Lift’s David Brown sat down with ACMPR license expert David Hyde to talk about recent changes to Health Canada’s licensing program.
In our most recent conversation with David Hyde, we discuss the changes to Health Canada’s medical cannabis licensing program announced last May and their impacts on the licensing process for both applicants and producers seeking to build new production space.
The changes to Health Canada’s regulations—announced last May when they released a backgrounder entitled Improving the Licensing of Production of Cannabis for Medical Purposes—have removed the need for applicants seeking a license to grow and sell medical cannabis to go through what is called a PLI, a pre license inspection, formerly the last stage before getting a license to cultivate).
Hyde explains that now applicants can send ‘proof’ of their facility’s readiness in the form of data, photos, video, attestations from experts, etc and, if approved, can receive a cultivation license without waiting for an inspection from the regulator. The regulator, explains Hyde, then shows up in the weeks after the cultivation license is issued to confirm readiness.
He says he’s already seeing results from these changes, with the two most recent cultivation licenses being awarded to applicants (Solace Health and Indiva) who went through the new streamlined application process, and we can expect to see another ten to fifteen new cultivation licenses awarded by the end of the year under this same new process.
He also notes that there have been many misconceptions about these new rules, and shares what applicants can do to ensure they make the most benefit of these new changes.
David Hyde runs David Hyde and Associates, a security and risk management firm. Hyde has been working extensively in the cannabis industry in Canada and abroad, helping producers design appropriate security programs and systems for their respective jurisdictions.
As the owner and principal consultant at David Hyde and Associates, Hyde estimates he has worked as a consultant in some capacity on nearly 200 applications under Canada’s MMPR/ACMPR, out of approximately 400 active applications currently in the queue.
You can read our interview below:
Okay—the May rule changes: lots of excitement, lots of chatter…  what do these changes mean for an applicant?
In terms of the applicants, I think, obviously the announcements that were made were very positive. The parallel path of doing the security clearance with the review phase now allows them to do those two together, whereas before it could be a year or more for [each] of those processes individually. Maybe now we’ll see one year for both, or maybe even less. I think we’re going to see faster security clearances as well, so I think we can definitely see shorter licensing periods. The increase in staffing [at Health Canada] was a very welcome announcement and I’ve already seen some evidence of that, like Health Canada being much more willing to coordinate and communicate with applicants.
Another is the PLI. In the past you had to finish out your construction, get everything ready, and then request to get a PLI done and they would ask you a few more questions, then come out for an inspection and fill out a report. And it would be more red tape, you’re waiting for at least a few extra months.
After the PLI you typically would wait at least a few months, sometimes three to four months or more. So now what’s happening is that they’re allowing you to essentially provide Health Canada with a body of evidence that will allow them to determine your readiness or your state of completion and your compliance.
All of those things together are, I think, very good for applicants.
So what are some of the misconceptions, then, about this change?
I think a lot of people thought or interpreted the announcement to be that the cultivation licenses would be handed out a lot earlier, and in fact once you pass the paper based review, once Health Canada have given you that confirmation of readiness email that comes out, which still is the case by the way, when you finish all your readiness paperwork, they’ll send you an email saying you are ready to complete the process, complete the facility,
A lot of people thought when that email arrived, you would get a license right away. And, frankly, that is one of the ways that one could interpret what Health Canada wrote up in their press release. But practice suggests that is not the case. I’ve been able to work with several applicants now under the new regime. The most recent LP, no 51 [Solace Health] and another LP, #52 [Indiva] are the first out of the new process. They did not have a PLI, they went through the evidence process.
By the same token, Hydropothecary, that recently got licensed for [two new buildings], also was the first under the LP banner to get a nod to build out essentially a similar building or construction space without getting an inspection, before they were allowed to have that space licensed. They were the first a month or so ago, and on the applicant track, no 51 was the first to actually go through and not have a PLI but instead demonstrate readiness through evidence, which is video, photo, data, attestation, that shows that everything has been done and the facility is in compliance and ready to operate.
So, that’s the change now. But the problem is that Health Canada issued a backgrounder document, then they issued a circular, en masse, then they had an LP phone call, then they changed their website, plus they sent out an email to people in the late stages of application reaffirming their readiness phase and giving them more information about the new rule changes.
We’re looking at probably five means of communication, and when you look at all five of them, as we have…. There’s inconsistency. They don’t jive. And it’s very easy to misinterpret the finer points.
So I understand why some thought that once they pass that paper-based review they would get the nod and get a license. That’s kind of what it says if you read it in that literal sense. But now we know that is not the case and that you have to painstakingly prove to Health Canada by means and video and photo and show evidence…. They need to gain confidence that you have a fully built-out and compliant and ready to operate facility. So it really comes down to the applicant not treating it casually.
What are some of the problems that still face applicants?
I think sometimes the applicants aren’t aligning with people that really understand how these facilities operate and need to operate under Health Canada’s view and the realities of growing and processing a plant that needs different things at different times. We see constant re-evaluation, re-engineering, and I wish [applicants] could get away from that. I think we could if we stopped being so focussed entirely on compliance and getting the license to get the valuation to a certain place or optimize the investment point of view, and actually be much more focussed on an optimal facility design based on best practices that have worked within the industry. [The benefit to the applicant is], they might not be the quickest one to the market, but their facility is going to be so efficient that even though they might be a little later to the game, they’ve brought in things that no one else is doing.
And this harkens back to the idea we’ve spoken about before where I believe there’s a great deal of room for more LPs because, with the greatest respect to all of the current LPs, and many of them are doing phenomenal things, there’s still a lot to learn and this industry is a nascent industry and we’re still learning a lot and there’s still a lot of tricks and traps that are out there that the new applicants can take advantage of in a more nimble way than an LP who has built out a hundred thousand square foot facility and already have the HVAC and all the systems built in place.
So will these changes help Health Canada save time in the licensing process, or does this sort of just clear the queue out?
Well, it does both. I think it benefits Health Canada in terms of time to review applications, and I think it benefits the applicants and the LPs because LPs can light up expansion space without inspections, so that’s a significant change. Plus the loss of the annual production cap, so now your only restraint is the size of your vault. So you’re free to expand and grow as widely as you want to, and also bring in product from other LPs and keep it in your vault or make it into oil. You get a lot more flexibility now.
What’s the timeline right now for a new applicant?
We don’t know is the short answer. But what it ought to be, now that we have two phases that used to take about a year [each] that have been collapsed into one, we have way more staff that can process these applications quicker, and we have a willing and able regulator, as opposed to a reluctant regulator. Those are the main changes that have happened.
So if you’re a new applicant coming into this now, instead of maybe a three year wait for applicants before this change, we’re looking at maybe a year to 18 months now being a more likely scenario for all of the reasons I just said. The applicants have learned from others’ mistakes in the past; we have better applications being submitted now than ever before; Health Canada’s got more staff at the early and late stages of application processing; we’ve got collapsed phases that see the security clearance and the review going through at the same time; the three months or so for the PLI has gone away—so at the end of the day, for a really tight application that’s got everything lined up properly, you’re looking at a 12-18 month process to get an LP.
What are the biggest mistakes an applicant can make?
Rushing an application. With legalization coming, the urge to rush an application because investment money has got a shelf life to it, and people are moving and shaking and the market is doing this and that and this is the Green Rush… all of that. That’s a biggie.
Another one we still see is taking too long to get the application in! Trying to iron out every kink, trying to fine tune every aspect of the build out, trying to work through all the different minute pieces. The reality is you need to move as fast as you can to put together a complete, top quality application, that is implementable, that shows that you have a great business plan, but you don’t need to show all the minute details. So, too quick and too slow are the biggest ones.
So 65 or so by the end of the year. How many LP’s by July 1, 2018.
That’s an interesting one. It really depends on what I think is an impending buildout bottleneck, to be honest. I don’t want to cause concern, but I kind of sense that may happen, to a degree. There may be negative impacts just from the sheer volume of build-outs coming. Don’t get me wrong, there are enough general contractors, there are enough constructors in Canada, there are enough architects and security infrastructure system installers, but so much of [a successful application] is understanding the regulations and how Health Canada interprets the regulations, and how they enforce the policies. That applies all the way across this. You might be a rockstar architect with experience building clean spaces like hospital or pharma facilities, but these ACMPR facilities are a different beast. Greenhouse facilities even more so. People don’t know what they don’t know.
And now that LPs can just build out new space, they, for the most part, are unrestrained now to expand exponentially in terms of production space, so I think the better question is how much production capacity will be in play by July 1—and I don’t know that, by the way—but I think that’s the key question.
I think everyone is looking at this historical decision to legalize cannabis in Canada by, you know, July 1st, 2018, and people may want to be in the lineup for where they can buy it to be part of that history. Well… we’ll see. We’re less than a year away and most of the provinces frankly haven’t got their act together. There’s an urgency to this now. We saw what happened in Nevada, and obviously there are different circumstances and conditions and mechanics in Canada, but that’s a bit of a reminder, if you will, of getting this right.
The federal government can do all it wants. It can streamline applications, it can ramp up production, but at the end of the day, we’re still beholden to the provinces who are going to be the distribution element here, and are they going to be able to have a program that’s going to be effectively in play and with distribution hubs and point of sale issues all sorted out and ready to go by July 1st 2018, or are we going to look at essentially a mail order recreational model to a degree, with a patchwork of provinces, that those few that were able to get up and running, and we’re going to have a disconnect with that date and a lack of lineups across the country.
credit:420intel.com
