Order Amending the Cannabis Fees Order: SI/2024-38
Canada Gazette, Part II, Volume 158, Number 18
Registration
SI/2024-38 August 28, 2024
CANNABIS ACT
The Minister of Health, under subsection 142(1) of the Cannabis Act footnote a, makes the annexed Order Amending the Cannabis Fees Order.
Ottawa, August 9, 2024
Mark Holland
Minister of Health
Order Amending the Cannabis Fees Order
Amendments
1 (1) Paragraphs 10(1)(b) and (c) of the Cannabis Fees Order footnote 1 are replaced by the following:
- (b) subject to subsection (1.1), the holder signs and submits to the Minister a written document indicating that the holder intends to sell all cannabis during the applicable fiscal year only in Canada to a person that is a client or a named responsible adult or to which an exemption has been granted under section 140 of the Act for a medical purpose and in relation to the cannabis or class of cannabis that is sold
- (i) in the case of the fee referred to in subsection 7(1), within 60 days after the earliest effective date of the licences, and
- (ii) in any other case, not later than September 30 of every fiscal year.
(2) Section 10 of the Order is amended by adding the following after subsection (1):
Exemption — written document
(1.1) The holder of a licence for sale for medical purposes is not required to submit to the Minister the written document referred to in paragraph (1)(b) during the applicable fiscal year in any of the following cases:
- (a) the holder’s licence is revoked or expires not later than September 30;
- (b) the holder notifies the Minister not later than September 30 that the holder intends to cease conducting all the activities authorized by their licence; or
- (c) the holder requests a revocation of their licence not later than September 30.
(1.2) In the case of a holder of a licence for sale for medical purposes who notifies the Minister in accordance with paragraph (1.1)(b), the holder is not required to submit the written document referred to in paragraph (1)(b) until the holder resumes conducting any activity authorized by their licence.
(3) Paragraph 10(2)(b) of the Order is replaced by the following:
- (b) subject to subsection (1.1), the holder meets the conditions set out in paragraphs (1)(a) and (b).
Coming into Force
2 This Order comes into force on the day on which it is published in the Canada Gazette, Part II.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Order.)
Issues
The Cannabis Fees Order (the Order) provides an exemption to the annual regulatory fee for licence holders who sell cannabis exclusively for medical purposes. Due to how the Order is currently worded, some otherwise eligible licence holders may not qualify for the exemption in their final year selling cannabis for medical purposes (i.e. their “exit year”). The current exemption process also causes confusion for licence holders and results in lower-than-expected exemption qualification rates overall.
Background
In conjunction with the Cannabis Act, the Order came into force on October 17, 2018. The Order is designed to recover the Government’s regulatory costs by fairly charging those that benefit from the legal market, thereby reducing costs to taxpayers. It does so through four different fees. Three of the fees are for direct services provided to licence holders: the application screening fee; the security clearance fee; and the import or export permit fee. The fourth fee, known as the annual regulatory fee, recovers the aggregate costs of administering the cannabis regulatory program that are not covered under any of the other fees.
To facilitate the supply of cannabis for medical purposes, the Order provides an exemption to the annual regulatory fee for licence holders who sell cannabis exclusively for medical purposes. To be eligible for the exemption, the licence holder must meet the following conditions:
- Only sell cannabis during the applicable fiscal year in Canada to persons authorized to possess it for medical purposes [paragraph 10(1)(a)];
- Sign and submit a written document to the Minister (the declaration of intent), no later than April 30 of that year (i.e. within the first 30 days of the fiscal year) or within 30 days of the earliest effective date of the licence (entry year), indicating that the licence holder intends to only sell cannabis during the applicable fiscal year for medical purposes [paragraph 10(1)(b)]; and
- Submit a statement of cannabis revenue for the fiscal year to the Minister as well as a written document confirming that all cannabis sales were for medical purposes (the year-end attestation), no later than April 30 of the following year (i.e. within 30 days after the fiscal year end) [paragraph 10(1)(c)].
Failure to meet any of these conditions would result in a debt owed to the Crown (i.e. annual regulatory fee) payable by September 30 of every fiscal year (or within 60 days of the earliest effective date of the licence in the entry year).
As a result of the requirement for licence holders to declare their intent to sell cannabis exclusively for medical purposes, licence holders in their exit year who would have otherwise been eligible are prevented from qualifying for an exemption.
Specifically, section 36 of the Cannabis Regulations requires a licence holder to notify Health Canada if they are ceasing activities. As a next step, they may request their licence be revoked or let it expire. Concurrently, the Order requires the submission of a declaration of intent by April 30 to qualify for an exemption. Those who have provided a notice of cessation or have requested their licence be revoked before the April 30 deadline cannot submit a declaration of intent without being disingenuous. Alternatively, some fail to submit this required document to avoid being disingenuous, which automatically disqualifies them from the exemption.
This technical issue also has the potential to impact licence holders who have had their licence expire or revoked during the applicable fiscal year, but before the April 30 deadline. They are liable for the annual regulatory fee but fail to submit the declaration of intent because they no longer hold a valid licence (and they believe they do not have to), which automatically disqualifies them from the exemption as well.
The exemption process in the Order is prescriptive with fixed deadlines. In addition, it provides the Minister with no flexibility or administrative discretion. As a result, exemption qualification rates are lower than anticipated due to misunderstandings and confusion about the conditions to be met, missed deadlines and/or missing paperwork.
Objective
The objective of these amendments to the Order is to facilitate a supply of cannabis for medical purposes by updating wording in section 10 of the Order to enable licence holders in their exit year to receive an exemption to the annual regulatory fee for which they would otherwise qualify. These amendments will simplify the current exemption process with the objective of increasing exemption qualification rates overall and reducing compliance burden to respect the original policy intent of the exemption.
Description
This initiative consists of five amendments to section 10 of the Order.
To prevent certain licence holders from making a disingenuous declaration of intent, a new subsection [subsection 10(1.1)] indicates that the following licence holders do not need to submit a declaration of intent during the applicable fiscal year to qualify for an exemption: if their licence is revoked or expires no later than September 30; if they have notified Health Canada no later than September 30 that they are ceasing conducting all activities authorized by their licence under section 36 of the Cannabis Regulations; or if they have requested a revocation of their licence no later than September 30.
Subsection 10(1.2) was also added to provide greater certainty that the licence holder who notified Health Canada under paragraph 10(1.1)(b) is exempted from submitting the declaration of intent until the holder resumes conducting any activity authorized by their licence. That means that the licence holder does not have to notify the Minister every fiscal year to be exempted from submitting the written document.
In addition, there are three amendments that will simplify the exemption process:
- The first amendment modifies subparagraph 10(1)(b)(i) to increase the number of days to 60 days from 30 days within which a licence holder must submit the declaration of intent in their entry year.
- The second amendment modifies subparagraph 10(1)(b)(ii) to indicate that in any other case, the declaration of intent must be submitted no later than September 30 of every fiscal year.
- The third amendment removes both the requirement to submit a statement of cannabis revenue and the requirement to submit a written document confirming that all sales indicated in the statement of cannabis revenue were for medical purposes (year-end attestation).
Together, these amendments address the timing issue of the declaration of intent to sell cannabis exclusively for medical purposes impacting certain licence holders in their exit year; provide more time to sign and submit the declaration of intent; and simplify the process and conditions for qualifying for an exemption. These changes maintain the policy intent of the exemption to the annual regulatory fee, which is to provide a supply of quality-controlled cannabis for medical purposes.
Regulatory development
Consultation
Through ongoing engagement with licence holders, Health Canada became aware of the issues negatively impacting the licence holders who sell cannabis exclusively for medical purposes as a result of wording in section 10 of the Order.
On May 21, 2024, Health Canada launched a 14-day email consultation with holders of a licence for sale for medical purposes on these amendments to the Order. No comments were received.
Modern treaty obligations and Indigenous engagement and consultation
The amendments are not expected to impact treaties with the Indigenous peoples of Canada. Health Canada conducted an initial assessment that examined the geographical scope and subject matter of the regulatory initiative in relation to modern treaties in effect and did not identify any potential modern treaty impacts.
Instrument choice
Amending section 10 of the Order is the only viable option to address the exit year technical issue and increase exemption qualification rates. These amendments maintain the original policy intent of the exemption for sale for medical purposes, to provide a supply of quality-controlled cannabis for medical purposes.
Regulatory analysis
Benefits and costs
The costs and benefits of the amendments have been assessed in accordance with the Treasury Board Secretariat’s Canada’s Cost-Benefit Analysis Guide for Regulatory Proposals.
Monetized values are reported in present values (PVs) over 10 periods of 12 months (2024–2033), discounted at 7% and expressed in 2018 constant dollars. All the cost savings calculated are incremental.
Analytical approach
The Cabinet Directive on Regulation requires departments to analyze the costs and benefits of federal regulations. This cost-benefit analysis evaluates incremental regulatory impacts on the cannabis industry (holders of a licence for sale for medical purposes) and the Government. To measure the impacts of the amendments to the Order, the benefits and costs have been estimated by comparing the incremental change from the current regulatory framework (i.e. the “baseline scenario”) to what is anticipated to occur under the amended Order (i.e. the “regulatory scenario”).
Baseline versus regulatory scenario
Under the baseline scenario, in order to qualify for the exemption from the annual regulatory fee each fiscal year, a holder of a licence for sale for medical purposes must (1) have sold all cannabis in Canada exclusively for medical purposes to persons authorized to possess it; (2) submit a declaration of intent by April 30 of the fiscal year (except for the entry year, which is due within 30 days of the medical sales licence being issued); and (3) submit a statement of cannabis revenue and year-end attestation by April 30 of the following fiscal year.
Under the regulatory scenario, to support the policy intent of ensuring reasonable access to cannabis for medical purposes, the amendments will (1) increase the number of days to 60 days from 30 days by which a licence holder must submit the declaration of intent in their entry year; (2) change the declaration of intent submission date from April 30 to no later than September 30 for all other cases; and (3) remove the requirement to submit a statement of cannabis revenue and year-end attestation. These amendments will result in a holder of a licence for sale for medical purposes having an extended period to submit the declaration of intent and will result in a simplified process to apply for the annual regulatory fee medical exemption. Furthermore, those exiting the industry will no longer be required to submit a declaration of intent if they exited or have requested to exit the industry or notified their intent to cease all activities authorized by their licence no later than September 30 of the applicable fiscal year.
Benefits of the amendments
The amendments provide benefits to licence holders who sell cannabis exclusively for medical purposes and Health Canada. These benefits result from addressing the exit year technical issue and simplifying the annual regulatory fee exemption requirements. Benefits to licence holders who sell cannabis exclusively for medical purposes have been estimated using two approaches — quantitative analysis, where possible, and qualitative analysis. The quantitative analysis is associated with monetary benefits in terms of the compliance cost savings that the affected licence holders realize by addressing the technical issue and simplifying the annual regulatory fee medical exemption requirements.
In accordance with Schedule 2 of the Order, the annual regulatory fee is based on a percentage of the licence holder’s cannabis revenue earned in the previous year or a minimum flat fee, whichever is higher. Paying the annual regulatory fee is a requirement for all licence holders subject to the Order, including licence holders who report no revenue. For the purposes of the analysis, the minimum flat fee is used (i.e. $2,500 for micro licences and $23,000 for standard licences).
For the purposes of calculating the compliance savings costs emanating from the amendments, the affected stakeholders are holders of a licence for sale for medical purposes, who sold exclusively for medical purposes and applied for an exemption but were disqualified under the baseline scenario. Based on 2022–2023 medical exemption revenue data, 19 out 55 applicants were disqualified. The analysis assumes that 100% of those who were disqualified will qualify under the regulatory scenario if they apply. The analysis also assumes that over the 10-year analytical period, the number of licence holders will not change. Furthermore, it has been observed that some holders of a licence for sale for medical purposes choose not to submit an application for the exemption. The analysis assumes that the current behaviour continues throughout the analytical period.
Quantitative benefit analysis
Holders of a licence for sale for medical purposes
Once the amendments come into force, the affected stakeholders will benefit from potential compliance savings. The compliance cost savings are related to the amount that will be saved if the holders of a licence for sale for medical purposes who have not qualified for various reasons now qualify for the annual regulatory fee exemption. These reasons include failure to submit the declaration of intent, statement of cannabis revenue and/or the year-end attestation within the stipulated deadline under the baseline scenario. As a result, the affected stakeholders will save a minimum of either $2,500 or $23,000 per year depending on the class of licence they hold (i.e. micro or standard).
Therefore, the compliance cost savings for the 19 affected licence holders (i.e. the 19 holders of a licence for sale for medical purposes who were disqualified in the baseline scenario) are estimated at $2,976,032 in PV over 10 periods (or $423,720 in annualized value).
Qualitative benefit analysis
Holders of a licence for sale for medical purposes
The removal of the requirement to submit both a statement of cannabis revenue and a year-end attestation will result in negligible administrative cost savings for licence holders who sell cannabis exclusively for medical purposes. The administrative cost savings for the affected licence holders are related to the time and resources spent on the preparation and submission of the year-end attestation to Health Canada. As the completion of the year-end attestation requires minimal effort to complete, the administrative cost savings are assumed to be negligible.
Government of Canada
The amendments will result in higher exemption qualification rates and maintain the policy intent of the exemption to the annual regulatory fee, which is to provide a supply of quality-controlled cannabis for medical purposes.
The simplification of the exemption requirements and addressing the technical issue affecting licence holders in their exit year will lead to employees spending less time explaining and resolving issues related to the process, thereby allowing for more effective and efficient use of resources.
Costs of the amendments
Holders of a licence for sale for medical purposes
Health Canada does not anticipate any incremental cost to the affected stakeholders, since the amendments will modify the requirements to enable the licence holders who sell cannabis exclusively for medical purposes to qualify for the exemption in their exit year as well as simplify the annual regulatory fee exemption process in general.
Government of Canada
It is expected that Health Canada may incur a small one-time cost associated with updating public facing cost recovery guidance documents, internal processes and systems once the amendments are in force. However, this cost will be absorbed within existing program resources.
Cost-benefit statement
- Number of periods: 10 periods of 12 months (2024 to 2033)
- Base year for costing: 2018
- Present value base year (Period 1): 2024
- Discount rate: 7%
| Impacted stakeholder | Description of benefit | Period 1 (2024–2025) |
Period 5 (2028–2029) |
Final period (2033–2034) |
Total (PV) |
Annualized value |
|---|---|---|---|---|---|---|
| Holders of a licence for sale for medical purposes who sell cannabis exclusively for medical purposes and apply for an exemption from the annual regulatory fee | Qualify for an exemption from paying the annual regulatory fee | $396,000 | $396,000 | $396,000 | $2,976,032 | $423,720 |
| All stakeholders | Total benefits | $396,000 | $396,000 | $396,000 | $2,976,032 | $423,720 |
| Impacts | Period 1 (2024–2025) |
Period 5 (2028–2029) |
Final period (2033–2034) |
Total (PV) | Annualized value |
|---|---|---|---|---|---|
| Total costs | $0 | $0 | $0 | $0 | $0 |
| Total benefits | $396,000 | $396,000 | $396,000 | $2,976,032 | $423,720 |
| NET IMPACT | $396,000$ | $396,000 | $396,000 | $2,976,032 | $423,720 |
Small business lens
The amendments will impact small businesses positively, as it is expected that small businesses will benefit from the simplified medical exemption requirements. About 89% of the affected licence holders qualify as small businesses and will benefit from the compliance cost savings.
The total benefits are estimated at $2,648,668 PV over 10 periods (or $377,111 in annualized value). The benefit per impacted small business is estimated at $156,633 PV over 10 periods (or $22,301 in annualized value).
Small business lens summary
- Number of small businesses impacted: 17
- Number of periods: 10 (from 2024 to 2033)
- Base year for costing: 2018
- Present value base year: 2024
- Discount rate: 7%
| Activity | Annualized value | Present value |
|---|---|---|
| Address exit year issue and simplify medical exemption process | $2,648,668 | $377,111 |
| Total compliance cost savings | $2,648,668 | $377,111 |
| Activity | Annualized value | Present value |
|---|---|---|
| Total cost savings (all impacted small businesses) | $2,648,668 | $377,111 |
| Cost savings per impacted small business | $156,633 | $22,301 |
One-for-one rule
There is no change associated with the administrative burden on businesses that will result from the amendments to the Order. Therefore, the one-for-one rule does not apply.
Strategic environmental assessment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, the proposal is considered excluded under Health Canada’s policy and pre-assessment criteria given it is administrative in nature and unlikely to have environmental effects.
Gender-based analysis plus
No impacts based on gender and other identity factors have been identified for this proposal.
Implementation, compliance and enforcement, and service standards
Implementation
The amendments to the Order come into force the day on which they are published in the Canada Gazette, Part II. Proceeding directly to final publication in the Canada Gazette, Part II, allows the amendments to the Order to be implemented in a timely manner. A key benefit for licence holders seeking an exemption to the annual regulatory fee is the added time to submit a declaration of intent to sell cannabis exclusively for medical purposes where the deadline has changed from April 30 to September 30 for this and subsequent fiscal years.
Licence holders will be notified in writing by Health Canada of the amendments to the Order. Guidance documents, internal processes and systems will be updated accordingly.
Compliance and enforcement
The Minister will verify that the licence holder sold cannabis exclusively for medical purposes as required under paragraph 10(1)(a) by using information available to the Minister, including information submitted under the Cannabis Tracking System Order.
Reduced compliance and enforcement issues are expected as a result of these amendments.
Service standards
Service standards for cannabis licences and transactional fees are not affected by these amendments.
Contact
John Clare
Director General
Strategic Policy Directorate
Controlled Substances and Cannabis Branch
Health Canada
Address locator: 0302B
Ottawa, Ontario
K1A 0K9
Email: cannabiscrf-rcf@hc-sc.gc.ca