Canada’s crackdown on some cannabis extracts could cost industry millions

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Image of a container of Canadian cannabis edibles

Health Canada has begun asking some federally licensed marijuana companies to stop selling certain ingestible cannabis products the regulatory agency says are incorrectly classified and labeled as “extracts” rather than “edibles,” MJBizDaily has learned.

The move could cost cannabis businesses millions of dollars, Canadian industry sources say, because the products in question – including some lozenges and chewable extracts – are increasingly popular among consumers.

Executives are puzzled over Health Canada’s timing, especially since some of the products in question have been on the market for years.

The apparent crackdown also comes at a sensitive time for the Canadian marijuana industry, as most publicly traded cannabis producers are still losing money.

From a packaging perspective, the distinction is important because any cannabis product classified as an “extract” has 100 times more allowable THC per package than a product classified as an “edible,” making it more appealing to certain consumers.

One letter sent to a licensee by Health Canada, obtained by MJBizDaily, requests the company to halt the sale of the flagged products.

The letter is from Anika Stella Chasse, acting director general of the Compliance Directorate in Health Canada’s Controlled Substances and Cannabis Branch.

Despite blowing the whistle, Health Canada stopped short of ordering the company to recall the products, which have been on store shelves and available to consumers.

It isn’t known if Health Canada sent a noncompliance letter to every company selling the products now under federal scrutiny or only select producers.

Health Canada did not immediately answer MJBizDaily queries for comment.

In the letter seen by MJBizDaily, the agency said that, “upon further review of the products in question, Health Canada has assessed that this product is edible cannabis and, consequently, it contains a quantity of THC that exceeds the allowable limit of 10 mg per immediate container.”

The letter goes on to define “extract,” “edible” and “food.”

“Health Canada has determined that (the products in question) are consumed in the same manner as food, and therefore fit the definition of edible cannabis,” the Health Canada letter notes.

The company that shared the letter with MJBizDaily requested anonymity.

The rules

Unlike extracts, cannabis products classified as edibles are limited to 10 milligrams of THC per package.

Shane Morris, founder of Ottawa-based Morris & Associates Consulting, noted that Schedule 4 of the Cannabis Act identifies the classifications of marijuana that can be sold.

“For all ‘cannabis extracts.’ the THC quantity must not exceed 1,000 milligrams per immediate container. This is 100 times more THC per pack than what is permitted in an ‘edible’ class of cannabis product,” he said.

All new cannabis products in Canada must follow the government’s so-called Notice of New Cannabis Product (NNCP) process, which requires licensed producers to notify Health Canada months in advance of new products.

In fact, some ingestible extracts that contain significant amounts of THC have been on the market for years.

In August 2021, New Brunswick-based cannabis producer Organigram launched its “Jolts” ingestible extracts, saying at the time it was “Canada’s first flavored high potency THC lozenge” containing “a total of 100 mg per pack.”

Organigram did not immediately respond to requests for comment from MJBizDaily, and it’s unknown if the company received a warning letter from Health Canada.

A product that has undergone the NNCP process doesn’t necessarily mean it received Health Canada’s seal of approval.

Rather, the process effectively gives the regulatory agency a heads-up ahead of time regarding all new products.

It also gives Health Canada an opportunity to address any regulatory issues with companies before millions are spent on production and marketing.

Sources at one company, which did receive a noncompliance letter, said Health Canada did not voice any concerns with the classification of the product until the regulator’s letter arrived this month.

Millions at stake

If all ingestible extracts and lozenges are pulled from the Canadian market, the industry could lose out on tens of millions of dollars in sales per year, industry sources say.

Morris estimates that in December 2022 alone, the Ontario Cannabis Store sold roughly 942,000 Canadian dollars ($600,000) worth of the “loophole” ingestible extracts in wholesale orders and via its online consumer store.

“Assuming Ontario sells approx. 40% all cannabis in Canada, then on an annual basis this would mean the retail value of these products would be approximately CA$33.9 million per annum in the recreational market, not inducing medical or Quebec where these new products are not sold,” he said via email.

Morris previously worked in operations at the Canadian Food Inspection Agency and the Public Health Agency of Canada.

He later worked at licensed producers Aurora Cannabis and Hexo Corp.

Sherry Boodram, CEO and co-founder of Toronto-based regulatory consulting firm CannDelta, said licensees agree that reducing the public health risks associated with cannabis products should always be a priority.

Boodram also said cannabis companies found creative ways to manufacture and market products to compete with the illicit market.

“For Health Canada to suddenly bring down the hammer on how these products are being classified, especially three years after (Cannabis) 2.0 products became legal, will undoubtedly cause business losses during a time when cannabis companies are already struggling,” she said.

“This could ultimately lead consumers to turn to the illicit market as legal, regulated (and tax-paying) companies go insolvent because of Health Canada’s inconsistent regulatory compliance interpretation and enforcement actions (or inactions).”

Another industry executive, who requested anonymity, said it is “highly ineffective” for Canada’s federal regulator to raise concerns for a classification of products that have been on the market for more than 18 months in some cases and “followed and met all regulatory requirements and made extensive financial investments.”

“This sudden position of concern is counter to the spirit of the Cannabis Act and will undoubtedly move consumers back to the illicit market – which operates without the safety and oversight the legal market offers,” the executive added.

“While the rules are purportedly being changed – there is minimal direction, we’re unclear where this is coming from and sense a misguided interpretation of what is deemed risky to Canadians.”

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.