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Health Canada Edibles and Extracts Regulations: Chad Finkelstein Breaks Down Draft Proposal

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Dale & Lessman LLP Partner Chad Finkelstein dissects the Health Canada draft regulations for topicals, edibles and extracts. Finkelstein highlights that Health Canada has allocated a 90-day consultation period for the regulations, suggesting the terms will be finalized by the end of Q1 2019. He notes that the regulations limit products to a maximum of 10 mg of THC per serving and derivative products will face the same kind of restrictions on packaging and labeling that were introduced for other cannabis products in October 2018. Finkelstein breaks down the controversial stipulation that producers cannot “have edible products that are associated with an alcoholic beverage company” and indicates that it is not the category killer many have suggested.

Transcript:

Ed Milewski:  So Chad, you must be a busy guy.

Chad Finkelstein:  Too much, too fast. This industry is hard to keep up with the volume of changes and the pace of those changes, and today was no exception.

Ed Milewski:  So today a big document came out.

Chad Finkelstein:  A very big document came out. I mean yeah, the Cannabis Act came into force on October 17th of this year, and what we’ve known for most of 2018 was that at some point, edibles were going to be regulated. What the announcement had always been – and when I say edibles, I’m referring sort of all type of ingestibles, food and beverage products – we had known they were going to –

Ed Milewski:  They’re not legal now, right?

Chad Finkelstein:  They’re currently not legal.

Ed Milewski:  And that’s what they said, they said you can get marijuana, but for a year, –

Chad Finkelstein:  That’s right.

Ed Milewski:  So they’re monkeying around with all the different legal aspects that they have to figure out, right?

C:   Yeah, that’s right, that’s right. We had known that, you know, the plant, like the flower, seeds, oils, were all going to be legal as of October 17th, and that within a year of the legalization date we would see edibles be regulated.

So now, earlier than expected, Health Canada released their draft regulations just 90 minutes ago on the regulation of those edibles products and topicals and extracts. So while the industry is still, you know, poring over those details and trying to figure out what comes next, there’s going to be a three-month consultation period beginning now, of course it’s February something to get submissions in, I forget the correct date off the top of my head, with a view towards finalizing everything, I think, by the end of the first quarter. The exact legalization date is still not, I believe know, but with probably the Fall of 2019.

Ed Milewski:  Yeah, go ahead.

Ben Smith:    So you know, do you extrapolate Health Canada releasing this information, would you tend to extrapolate that and suggest that perhaps edibles will be legal by the, by October 2019? Do you think the timeline is there, that they came out now as opposed to maybe coming out a little bit later and then delaying the edibles state for maybe later in 2010?

Chad Finkelstein:  Yeah, I do think that. I mean, I can’t claim to know what was in the minds of the drafters at Health Canada that came up with these regulations, but I do think that was a big element of it: I mean, the genie’s out of the bottle, and has been for a very long time, and arguably the Federal government kind of missed an opportunity in the first place to have regulated edibles along with al the other cannabis products at the time.

I mean, people are looking for new kind of ways to consume cannabis, to infuse it in different kind of food and beverage items; they’re going to be doing it from their homes. I think that one for the really exciting elements for the industry about edibles in particular was that all of the issues we’ve seen in the news about some of the issues with supply shortages and people not necessarily embracing the government sale and private retail sale and still going to their, you know, ordinary sources, is the edibles, there’s a bit of an outlier from all of that, right? You can’t go to your dealer and buy olive oil or butter or some of the stuff you can kind of do some interesting kind of cooking, or you know, beer or wine.

So I think that’s been a really, really strong focus of the industry in terms of what, you know, kind of Phase II is, and especially the success of the retail strategy as that starts to roll out across the country, is being able to have those infused food and beverage items on the shelves.

So given that that genie is very much out of the bottle, I do think that there was, I’m just speculating that there was some probably some spirit on behalf of Health Canada to get these regulations in the hands people sooner, to capture that market on a regulated environment as quickly as possible.

Ed Milewski:  are you talking to other legal people, just in Ontario? Or would you be talking to other provincial legal people as well to get, you know, what – I think there’s strength in numbers, right? So to go through a major document quickly, you might have a little, you know, confabulation and just try to –

Chad Finkelstein:  Yeah. It’s luckily a very collegial industry, right, the cannabis industry. And so, you know ,these regulations are really brand new, hot off the press, and what happened this morning is that there was an initial public statement by Health Canada summarizing the key points of the regulations, that was followed –

Ed Milewski:  Was this coming out, were you expecting this today?

Chad Finkelstein:  There had been widespread speculation that we would see these regulations before Christmas. And I had actually been anticipating it by tomorrow, so the fact that it was today, I think, came as a surprise to many. I count myself among them. And shortly on the heels of the public statement, there was a backgrounder that Health Canada released and sort of a helpful infographic, helpful in the sense that it organized into very accessible columns what the key points are from the regulations, but left a ton open to interpretation. And then just 60, 90 minutes ago, the actual 145 page document was actually released, and so we’re all still poring –

Ed Milewski:  So you probably haven’t had a really good chance to even go through it, but is there anything in there that stands out that you could talk about like ‘oh, this is kind of interesting, we neve thought of this’.

Chad Finkelstein:  Yeah, sure. Well, I think the big takeaways are number one, that there is a limit on 10 mg of THC per standard service, which was expected and is consistent with what states have been doing. Number two is that there’s going to be, I think, the same kinds of restrictions on packaging and labeling as there are with respect to cannabis products today, and I don’t think there was any real reason to expect differently; but in the States, in Colorado, in Washington, there’s a lot more permissiveness in terms of the branding you can do.

Ed Milewski:  Absolutely.

Chad Finkelstein:  But then over the last few months we’ve seen stories of kids in Canada and the US who’ve accidentally ingested gummy bear, so I don’t think there was any real likelihood that we’d see a lot of flexibility or a lot of sort of room for liberal branding on these packaging elements.

Also on the packaging of products themselves. So none of that is a surprise to see.

What was surprising to see, and I think has caused a bit of an uproar or controversy over the last 60 to 90 minutes, is that there’s a line in the regulations which states that you can’t have any cannabis edible product which is associated with an alcoholic beverage. And those words are causing a lot of confusion, because I’ve heard from a number of people already who view that as a category-killer, right, especially on the heels of all the announcements we’ve seen about cannabis companies and beverage companies.

Ed Milewski:  Well yeah, there’s a big one in the States today with Tilray –

Ben Smith:    Tilray announced yesterday with InBev.

Ed Milewski:  Which is Labatts, all right? And –

Ben Smith: In Canada, we have, of course HEXO Corp with Molson, so do you – I know it’s a little early to make extrapolate what’s going to happen, but do you think it has the potential to affect the joint ventures that these companies have announced?

Chad Finkelstein:  I don’t think it’s going to be the category-killer that on first read, first instance of looking at these regulations, it sort of appears to be, because when you dig a little bit deeper in the regulations and the descriptions of them, what it really says , quite interestingly, is that you can’t call your product a name that is associated with alcoholic beverages. So you can’t call it beer, you can’t call it wine, you can’t call it vodka, you can’t call it whatever.

So we now need new words, and this is not new kind of, you know, branding terminology…

Ben Smith:    So it doesn’t kill the category, you just have to re-word it.

Chad Finkelstein:  right, so somebody’s got to develop that quickly and own that quickly, because they will get to own the word that we as an industry start to refer to beverages that share certain properties with other alcoholic beverages but don’t get to be called that. Cannabis-infused, you know, fill in the blank.

Ed Milewski:  Chad, Chad, thank you so much for coming by on such short notice, I understand, and we’ll probably have you back again if that’s okay with you, just to follow what’s going on.

Ben Smith:    Yeah, great update.

Ed Milewski:  Really appreciate it.

Chad Finkelstein:  Hey, thank you for having me.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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