Seven pot producers run afoul of Health Canada amid legalization growing pains

Health Canada has issued warnings to seven cannabis producers since Oct. 17 for violating new federal laws against promoting marijuana, the latest post-legalization stumble for an industry that has been mired in country-wide product shortages and shipping delays.

“Since the coming into force of the Cannabis Act, Health Canada has communicated with seven regulated parties to promote an understanding of the new prohibitions relating to the promotion of cannabis in the Cannabis Act, and to bring specific concerns to their attention,” said Eric Morrissette, a spokesperson with Health Canada, in an emailed statement to BNN Bloomberg. “All regulated parties contacted have addressed, or are in the process of, addressing the issues raised by Health Canada.”

Health Canada declined to identify the pot companies that have not complied with the new laws under the Cannabis Act or what they’ve done in violation of the spirit of the law. But the statement is a rare admission from the Canadian government that the rollout of legal cannabis hasn’t been as smooth as policymakers had hoped.

“To date, when contacted by Health Canada, licensed producers have been responsive in addressing issues raised by the department concerning promotion activities,” said Morrissette. “Health Canada will not hesitate to take enforcement action to ensure compliance with the law and to disclose details of these activities as appropriate.”

Under the Cannabis Act, pot companies are prohibited from promoting cannabis or accessories or any services related to marijuana. Those include communicating to youth, testimonials or endorsements, associating cannabis alongside the depiction of a person, character or animal, or presenting it in a manner that evokes a positive or negative emotion such as “glamour, recreation, excitement, vitality, risk or daring.”

Morrissette said that when a violation of the Cannabis Act is identified, Health Canada works with the affected party to “promote compliance by ensuring that they are aware of the prohibitions, and provide them with an opportunity to comply with their legal obligations.”

Rebecca Brown, founder of Crowns Agency, which caters to the cannabis industry, said that Canadian pot laws are so new that the nuance behind some of the regulations are subject to interpretation despite the efforts of some producers to suggest specific use cases to Health Canada to gauge whether or not they would be appropriate.

“Now, it’s created a situation where there is no choice but to experiment with the new laws,” Brown said in an interview with BNN Bloomberg. “In fairness to the [producers], there was no way to unpack the compliance of specific activities but to try them and see what happens.”

Meanwhile, the initial two weeks of legal pot have been marred by several operational setbacks in some provinces, including Ontario whose online store has been mired with overwhelming demand and shipping delays. Product shortages have also been reported in Quebec and Ontario, with the former opting to shut down its provincially-run retail stores for three days a week to allow its inventory to catch up with demand.

GMP Securities analyst Martin Landry issued a report Monday specifying that these issues make it “increasingly clear” that recreational cannabis sales this year will be much lower than previously expected. “The extremely limited distribution network in many provinces, fulfillment challenges in Ontario, inventory shortage in Quebec and LPs coping with limited availability of excise stamps may take several months to be resolved,” Landry said.

“This is truly an unprecedented scenario,” Brown said. “You don’t usually see a multibillion-dollar industry appear overnight. It would have been naïve to think that it was going to be completely functional on day one.”

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.