Regulatory and Business Challenges to Cannabis Producers during COVID-19

The impact of COVID-19 has been felt in a multitude of industries, and Canadian cannabis producers are no exception. Whereas cannabis retail stores have had some contradicting directives from governments as to whether they can continue to operate during the pandemic (Ontario cannabis stores are currently restricted to curbside pick-up and delivery, but no in-store sales), cannabis producers were deemed an essential service from the outset and continue to operate across the country. Although cannabis producers continue to operate, it is not without challenges, some of which are currently felt while others are likely to materialize in the near future.

Operational Challenges

Cultivation of cannabis requires the physical attendance of employees, and therefore causes concerns with regard to the spread of COVID-19. Cannabis employers face the challenge of trying to meet the demand for cannabis products in an environment that necessitates modifications to their regular operations. Social distancing, personal protective equipment and increased sanitation practices have become the new reality and are critical for cannabis producers to avoid a potential outbreak in their facilities. Some producers have taken measures such as staggered or reduced schedules, increased cleaning protocols and restricting any non-essential travel for all staff.

As cannabis producers know, certain security cleared individuals are critical to their organization, the loss of which could cripple their operations. In order to assist in the continued operation of producer’s facilities while mitigating the risks of COVID-19, Health Canada is temporarily allowing cannabis producers to designate alternate individuals to take over security cleared roles, such as responsible persons, master growers and heads of security, where the cannabis producer does not have sufficient personnel due to self-isolation or illness. All alternates must be reported to Health Canada with the name of the individual, their role and the date upon which they will assume the role. It is up to the cannabis producer to ensure that the individual is capable of fulfilling the role and that such individual has not previously had a security clearance refused, suspended or cancelled.

Regulatory Changes

Due to an increased need to focus resources on the COVID-19 pandemic, Health Canada has made adjustments to its operations and servicing of the cannabis regulatory regime. In a letter sent to cannabis producers at the end of March, Health Canada indicated that amendments to existing licenses and security clearance applications would take priority, likely meaning that applications in the queue for new facilities will be further delayed. Cannabis producers will have to face the reality that not all projects will be able to progress at the same pace during this period and that operations could be halted for longer than expected where regulatory approval is required. For example, Health Canada also indicated that any sales inspections requiring onsite visits will be postponed for at least the next few weeks. It will consider conducting inspections on a case-by-case basis and will be focused on activities that represent the highest risk to public health and safety. Cannabis producers are able to email HC.licensing-cannabis-licenses.SC@canada.ca to identify any critical amendments required to support their operations during this time.

Sales and Financing

Although there have been reports of increased cannabis sales recently (potentially from short-term consumer stockpiling), it is uncertain what the long-term economic impact of the pandemic will be to cannabis producers. Any restrictions on retailers or decreased production output of cannabis producers will likely result in reduced revenues. The general uncertainty of the pandemic has also made it even more difficult to raise financing, meaning that many companies may potentially face bankruptcy if they do not have sufficient cash flow to sustain them through an extended period of reduced revenue.

Cannabis producers, like many other businesses, will look to alternative financing and are seeking financial assistance from the government during this period. Several programs exist for loan financing, wage subsidy and even rent assistance to those businesses that qualify and apply. Additionally, payment of sales taxes, customs duties and income taxes have been delayed to provide companies with additional relief. Cannabis producers are encouraged to seek guidance on the support available to them.