Cannabis legalization creates legal minefield for business

Due diligence and professional consultation may be needed to sidestep pitfalls

Coal Harbour Law owner Nathan Lidder says some people may run afoul of cannabis-related laws without realizing it | Chung Chow

With recreational cannabis newly legal across the country and countless entrepreneurs awaiting licences to take part in the burgeoning sector, there will undoubtedly be plenty of government regulations and laws that go overlooked in the rush to open businesses.

Most lawyers who spoke with Business in Vancouver advise business owners to independently get advice from qualified professionals – lawyers or consultants well versed in due diligence.

They expect to see several different kinds of infractions as cannabis businesses roll out, and note that because the industry is new, there are yet to be test cases to clarify wording in government laws.

That means that clarity on the laws will be unlikely until some private business owners are charged – though some who run afoul of laws may not even consider themselves to be business owners.

For example, social influencers – people who regularly post Instagram updates on their lives and are sometimes compensated by brands with cash or free products – may have to be particularly careful to avoid legal jeopardy.

The Cannabis Act forbids marketing a cannabis brand to youth and marketing that brand in a way that glamorizes a lifestyle.

Coal Harbour Law owner Nathan Lidder, whose practice is about 85% cannabis related and includes some licensed producers (LPs), gave a hypothetical example of a potential legal pitfall for an online personality touting a cannabis brand.

“[Let’s say] I’m a social media influencer with one million followers and I say, Tweed, for example, ‘was a great product for XYZ purpose – look at me lying in my expensive condo,’” Lidder said. “There may not have been a direct transaction between Tweed and the social media influencer, but that social media influencer who has one million followers has now tied a product to a lifestyle. It’s a very open question whether or not that is in violation of the act.”

Lidder said one solution for an LP could be to avoid using an Instagram account, because it might invite law enforcement scrutiny if that influencer starts tagging the corporate brand in posts.

Other forms of marketing, such as putting a corporate brand on pens, might even run afoul of the law because they could arguably influence children, he said.

(For more on challenges that licensed producers face marketing products, read: Feds throw tight lid over cannabis advertising)

Dentons partner Shea Coulson said people who post on social media, particularly if they habitually post random thoughts and preferences, and are not paid, will not likely be targeted by the authorities.

“We have something called free speech in Canada, right?” he said.

The key is that companies should not link to those social media posts on their websites or reproduce them as a testimonial, because that is a clear infraction, he said.

Coulson added that retail is another area where business owners will unwittingly run afoul of legislation.

The federal Liberals made clear that keeping cannabis out of the hands of minors was a driving factor in legalizing the substance, and the new laws reflect that. Allowing a minor into a store, for instance, or even into the parking lot, contravenes federal law. This is unlike regulations governing liquor stores, where minors can accompany adults.

Any retailer selling to a person who might resell to a youth, or someone who might deliver the product, is liable to be fined between $7,000 and $11,000 and could face a seven-to-11-day licence suspension, he said.

Coulson, who has experience with liquor retailing regulations, noted that while private liquor retailers in B.C. have some leeway as to how complete their record-keeping is, that will not be the case with cannabis.

“If you don’t have proof of where you obtained your cannabis, then the regulator could say, ‘Well, without the proper records, we are saying that this is illicit cannabis because you can’t prove that you got it from us, that you got it from legal channels,’” he said. “All of a sudden you’re looking at [a charge of] selling and possessing unlawful cannabis. That ups the penalty to the potential for a $50,000 fine and a 90-day licence suspension, just because your records are a mess.”

Tiffany & Co. Law Corp. founder Tiffany Walsh said private retail operators can legally sell only cannabis-related products. That means fresh and dried cannabis, oils, capsules and seeds as well as accessories such as rolling papers, pipes and bongs, but not T-shirts, hats or snacks.

The restrictions highlight the differences in how the government is treating private cannabis retailing and private liquor retailing, where selling snacks is OK.

Vancouver’s illegal dispensaries also face a starkly different regulatory landscape under the new rules.

“Some of those [pre-legalization] dispensaries have been selling other things, like coffee or treats for people to eat,” Walsh said. “That won’t be allowed under the retail store licence. They can only sell non-medicinal cannabis and cannabis accessories.” •

gkorstrom@biv.com

@GlenKorstrom