Written by John M. Davidson
With the annual hemp harvest season across the Prairie provinces recently completed, now is an opportune time to look at the industrial hemp industry in Canada and the regulatory regime it is governed by.
Over the past two years, I’ve been fortunate to connect with several businesses involved in the industrial hemp industry in Canada. These businesses span a number of different industry sectors, including:
- Large scale commercial hemp farming operations (for hemp grain production).
- Commercial hemp processing (into products such as hemp fibre, hemp hurd, and hemp biomass rich in cannabidiol (“CBD”)).
- Design and manufacturing of hemp decortication (removing the tough outer layer of the hemp stalk) and extraction technology.
- Design and manufacturing of building materials containing hemp products (i.e. hemp concrete).
- Plant breeding to create new strains of industrial hemp with high concentrations of CBD.
Why the excitement around hemp?
Much of the excitement involving business opportunities related to industrial hemp is due to the legalization of cannabis in Canada on October 17, 2018 (the “Legalization Date”), combined with the highly favourable agricultural conditions and climate of the Prairie provinces for growing the hemp plant. These include excellent soil conditions, long hours of daylight, and a skilled population of farmers.
Entrepreneurs in Canada are clearly attuned to the diverse commercial applications of the hemp plant and are now working hard to find ways to develop business and market opportunities for industrial hemp across many sectors.
What makes industrial hemp different than cannabis?
The hemp plant is a variety of the Cannabis sativa family, typically found in the Northern Hemisphere and traditionally grown outdoors specifically for industrial purposes (in contrast to cannabis, which is most often grown indoors in licensed facilities).
Hemp is a robust, fast-growing, resilient, and high yield crop in Canada with a long list of uses, including in textiles, paper products, rope/twine, construction materials, food products, plastics, and cosmetics, to name just a few. Its short growth period of 85-120 days makes it well suited for cultivation in many parts of Canada.
While the hemp plant contains both delta-9-tetrahydrocannabinol (“THC” - the psychoactive part of the plant) and CBD, Health Canada-licensed hemp farmers can only plant “certified seeds”1, in which the concentration of THC is 0.3% or less in the flowering heads and leaves. In contrast, numerous strains of cannabis that can be purchased legally at a licensed cannabis retailer in Canada often contain concentrations of THC in excess of 21%.
Notably, there are no government-imposed legal restrictions on the concentration level of CBD that can be contained in the industrial hemp plant. CBD is a non-psychoactive cannabinoid extracted from the plant that is widely believed to have numerous health benefits and applications for issues such as pain, epilepsy, insomnia, and anxiety (among other uses). It is also anticipated that, with the legalization of cannabis edibles, topicals and concentrates in Canada in October 2019, inclusion of CBD in Health Canada-approved cannabis consumer products will increase dramatically.
The industrial hemp regulatory regime in Canada: then and now
Prior to the Legalization Date, the first license to grow industrial hemp in Canada for commercial purposes was issued by Health Canada in May 1998. Between 1998 and the Legalization Date, industrial hemp farmers grew the hemp plant in order to sell the resulting grain (i.e. seed, oil, and meal) to the food and nutraceutical market and fibre to the industrial market.
The hemp plant’s flowering heads, leaves, and branches - being the parts of the plant rich in CBD - were not permitted to be sold because CBD in all forms was illegal in Canada prior to the Legalization Date, subject to certain exemptions for use by medical patients.
On the Legalization Date, the Federal Government amended the previous Industrial Hemp Regulations2 (the “Hemp Regulations”) and made the Hemp Regulations part of the Cannabis Act (Canada)3 (the “Cannabis Act”). The Hemp Regulations govern the licensing, sale, cultivation, propagation, cleaning, processing, and importation/exportation of industrial hemp in Canada. As with licenses for the cultivation, processing, and sale of cannabis, license applications involving industrial hemp must be made to Health Canada through the online Cannabis Tracking and Licensing System.4
However, the Hemp Regulations apply significantly less stringent licensing and security requirements to hemp than cannabis for cultivation, processing, and research & development. As such, the time required to obtain a license related to industrial hemp is greatly reduced compared to a license for cannabis cultivation and processing. This reduced regulatory burden is designed to reflect the lower-risk nature of industrial hemp (given the low amount of THC) and the long-standing experience of both Health Canada and hemp industry participants when it comes to growing the hemp plant in a controlled and regulated manner.
The most significant change to the Hemp Regulations as a result of the legalization of cannabis is that the entire hemp plant can now be cultivated and sold by licensed hemp farmers, including the hemp flowering heads, leaves, and branches - but only to federally-licensed cannabis producers. Federally-licensed producers can then extract CBD from the raw hemp biomass for use in cannabis consumer products. This alone has created hype around a new and potentially very lucrative hemp market in Canada for hemp-derived CBD.
Importantly, not every activity that involves industrial hemp falls within the scope of the Hemp Regulations. A good example is the extraction of CBD or another phytocannabinoid from the flowering heads, leaves, and branches of the hemp plant; this activity falls under the Cannabis Regulations (Canada)5 and requires a cannabis processing licence under the Cannabis Act.
The legalization of cannabis and use of the entire hemp plant is also resulting in federally-licensed producers seeking out and entering into wholesale supply agreements with hemp farmers across Canada, and plant breeders developing new strains of the hemp plant with the goal of creating higher concentrations of CBD.
The Prairie advantage
The Prairie provinces in Canada are well-positioned to capitalize on this new market, and already account for the majority of industrial hemp being grown in Canada. In addition to favourable climate, soil, and agricultural conditions, Alberta, Saskatchewan, and Manitoba have:
- Access to skilled farmers willing to grow hemp.
- A need to extend crop rotations in order to mitigate soil-borne diseases and maintain soil quality for agriculture.
- A favourable regulatory environment.
- Existing rail and highway routes to agricultural/farming communities for transportation of hemp to processing facilities.
- Financing opportunities from commercial banks with significant experience in agricultural lending.
It seems clear that industrial hemp will provide a unique agricultural opportunity for the Prairies, in a manner that is renewable, environmentally-sustainable, and carbon-negative, with implications for other sectors such as textiles, insulation, paneling, building construction, biofuel, and plastic composites.
Based on discussions with farmers and entrepreneurs involved in the hemp industry and their focus on the commercialization of the entire hemp plant, I’m hopeful that this burgeoning industry will live up to the hype.
Carscallen LLP's Cannabis expertise
An experienced cannabis lawyer is essential to assist businesses in understanding and navigating the complex regulatory and legal framework as it relates to the cultivation, processing, distribution and sale of hemp and cannabis in Canada. The Carscallen Cannabis Group provides comprehensive and sophisticated legal services to businesses involved at every stage of the cannabis industry, and works with its clients to find the most strategic and practical solutions to their legal needs.
If you have any questions or comments related to the hemp industry in Canada, or any other cannabis or hemp-related inquiries, please contact John Davidson or any member of the Carscallen Cannabis Group. You can also sign up to receive cannabis and hemp-related updates as this area of law continues to develop.
*This update is intended for general information only on the subject matter and is not to be taken as legal advice.
1 Cannabis Regulations, SOR/2018-144.
2 Industrial Hemp Regulations, SOR/2018-145.
3 Cannabis Act, SC 2018, c 16.
4 For anyone interested in pursuing a license to cultivate (including plant breeding/propagation), sell, import/export, or process industrial hemp, Health Canada published the Industrial Hemp License Application Guide - Application Requirements and Process to Obtain an Industrial Hemp License under the Industrial Hemp Regulations on October 16, 2019.
5“Certified seeds” means a variety of industrial hemp set out in the List of Approved Cultivars, published by the Canadian government on an annual basis. In 2019, The List of Approved Cultivars allowed for 52 industrial hemp varieties for commercial cultivation in Canada.