would include an estimated 101 new federal licence holders that will enter the cannabis market under the Cannabis Act and its regulations, and an estimated 849 private provincially authorized distributors and retailers in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba and Newfoundland and Labrador. 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 P/T-authorized public 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 ACMPR (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 provincially authorized distributors and retailers was generated using publicly available information from provinces on the size and scale of their projected retail model, together with information on retail growth experience in the State of Colorado.

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 (2018–2019 to 2027–2028), and presented in constant 2012 dollars, consistent with Treasury Board Secretariat guidelines. The present value (PV) [2012] of the total incremental administrative costs to industry stakeholders has been estimated to be $1.2 million over 10 years (or $174,200 annually).

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 a significant majority of existing and projected new federal and provincial licence holders may be small businesses, their needs have been carefully considered throughout the development of the Order.

As part of the implementation approach, the CTLS was designed to minimize reporting burden and to provide flexibility in the submission of the data. The number of potential data elements in the CTLS was streamlined to 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 illicit market. The number of data points which 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 70 data points; provincial/territorial authorized distributors and retailers would report fewer than 100; and a standard processor would report under 200 data points. The design of the CTLS is such that reporting parties can submit manually using fillable fields on the web application, 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 will allow 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.

Given that most facilities 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 Order should be limited.

Consultation

Task Force on Cannabis Legalization and Regulation

In the 2015 Speech from the Throne, the Government of Canada committed to legalizing, strictly regulating, and restricting access to cannabis. In June 2016, the Task Force on Cannabis Legalization and Regulation was formed to consult broadly with Canadians and to provide advice on the design of a new legislative and regulatory framework to support the legalization and strict regulation of cannabis in Canada. The Task Force engaged in extensive consultations across the country with P/T and municipal governments, experts, patients, advocates, Indigenous organizations, youth, employers and industry. The Task Force also heard from many other Canadians who participated in an online public consultation that generated nearly 30 000 responses from individuals and organizations.

Based in part upon the input received, the Task Force issued a final report that made 85 recommendations for the establishment of a comprehensive framework for the legalization and regulation of cannabis. The report included a recommendation to implement a tracking system, similar to those in use in the U.S. states that strictly regulate cannabis. The CTLS is designed to minimize the burden on users while ensuring that Health Canada can effectively monitor compliance.

The Task Force’s report has informed the development of the Cannabis Act, the Regulations under the Cannabis Act, as well as the tracking system.

60-day consultation on the proposed approach to the regulation of cannabis

On November 21, 2017, Health Canada launched a 60-day public consultation to solicit public input and views on the approach to the regulations, which were published on November 25, 2017, in the Canada Gazette, Part I.

To support the consultation, Health Canada published a consultation paper entitled Proposed Approach to the Regulation of Cannabis. The consultation paper outlined a comprehensive series of regulatory proposals to help achieve the government’s public health and safety goals of restricting youth access to cannabis, minimizing the harms of cannabis use, and preventing organized crime from profiting from the illegal production of cannabis.

The consultation paper set out proposals to outline the information and reporting requirements of reporting parties for the purposes of establishing and maintaining a national cannabis tracking system, including who would be required to report into the system, what information they would be required to submit, and how often they would be required to report. In addition, the consultation paper proposed that the Regulations would provide for the sharing of information collected through the system with P/T governments for the purpose of administering cannabis-related public health programs or activities.

On March 19, 2018, Health Canada released a report that summarized the feedback from its 60-day consultation on the proposed regulatory approach to cannabis. The summary report noted that approximately 50 submissions provided comments on proposals related to the tracking system, the majority of which expressed support for the system. Respondents noted that the ability to monitor cannabis throughout the supply chain would help prevent diversion of cannabis to the illegal market. Among those respondents who expressed concern with the proposed system, many pointed to the potential challenges in implementing the system if it were to involve major information technology systems, and the potential cost, especially for micro-scale licence holders. In response to these concerns, the system has been configured so that data can be submitted in the system either manually in fillable fields on the secure web application, or via a file upload.

Federal-Provincial-Territorial Working Group

In the fall of 2017, a Federal-Provincial-Territorial Working Group was established to inform the development of the CTLS. The working group met one to two times per month via teleconference call to discuss the policy and technical design aspects of the system.

In April 2018, P/T officials and existing federal licence holders were invited to participate in two weeks of user acceptance testing to test the functionality and design of the system. Feedback was generally positive. Tester experiences were systematically collected and used to correct system errors and improve functionality.

Rationale

As set out in Section 7 of the Cannabis Act, the purpose of the Act is to protect public health and public safety and in particular to provide 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 industry stakeholders (described under the “One-for-One” Rule) and P/T authorities to comply with the 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 has been assessed to outweigh these costs.

The shift from an email-based reporting system to the web application will facilitate timely reporting and reduce manual processes by Health Canada staff to monitor, secure, aggregate and analyze the data.

Implementation, enforcement and service standards

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

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

Health Canada officials will have a range of authorities to enforce compliance on the part of federally regulated licence holders, including

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

Contact

Eric Costen
Director General
Cannabis Legalization and Regulation Branch
Address locator 0602E
Health Canada
Ottawa, Ontario
K1A 0K9
Email: cannabis@canada.ca