The cannabis market is currently experiencing some turbulence and uncertainty, but that market and underlying consumer demand is well established. As cannabis is a barbiturate under international law, its recreational usage in Canada, although legal, is subject to strict and complex regulation.
A critical regulatory requirement is individual security clearance. Failing to understand and meet that requirement could result in market entry failure or, at best, costly delays in getting license approval from government authorities. This bulletin highlights significant legal requirements for individuals to obtain a security clearance and how to minimize the impact of regulatory obstacles.
Overview of the Security Clearance Process
Individual security clearances are required for cannabis (a) cultivation, (b) processing and (c) sales licences. Security clearances must be obtained prior to the licence being issued to minimize risks to public health or public safety, including the risk of cannabis products or profits being diverted to illicit recipients and markets.
Each individual requiring a security clearance must submit a Security Clearance Application, in the Cannabis Tracking and Licensing System, with specified information. The individual will then be subject to a background check and criminal record check.
If the required security clearances and subsequent licence are obtained, further regulatory requirements are triggered:
- All licenced cultivators and processors must implement an Organizational Security Plan.
- The physical location for storing cannabis must conform to requirements, including access controls, a security system and a plan for responding to and reporting on incidents. Maintaining such a security compliance program is essential to mitigate any risk of a licence being revoked for non-compliance.
- Further access requirements that restrict and prevent unauthorized access to operations sites and storage areas are imposed in respect of micro-cultivation, micro-processing or a nursery.
Who Needs a Security Clearance?
Under the Cannabis Regulations (the "Regulations"), an individual applying for a licence for cannabis cultivation, processing or sale requires a security clearance from Health Canada. Certain "key individuals" associated with a licence holder must also each obtain a security clearance.
For example, under the Regulations, key individuals include the officers and directors of a corporate licence holder or "any individual" who could, or does, exercise direct control over the corporation. Depending on the class of licence (i.e. for cultivation, processing or sale), they can also include the Master Grower, Head of Security or quality assurance person who, as such, would be required to obtain a security clearance. Others may be required to obtain a security clearance depending on the class of licence sought.
Accuracy is critical to an application because incorrect or incomplete information could result in a security clearance refusal.
What Factors are Considered when Deciding Whether to Grant a Security Clearance?
The security clearance process will involve government agencies, notably Health Canada and the RCMP, conducting background checks, including a criminal record check of the individual applicant.
The Regulations identify a non-exhaustive list of factors that the government can consider to determine the level of risk posed by an applicant, which includes:
- the circumstances of any relevant events (including arrests) or convictions, along with their seriousness, number and frequency, and the date of the most recent event;
- associations with organized crime;
- involvement in or contribution to an act of violence or threat of violence;
- whether there are reasonable grounds to suspect that the applicant could be induced to commit an act that might constitute a risk to public health or public safety.
After considering various factors, Health Canada officials can deny a security clearance application where in their view the applicants "pose an unacceptable risk to public health or public safety". If Health Canada intends to refuse to grant an individual's security clearance, the individual applicant is notified and provided not less than 20 days to make written representations as to why the security clearance should be granted.
Have a Strong Understanding of the Regulatory Requirements and Process
Cannabis security clearance requirements are complex and highly technical. Because these requirements must be correctly satisfied before a business can access the recreational market, a prudent company will keep the following in mind:
Plan ahead and apply early because security clearances can take time
The amount of time it takes to get a security clearance approval varies depending on the individual. Health Canada has said the process may take "a few months or even longer", and some clearance approvals may take up to a year. Delays could make the difference between a successful or failed market entry.
Be ready to make your case as to why you should not be denied
An individual should understand the decision-making process and be prepared to provide compelling reasons as to why they should not be denied a security clearance. In certain cases, due to the nature of how information is obtained, an applicant may not know the complete case against them. This may provide grounds on which to challenge a federal decision not to grant a clearance.
Be aware of your key individuals that require a security clearance
A potential licensee should know which individuals should be applying for security clearances and should know as much as possible about their backgrounds including, where appropriate, background checks, as part of the licence application. Some with the requisite experience as cannabis cultivators, processors or sellers prior to legalization may have prior criminal records and may not be able to rely on criminal pardons to have their criminal records suspended and may have difficulty obtaining security clearance.
In this regard, Parliament passed a law in June 2019 that allows individuals convicted of simple possession of cannabis to apply for a pardon. However, this law does not facilitate pardons for those convicted of possession for the purposes of trafficking or exporting, producing cannabis or equivalent offences under the National Defence Act (which applies to members of the Canadian Armed Forces).
The recreational cannabis market in Canada is subject to a complex regulatory scheme that requires companies to obtain security clearances for certain individuals. Failing to properly understand the licensing process leaves companies at a competitive disadvantage and missing vital opportunities in the shifting cannabis market. Prudent companies will make sure they understand the full slate of regulatory requirements to ensure they "get it right" the first time. Neither the government nor the market may be forgiving to companies that do not understand the law.