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Guide: How to get a cannabis cultivation license in Canada

 

When Health Canada released the requirements for obtaining all of the licensing requirements to enter the legal cannabis industry’s “gold rush”, there were many questions about how specifically, a small grower or producer could participate. While big producers dominate in market share, the micro-class license holders are more numerous. These licenses allow entry for smaller growers and producers with caps on the size of the operation and output limits. They do not however come cheap or easy.

There are cultivation licenses required to grow, and processing licenses if you want to make any product derived from cannabis. As with any government program, there are specific procedures to follow in order to be granted the desired license or licenses. The path towards licensing, regardless of type, is the same for all of them; there are just a few different steps and a different fee structure for the micro-class licenses.

First, before starting any application, read the Cannabis Act. Do not just read it though. Study it and know it as well as you can before attempting to apply for a license. This law outlines everything you can and cannot legally do in order to operate a legitimate cannabis business in Canada. It will also inform the decision as to which type of license you should be applying for. Once you are comfortable with the contents of the Act, and know which direction you wish to head in, the next step is to set up an account in Health Canada’s Cannabis Tracking and Licensing System (CTLS).

To set up the account, you will need to supply some basic information. Once that has been submitted and an access code has been sent to you, then you will have an account. After the account is set up, then you can start the application for the license. Requested documents can be directly uploaded into the system. (See the Cannabis Licensing Application Guide).

Other requirements of the CLTS process include the identification of all individuals that will be associated with the application. Each will need an account ID that can be linked to an application. In all cases, regardless of the size of operation or which type of license applied for, the following roles must be identified, and each person listed must have an account ID on the CTLS and have had passed the security clearance. In smaller operations a person may have more than one role, they must just be identified as such.

 

  • Director(s).
  • Officers - The CTLS requires at least one Director or one Officer per corporate profile.
  • Partners.
  • License holder - If applicant is an individual as opposed to a corporate license holder.
  • Responsible person - Should be identified as an Officer if there is no other Director or Officer for an organization.
  • Head of Security.
  • Master Grower.
  • Quality Assurance Person or QAP.
  • Any Individual, partner, cooperative, corporation or other that has any control over the actions of the applicant.
  • Any additional individuals requiring security clearance.
  • Reporter - Not a required position in all operations but this person will need to be licensed if so.

 

In the event that the applicant is not an individual, but acting on behalf of a corporation or partnership, an additional corporate profile will need to be created on the CTLS. Corporate applicants will require additional information and documents to upload into the CTLS. These include:

 

  • The full legal name(s) of the organization.
  • The incorporation number.
  • Business address and contact details.
  • Controlling organizations, such as "parent companies if the applicant is a subsidiary or attached entity of another organization.
  • Certificate of Incorporation or partnership agreement between or among partners.
  • Corporate Organizational Chart (Org Chart) - This document needs to outline the hierarchy and relationships between and among directors, officers, or partners and how they interact, supervise, or control the actions of any individuals, class of employees or the actual license holder.
  • Personnel - All relevant individuals need to be listed here and all of the directors and officers of the organization need to have security clearance.

 

Note that any personnel changes will need to be updated in the CTLS after having taken place. This document needs to be kept current. They are also site-specific. For every site where cannabis will be grown, stored, processed, sold, etc. a separate license must be applied for. Once all of this information has been assembled and entered into the CTLS, the specific license(s) can be applied for.

Cultivating and Micro-Cultivating Licenses

 

The difference between a standard cultivating license and a micro-cultivating license is a matter of volume and cultivating are. Either cultivation license allows for the possession of cannabis whether it be dried, fresh, in plant or seed form and obtained through cultivation, propagation, or harvesting. It allows for the sale and distribution of the same to other license holders, so long as the recipient holds a cultivation, processing, analytical testing, research, or cannabis drug license.

The holder of the cultivation license cannot sell dried or fresh cannabis to a holder of a nursery license unless that individual or organization also has one of the other classes of licenses. They can, however, sell cannabis plants to a nursery license holder. Holders of a cultivation license can also send or deliver cannabis plants or cannabis seeds to a purchaser at the request of a license holder, but only for those authorized to sell cannabis for medical purposes or to an individual authorized to sell cannabis under a territorial or provincial act.

The license also grants the licensee the ability to engage in ancillary activities related to cannabis. This includes such things as drying, trimming, or milling cannabis. They may also alter the chemical or physical properties of cannabis for the purposes of testing.

Growers looking to enter the field, should consider starting out by applying for the micro-cultivation license. Total plant surface area cannot be larger than 200 square meters (2,153 square feet). This includes any number of growing surfaces, even vertical grows. Outdoor cultivation is allowed under the micro-cultivation license, but the total plant surface area of outdoor cannot exceed that same 200 square meter threshold. Cultivators can do a combination, but the total area must not be exceeded.

There is another limitation with the micro-cultivation license. Cannabis oil cannot be made with only a micro-cultivation permit. Otherwise, the difference lay only with the size of the operation and the fees that need to be paid to obtain the license. All other steps are the same.

When applying for either license, standard or micro, the source of the starting material must be declared. It must have either come from a federally authorized license holder, or the applicant must select “Declaration under 10(2) of the Cannabis Regulations” as the source of their starting material. This needs to be signed by a Responsible person in the organization and must declare the quantity of cannabis plants and/or seeds that they intend to have on the sate that their license is granted.

Processing and Micro-Processing Licenses

 

Just as with the cultivation and micro-cultivation licenses, the difference between the standard processing license and the micro-processing license is predominantly one of scale. Every processing license allows the holder to possess cannabis and to produce it other than obtaining it by propagating, cultivating, or harvesting it. Holder of processing licenses can sell and distribute cannabis to other licensed holders, including other processors, analytical testers, researchers, and cannabis drug license holders.

Processing licensees can also sell and distribute to holders of either the standard or micro-cultivating licenses. Sales to these individuals and companies are limited to dried cannabis, fresh cannabis, cannabis plants, cannabis seeds, and cannabis for the purpose of testing for purity. They can also sell to nursery license holders cannabis plants or cannabis seeds as well as cannabis for testing. Like the cultivation licenses, holders of processing licenses can send and deliver cannabis products to a purchaser as requested by an authorized license holder for medical purposes, or to an individual or organization authorized to sell cannabis under a territorial or provincial Act. For holders of a processing license, all cannabis must be produced, packaged, labeled, stored, and tested indoors.

Holders of a micro-processing license cannot obtain cannabis by synthesis, in addition the other prohibitions listed above. They are also limited to 600 kg of dried cannabis or an equivalent weight (1322 pounds +/-) per calendar year. An exception can be made to this quantity cap if the license holder also holds a micro-cultivation license for the same site. Then, there is no maximum quantity, just however much can be produced in the allowable footprint.

Other Types of Licenses Available

 

As referenced above, (outlining to whom a license holder can and cannot sell), there are several other types of cannabis licenses besides the standard and micro-class cultivation and production licenses. If you are interested in just growing plants and creating new strains, you can apply for a Nursery License. There is also a license just for the growing of hemp: an Industrial Hemp License.

If you are a researcher and not growing for profit, you can apply for a Research License. If you are interested in testing cannabis for purity and for determining if it meets all legal standards, there is the Analytical Testing License. Finally, if you are interested in entering the medicinal cannabis field and selling cannabis products to registered users, you can apply for a Sale for Medical Purposes License. There are further designations here; one is for possession and the other without possession.

In some instances, multiple licenses can be applied for at the same site and some licenses will cover more than one type of or scope of activity. For instance, license holders are able to perform research and development activities within the confines of their authorized license. Knowing the Cannabis Act will help to determine which of these activities can be pursued in tandem.

Good Production Practices

 

All license applications, regardless of type or class (with one exception), must include a plan to demonstrate how the applicant(s) will observe Good Production Practices (GPP). This is especially critical for those seeking processing licenses of either type. An initial demonstration is required as is evidence of ongoing compliance to be determined by Health Canada. Only applicants seeking to obtain a license for medical sales without possession are exempt from this requirement of the application process.

One component of the GPP that must be demonstrated is storage. Applicants must disclose how and where all cannabis and anything intended to be added to the cannabis will be stored. This includes information on the conditions, such as temperature and humidity as well as evidence of how those aspect will be controlled. The storage procedure must also be outlined. Applicants must account for how the cannabis and additives are stored. This includes but is not limited to in-process cannabis, bulk cannabis, samples, quarantined material, product approved and awaiting sale, returned, or recalled product as well as material in need of being destroyed.

Next, the physical building or portion of the building where the activities will take place will need to be described. This includes noting such characteristics as the materials in place for the walls, floors, ceilings, and seams. Information about how they are treated is pertinent as well. An account of the paint, sealant, polish, etc. must be given. The material used in the joints, such as caulk will need to be disclosed as well.

A description of the air filtration and ventilation system(s) must be given in this report. An explanation will need to be included, describing how the air will be filtered before leaving the building to scrub or eliminate the typical smells associated with cannabis. A description of how the air flow exchange will occur and how the system will prevent the contamination of cannabis or any material that will come into contact with the cannabis must be provided too. This must include a drawing explaining the air intake, exhaust, and the flow that the air will take.

The maintenance plan and description of the routine cleaning, and inspection is a part that must be included as well as manufacturer information regarding how each unit is capable of functioning after repeated cleanings. An exception to this description can be made for those parts of the building where cannabis or its additives are not handled, such as a business office or other utility area. This account must include the type, number and location of air filters installed, identifying them as HEPA, carbon, etc.

Water is the next aspect to be accounted for in the GPP report. The source of the water to be used must be disclosed. If the source is not municipal, then evidence must be provided to show its suitability for irrigation, sanitation, and processing. An account of any non-potable water sources on site as well as a description of how to prevent contamination from non-potable sources must be given. This includes the use of backflow valves and the like. For those applying for a standard or micro-class processing license, it is critical to demonstrate that any water, steam mor ice that will come into contact with any cannabis product, including extracts, topicals, edibles or anything that will be used as an additive to a cannabis product, be only potable water. It should meet or exceed the standards for potable water that are outlined in the Guidelines for Canadian Drinking Water Quality. If the water to be used is not potable, then at the very least, it needs to be demonstrable that it will not pose a contamination risk of any kind.

Lighting is another part of the report. Applicants must provide a description of the lighting to be used in all areas of the operations including grow, processing, and storage areas. This portion of the report must also make clear that in the event of bulb breakage that none of the material from the bulb will contaminate any product, and an account of how this can be avoided must be included. Manufacturing information, such as how the light will perform after repeated sanitization as well as any other identifying information known at the time of the application should be included.

An important component of the report concerns sanitation. This is for both the site as well as those individuals that will be handling the cannabis and related products. A description of the sanitation program in all areas of the operation must be included. This should cover the growing areas, storage areas, transitory areas, areas where anything that will be used as an ingredient or additive is produced, handled, packaged, labeled, distributed, stored, or tested. This section should also account for the non-cannabis areas too along with a frequency or schedule of how often each area will be thoroughly cleaned and how the cleaning and sanitation will be verified. For those seeking a processing license, it is critical to include in this section of the report, where all hand-washing stations, sanitizing stations and lavatories are located.

A diagram or demonstration must also be outlined as to the physical flow of activities in the space. This needs to account for all of the anticipated movements for cannabis, cannabis products, additives and ingredients that will be used and what parts of the building, whether they be growing, storage, or non-cannabis areas that they will be in, even if briefly.

In addition to the narrative, “paper” report, there is a visual component. Applicants must show through video and/or photographs the entirety of the site indoors and out, focusing on all features of the building that are relevant to the GPP. This includes all growing and storage areas. Close-ups are required of all walls, floors, ceilings, and joints as well as of the storage areas. Additionally, video of an individual entering and moving about the facility and demonstrating the intended production flow throughout the entire facility is required. Though it would be convenient if this portion of the application could be submitted through the CTLS along with the other application materials, it cannot be uploaded due to size limitations. Evidence of GPP compliance, along with other site evidence (see below) must be sent separately to Health Canada for consideration along with the rest of the application materials.

Site Evidence

 

Accompanying any application for Cultivation, Processing and Sale for Medical Purposes with Possession licenses, evidence of the application site must be submitted. This evidence is in addition to any evidence sent to prove compliance of GPP. The main intent is to show the security of the facility and to prove that the site actually exists as described. This must be sent to Health Canada within ten business days of the submission of the application to be considered. Any application that does not include the site evidence will be judged “incomplete” and will be set aside pending the arrival of said evidence.

Evidence must be “visual”. It needs to include video or pictures of each operation and specifically include the grow areas and facility perimeters. Storage areas must also be identified in separate PDF files. Evidence must be provided from whatever security camera or visual monitoring device is on premises as well. Additionally, all submitted evidence needs to be labeled with the accompanying application (APP) number assigned by the CTLS and sent on a USB storage device.

Associated Costs

 

Costs for obtaining a cannabis license of any type granted by Health Canada start at $2,500. This is the fee for both types of micro-class licenses (cultivator and producer), as well as the cost for the nursery license. To obtain a sales license, the fee doubles to $5,000. Standard licenses (cultivator and producer), as well as sales for medical cannabis licenses are almost ten times the cost of the micro-class licenses; they are $23,000 each. The fees do not stop there though.

Before even getting to that point there are application screening fees and security clearance fees for each position. The application fees for standard-class licenses as well as the sale for medical purposes license are $3,277 each. For micro-class licenses and nursery licenses, the fees are $1,638 each. Fees can be combined in some instances. When an applicant is applying for both a sale for medical purposes license in tandem with a micro-cultivation license, the fee is only $1,638. A medical purpose license along with a nursery license is also charged the lower $1,638 fee as well.

There are also fees for the required security clearances. Every person that needs to have security clearance will each have to pay $1,654. An additional cost is for an import/export permit if that is being requested. This is only for medical or scientific purposes. The cost of each application for the permit is $610.

None of this covers the amount of capital needed to get the property and facility purchased (or leased) and outfitted with equipment. While there is no exact estimate for this as situations, locations and individual setups vary so much, expect a starting point to be at least $50,000 with costs mounting quickly after that. This does not account for all of the various local fees you may need to pay in order to “set up shop”. Then, there are the ongoing fees and costs.

Not accounting for labor costs, supply costs, or other COGS (cost of good sold), there are the regulatory fees. For those holding a micro-class license or nursery license, expect to pay one percent on all cannabis revenue up to $1 million dollars. Expect to pay 2.3 percent on all revenue over $1 million dollars. For all other cannabis license holders, a flat fee of 2.3 percent will be levied on all revenue starting at dollar one.

Other Laws to be Familiar With

 

In addition to being complaint with the Cannabis Act, it is important to observe the requirements of several other, relevant acts that apply to various areas of the cannabis industry. These include (but are not limited to): The Food and Drugs Act (FDA), the Pest Control Products Act (PCPA), Canada Consumer Product Safety Act (CCPSA), the Tobacco and Vaping Products Act (TVPA) and the Fertilizers Act. A license issued under the 2001 Excise Act may be required as well. If unsure which of these other laws will be relevant to your operation, consider seeking legal counsel and/or the services of a Cannabis consultant (see below).

How Many Licenses are Issued

 

Health Canada is not just giving these licenses out left and right. There is often an application backlog and not all applications are approved. The current average of all cannabis licenses being granted is 13 per month. This includes micro licenses as well as standard, research, medicinal and hemp licenses.

As of January 1, 2021, Health Canada had received 939 applications. Of these, about half (447) were submitted for Micro class licenses. 363 were for Standard, with 92 for medical and 37 for nursery production. Out of all of these though, only about 30 percent, have actually been granted licenses thus far (287). Another 15 percent are currently under review (144), 17 percent have been withdrawn and 8 percent have been outright rejected. The other 30 percent are on hold either still awaiting review or are missing some aspect of the application; either evidence or payment. Ontario leads the provinces with 38 micro class licenses and 31 standard licenses issued thus far. British Columbia is second with 29 and 27 licensees, respectively. Quebec is third with 24 micro class licenses and 17 standard licenses. The other provinces range from zero (Yukon Territory) to 17 (Alberta) micro licenses and zero (Yukon Territory, Prince Edward Island) to 7 (Alberta) standard licenses. Note that all of this data is current as of the beginning of 2021, the actual counts are likely a bit higher now.

Other Considerations

 

If this whole process seems daunting, you are not alone. Cannabis licensing consultants have sprung up throughout Canada to help prospective licensees through the process. They can do anything from giving advice to doing the whole application process for you. This service does not come cheap though. Expect to pay many tens of thousands of dollars per each application if a consultant does the work for you. This is not to say that they are not worth the price.

A cannabis consulting firm can help you sort out all of the complexities involved and help get you to a point of compliance. They can work through all of the “red tape” and figure out all of the logistics for you. For the right price, they will even get you an architecturally designed grow facility that meets all government regulations. They can do as much or as little as you need them to do.

Consider hiring a cannabis consultant to help obtain your license. They can help you sort through issues like municipal zoning and building requirements as well as the physical security of the operation. They can help with inventory control, developing SOPs (standard operating procedures) and make sure that you are compliant with Good Production Practices (GPPs). Consultants are out there for every step of the way, just be prepared to budget for their services, as it will increase your start up cost by quite a bit.

Upon Being Granted a Cannabis License from Health Canada…

 

Once all of the necessary steps have been taken, background checks are complete, all fees have been paid, the site has undergone a pre-license inspection, and all security clearances have been granted, an initial license will be issued. A hard copy will be mailed to the site and all those that have been granted security clearance will be notified.

Once this initial license has been conferred, the individual or business can go about the activity for which they have been licensed. There are restrictions, however. When a processing licensee’s license is first issued, activities maybe limited as Health Canada utilizes a graduated approach to verify that all products for sale meet the quality standards as laid out in the Cannabis Regulations. Once the authorized agents of Health Canada have deemed the products safe and compliant, business may commence to the extent that a particular license allows.