Canadian Lawyer - sample

46 M A R C H 2 0 1 9 w w w . c a n a d i a n l a w y e r m a g . c o m Act says these items can be available within a year of passing the legislation (on Oct. 17, 2018), "businesses may be able to bring them to mar- ket earlier than that." In topicals, businesses are already busy developing lotions and cremes that contain the cannabinoids delta-9-tetrahydro- cannabinol — THC — and cannabidiol — CBD — in varying levels. Market capitalization is big, and "we're only going to see it get bigger," says Szwimer. His firm has received inquiries from clients in the cannabis sector who hope to grow and become licensed producers, while others want to invest and become stakeholders. At that time, banks were not involved in the cannabis sector. "This year, we'll see a shift and another level of lawyers in banks, which will be funding these operations," he says. Now, private equity firms and other institutional investors are involved. "BMO has been very active. You're seeing guys from TD, Royal Bank, interested in getting involved." In the United States, Dickinson Wright's McCulloch says he sees Canadian investment coming into the cannabis space in Ari- zona, where he's based, and to Florida (where there is a restricted medical cannabis regime) in particular. This has caused an escala- tion in prices, he says. "We see a lot of capital looking for investment in the industry [and] I've seen some escalation in that since October. There have been investors in these states since prior to October, over the past couple of years. But after legalization in Canada, it's reached another level." Hulton also notes that investment in the sector is becoming more sophisticated, with more due diligence being done. On the insurance side, Clyde & Co.'s McCann says clients are potentially affected by the new regime in a number of ways. Some clients are looking to insure cannabis companies, while other insurance clients are looking to manage existing risk. "Insurance is facilitation of capitalism and its tentacles, includ- ing insurance transactions, so something that's a social or busi- ness model change inevitably has impacts on the insurance industry," says McCann, who also teaches insurance law at McGill University. Clients can also benefit from a lawyer's training in life sciences, and BLG's Wood, who has a Ph.D. in biochemistry with a formal education in plant metabolism, says his background has "been tremendously helpful working with clients in this area," particu- larly in patent law. "When I'm talking to people about what they're doing in their downstream products [such as cannabis oil and topicals], there's inevitably a lot of chemistry involved" owing to the many chemicals in the cannabis plant and the different types of cannabis flowers. Regulation and product liability As cannabis edibles, extracts and topicals become regulated in October, more of lawyers' work is coming from help- ing federally licensed enti- ties or applicants in the can- nabis sector in transactions involving securities or supply arrangements with food and beverage companies. "Now that we're getting into edible cannabis products, the hard part is making food properly," says Wood, which includes preparing an extract to be infused. Regulations don't allow for cannabis prod- ucts and regular food products to coexist in the same building, he explains, in large part to protect children from accidental cannabis consumption. For example, if infused cookies and non- infused cookies were made in the same factory, mistakes or even sabotage could occur. "A lot of our food companies export food; you don't want to accidentally export cannabis in food." In regulation, McCann believes a strong link can be made between cannabis products and para-pharmaceutical products such as protein supplements, food powders and Gingko supple- ments — more so than with alcohol or tobacco products. Cannabis is "an area where a producer or anyone dealing with the product has pretty strict [Health Canada] regulations they need to comply with [and] there are issues surrounding non-conformity of the products themselves." For cannabis, the THC levels in a product might make it subject to product recalls, for example, or there could be problems with labelling, product contamination and consumer class actions. "Insurers may assist them in those situations," McCann says. "My proposition to an insurance client would be, if you're looking at writing a policy to protect supply-chain cannabis companies, look at them as you would a para-pharmaceutical company. How would you assess those risks and manage them when they manifest?" Restrictions Restrictions in the cannabis sector include common ownership of federally licenced producers and retailers, says Wood. Each province has its own rules, and "people are trying to make past deals fit when maybe they don't. . . . "When you're in a regulatory environment that has a ton of pressure to expand, there's also regulations that have subjective standards that we've never seen enforced," Wood says. "This "It's basically a gold rush. You've got huge market demand and shortfalls. There are new, lucrative opportunities. You have largely capitalized companies and small players interested in getting in on the action, hoping to be bought up." Trevor McCann, Clyde & Co. L E G A L R E P O R T

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