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Resilience of the Canadian Cannabis Industry

How Licence Holders and Health Canada have Adjusted to the COVID-19 Pandemic

By Denis Adigamov

Associate Consultant, CannDelta

May 18th, 2020

The COVID-19 pandemic forced Canada into a lockdown back in March and has impacted businesses across every industry. The nascent cannabis industry has been particularly impacted, as commercial licence holders, retailers, and government regulators have all had to make significant changes to their operations and procedures to stay afloat, including mass layoffs. After an initial sales boost in March brought on by an anticipated lengthy lockdown, sales have since returned to pre-COVID trends. Despite bleak financial forecasts for the Canadian cannabis industry, licence holders continue to push on and adapt to the ever-changing climate. The resilience of the cannabis industry is shining more than ever during these tumultuous times.

Major Challenges for Cannabis Licence Holders

Historical data show that staffing has been difficult for the Canadian cannabis industry. According to Cannabis At Work employment agency, in the past 9 months, over 2700 employees from the cannabis sector lost their jobs, 900 alone since the lockdown. This data confirms an additional rise in unemployment for the cannabis industry as a result of the pandemic. Cannabis companies are already feeling the impacts from the pandemic and recognizing the inevitable changes they must make in order to operate moving forward.

“People are scared. Some too afraid to come to work. We’ve overcome this challenge by taking as many precautions as any pharma facility or hospital.”

  • Daniel Stern, CEO, CannMart Inc.

“In these uncertain times, your employee’s health and wellbeing is extremely important. This can impact the ability to staff your operation appropriately.”

  • Tina Furlan, Chief Administrative Officer, Medisun Inc.

One of the challenges facing many licence holders under expansion are delays and timeline extensions. Due to social distancing requirements and emergency federal regulations, companies are dealing with delays in construction and procuring of equipment.  For example, Valens is currently undergoing construction for a new facility.

“We’ve noticed longer lead times for equipment/raw material procurement and have made the necessary adjustments. With social distancing requirements and travel restrictions in place, one challenge was shifting from in-person/on-site meetings to utilizing a web-based approach.  Although we would still prefer to meet with our engineers, consultants, and equipment manufactures directly on-site, we’ve managed to adapt to the “new normal” in order to maintain our fast-tracked construction timelines.”

  • Thomas Howes, Project Manager, Valens

As people around the world work from home, companies have had to implement changes to their IT and communications systems. Many companies endured an initial transition period while staff became familiar with programs like Zoom, Microsoft Teams, Slack, Outlook, GSuite, etc. As a silver lining, these practices will likely prove beneficial post-COVID-19 as businesses become more reliant on remote workplaces.

While cannabis plants grow as usual during the pandemic, emergency measures introduce additional constraints on how they’re processed. Common activities such as packaging, harvesting, etc., have all been impacted by the emergency measures put in place. For example, some cultivators need to harvest over a few days rather than all at once. Restrictions on the number of people per room limit the rate at which final products can be packaged. It may be harder for larger companies with more staff to implement these kinds of changes than for smaller companies. Just last week a Tillray greenhouse was suspended because an employee was found to be infected with COVID-19. This is not necessarily a reflection on the employee or Tilray, but rather a painful example of how severe an impact COVID-19 can have on cannabis businesses, and stresses how important it is that companies remain vigilant and go above and beyond the minimum requirements in order to maintain a safe and healthy work environment.

How Licence Holders have Adjusted

The pandemic forced companies to implement rapid changes to their sanitation, hygiene, and production procedures in order to comply with the emergency health orders. Processors and cultivators were best prepared for these changes due to existing requirements within the Cannabis Act and Cannabis Regulations, which mandate good production practices and a high level of sanitation. Most licence holders extended these practices beyond their cannabis operations area and storage areas, while others went a step further. For example, Medisun took a proactive approach:

“We saw the issues that were coming and made changes to protect our employees, even before the province announced the shutdown.”

  • Tina Furlan, Chief Administrative Officer, Medisun Inc.

At CannMart they implemented daily employee health screenings, temperature checks, staggered lunches and shift schedules, as some of the measures that they’re taking to ensure a safe work environment, says CEO Daniel Stern. Most companies were able to adjust their procedures quickly, implementing them within a matter of days following lockdown. None of the licence holders we communicated with reported any changes in sales trends, suggesting that they were able to keep up with production and sales while making the necessary procedural changes.

“Commercially, things have been positive. People in the industry are more available, and that allows for movement.”

  • Tina Furlan, Chief Administrative Officer at Medisun Inc.

We’ve also seen some goodwill coming from licence holders. In response to the pandemic, Health Canada expedited the licensing process for hand sanitizer production enabling companies to repurpose some of their facilities. This presented an opportunity for some cannabis companies to help out during this crisis. For example, Valens began producing and distributing over 40,000 bottles of hand sanitizer as part of their efforts to help the Kelowna community and their country. Overall, Canadian cannabis companies have remained stable since the lockdown, effectively addressing the emergency measures put in place, and doing their part for their country.

How Health Canada Has Responded

Health Canada has demonstrated its commitment to enable current licence holders to resume operations as smoothly as possible.  On the regulatory level, Health Canada has implemented several changes their licence management processes in order to facilitate ongoing activities and reduce the burden for existing licence holders. The common trend seems to be that Health Canada is addressing major concerns facing licence holders by increasing their availability and reducing the regulatory burden wherever it’s safe to do so.

“They’ve improved. They are more responsive in fundamentally almost every area and there is a lot more back and forth now. The extensions and the ability to add security cleared personnel has helped the business. I commend Health Canada as a trusted partner during these trying times.”

  • Daniel Stern, CEO, CannMart Inc.

Some of the major recent changes implemented by Health Canada include:

Site Amendments:

  • Site amendments are no longer required when adding or changing an operations area (excluding storage areas and outdoor grow areas) within an already approved building that already appears on the licence.
  • Changes to or adding storage areas, outdoor grow areas, site perimeter, or the physical barrier surrounding the site, as well as adding a new building where activities with cannabis will take place still require Health Canada Approval.

Notice of New Cannabis Product (NNCP):

  • You can now submit only one NNCP for dried or fresh cannabis as long as it includes all the various immediate container sizes that will be made for sale.
  • An NNCP may be transferrable if an LP purchased an already approved product, as long as all elements of the cannabis product and its information/description is identical.
  • NNCP’s can be sent prior to packaging and labelling, as long as the information elements remain consistent with the final cannabis product.
  • Licence holders may send an NNCP to Health Canada prior to receiving approval of their sales amendment application. However, licence holders must have received authority to sell that class of cannabis products before making the product available for sale.

Sales Amendments:

  • On-site verification for sales amendments has been replaced with participation in a mandatory compliance promotion session with Health Canada Inspectors. All key individuals/positions associated with the application must participate.
  • In some cases, based on risk, the licence holder may be required to undergo an inspection via a paper-based review and/or virtual component if deemed necessary.
  • This is in effect at least until June 30, and current sales amendments in the queue can expect compliance promotion sessions to begin the week of May 19.

Security Cleared Personnel:

  • A security-cleared individual is now permitted to virtually witness the destruction of cannabis, as long as it is noted and the visual record kept.
  • Cannabis destruction that happens off-site no longer requires the employee to enter the off-site facility as long as the cannabis is escorted to the destruction facility and back to the licence holder by the employee.
    • Destruction would still require a virtual witness.
  • Alternates can be designated for security cleared personnel if they are unable to work due to illness or isolation.
    • The alternate must be qualified and not have any history of a refused, cancelled, or suspended security clearance application.
    • Adding an Alternate Quality Assurance Person still requires Health Canada approval.

Bottom Line

Federally and provincially mandated emergency measures, along with public perception, raised several challenges for cannabis licence holders in Canada. Two months later, licence holders have adjusted and reacted with urgency and care. Despite the current COVID-related challenges, many are confident that the cannabis industry will continue moving forward and adapt.

“The industry continues in an upward trajectory. A lot of the stronger companies will continue to succeed and emerge victoriously. There will be a lot of changes in the next 2 years. We will see the real players and the pretenders. Businesses that are focused will play a more significant role across the supply chain. The days of being everything to everyone are long gone. Businesses need to find their focus and execute on those strategies to be successful going forward.”

  • Daniel Stern, CEO, CannMart Inc.

The Canadian cannabis industry is no stranger to an uphill battle, having overcome countless regulatory and legal challenges en route to establishing the emerging market we see today. While it won’t be easy, the resiliency of Canadian cannabis companies will help navigate the industry into more prosperous times.

CannDelta is Here to Help

Any cannabis licence holder affected by COVID-19 should reach out to CannDelta for a free consultation on how best to navigate the recent changes implemented by Health Canada. CannDelta is a Toronto-based regulatory cannabis consulting company that can be reached at info@canndeltav2:8890 or (416) 535-1935 & toll free at 1 (877) 274-6777.