Technology, Privacy, and Regulation In An Evolving Industry

Business of Cannabis wrote a recap of the recent presentation lead by Torkin Manes lawyers, Matt Maurer and Roland Hung, on technology, privacy, and regulation in the cannabis industry. Read the article and watch the presentation here.

Technology, Privacy, and Regulation In An Evolving Industry

In 2018, the Canadian government enacted the Cannabis Act (the “Act”), providing legal access to cannabis and mechanisms to control and regulate its production, distribution and sale. Questions surrounding the interpretation of the Act flooded the minds of those seeking insight into the rapidly evolving legal landscape and were discussed in a recent webinar titled, Technology, Privacy and Regulation in an Evolving Industry, which was hosted by Business of Cannabis, chaired by Ashley Keenan, and sponsored by Canadian law firm Torkin Manes LLP. 

The webinar panel featured leading Torkin Manes lawyers  Roland Hung, Counsel in the firm’s Technology, Privacy & Data Management Group, and Matt Maurer, Partner and Chair of the firm’s Cannabis and Franchise Law Groups, who were joined by industry experts, Ryan MacIsaac, in-house counsel to Uber Canada, and Matt Harris the Legal Lead at Truss Beverage Co. 

The Cannabis Act, 2018

In its discussion, the panelists reflected on the industry’s progress since the Act’s enactment, reviewing the goals and purpose of the legislation. They contemplated the objectives set out within the Act, which were to prevent young persons from accessing cannabis, protect public health and public safety by establishing strict product safety and product quality requirements, and deter criminal activity by imposing serious criminal penalties for those operating outside the legal framework. The Act is also intended to reduce the burden on the criminal justice system in relation to cannabis. The panel agreed that the Canadian government’s decision to review the Act will provide a timely opportunity to manage some of the regulatory and privacy challenges impacting the growth of the industry.

Having regularly provided business and regulatory advice to a wide range of cannabis industry stakeholders throughout his practice, Matt Maurer commented on the developments to the legislation and stated that “it’s such a fascinating industry, and anyone who’s been around a while, will know how it has really morphed.”

Challenges: Regulation

Some of the cornerstone challenges faced by those in the cannabis industry as a result of the legislation were highlighted by Matt Harris. When reflecting on the Act, Mr. Harris stated, “the level of complexity of the regulation, and particularly when it comes to production and operations … it’s costly, and it has created a high barrier of entry into the market for the smaller producers … leading to really, really tight margins in the industry.” 

Though these complications are understandable when considering the novelty of this legislation, Mr. Harris indicated that these hurdles have made it difficult for businesses to differentiate from their competitors given the industry regulations. When considering the advancement of the regulatory scheme in place for cannabis beverages, Mr. Harris referenced the regulatory challenges at both provincial and federal levels that commence from the early stages of production and continue through the distribution and sale of the product. Mr. Harris outlined some of the federal considerations, including operating as a licenced producer of cannabis, the regulations that come with that status, such as facility operations, product composition and packaging, and the provincial considerations like the distribution and sale of products to government entities, such as the Ontario Cannabis Store and independently-owned retailers. 

When speaking specifically to cannabis beverages, Matt Maurer flagged some difficulties surrounding the high levels of regulation for marketing, promotion and branding of cannabis products. Mr. Harris noted that under the current legislation, “one of the specific prohibitions for cannabis promotion is that you cannot promote cannabis products if there are reasonable grounds to believe that the promotion could associate with an alcoholic beverage …” This grey zone is a considerable barrier for marketing cannabis beverages, as the variety of alcoholic drinks, mixes, flavours and press campaigns are broadly varied and may violate the possibility of promoting a cannabis beverage. 

Mr. MacIsaac also flagged the regulatory complexities posed by payment processors. These payment processors would include various companies that work behind the scenes to facilitate multiple distribution levels for “higher risk categories,” such as cannabis. The governing law of the jurisdiction would impact the payment processors, which would pose complications to Canadian businesses, as many of these companies are based in the United States. Further, another issue faced by Canadian businesses is that many banks and financial institutions have requirements not to use their platform for illegal purposes. Yet, the definition of what would be considered illegal would depend on the laws of where that entity is based and how they are willing to work with companies based in different jurisdictions, such as Canada. 

Challenges: Technology, and Privacy 

Having a law practice that encompasses all aspects of technology, privacy compliance, cybersecurity and data management, Roland Hung has assisted cannabis businesses with various issues, including intellectual property, licensing, data, and privacy issues. Throughout the webinar, he addressed some of the technological and privacy concerns associated with the cannabis industry. 

Mr. Hung discussed the layers of security required to safeguard the personal data of its cannabis customers. Additionally, Mr. Hung raised the concern of cultural acceptance of cannabis use in providing context to this discussion in stating that “the fact that there could be potential stigma around cannabis use, is a risk that the Privacy Commissioner has highlighted, classifying this type of personal information as highly sensitive.” 

To address this concern, Mr. Hung asked Mr. MacIsaac, “ does Uber do anything, or do you have processes in place that distinguish this type of personal information from the information collected for Uber Eats for example?” Mr. MacIsaac explained that the Canadian arm of  Uber needed to do some heavy lifting to get its cannabis division off the ground due to the complications posed by privacy concerns. Mr. MacIsaac then explained Uber’s perspective: “Uber is an international global company and in many parts of the world, cannabis is still very verboten. And so we did have to get internal stakeholders comfortable as well as external … On the recreational side, the Federal Privacy Commissioner did publish some guidelines called the Protecting Personal Information: Cannabis Transactions guidelines, which follows the federal laws …”

Many barriers to operating in the cannabis industry, however, are posed by the various levels of legislation that industry workers must adhere to. Mr. MacIsaac then went on to explain this nuance through the lens of his business. Mr. MacIsaac stated that “at Uber, we already function within a framework of complying with national and sub-national privacy laws, and we have entire teams of individuals within the company that focus on privacy compliance, not just with Canada’s regime, but with even kind of more built out and stricter regimes, like the GDPR in Europe, or the California Privacy Act.”

Mr. MacIsaac does, however, recognize the privilege that Uber has when attempting to enter the industry by acknowledging that, “… we were already starting from a good space when it came to privacy and cybersecurity. But if you are not already operating within that framework, you do have to be mindful of collecting personal information and taking appropriate precautions. And being mindful of the purposes for collection, the uses of it, how you store it, how you dispose of it and how you share it.” 

New Opportunities in the Cannabis Industry 

When looking to the future of the cannabis industry, webinar Host Ashley Keenan inquired about new ventures and business opportunities, specifically a partnership between Uber and Leafly to bring cannabis delivery services to Toronto consumers. 

Mr. MacIsaac raised concerns associated with regulation, and the goals and purposes of the Act, and stated that “in terms of regulatory issues, there were a ton, starting with the criminal liability and the Cannabis Act … and so we had to think about how our platform works and how we prevent young people from accessing information about cannabis.”

Mr. Harris highlighted the pressing need to combat illicit retailers and dismantle their large share of sales within the market. Mr. Harris indicated that “there’s a lot of push for lowering the excise taxes as that’s a pretty significant chunk of the costs. I’d love to see that go down, in part because it will help drive the policy objective of eliminating, or at least scaling down, the black market.” 

It remains clear that the legislative review of the Act may target and tackle some of these barriers to entry that industry personnel have raised. The Act’s overarching goals permeate all decision-making throughout the cannabis industry, as Mr. Harris reiterated that “we need safe, quality recreational products that are at competitive prices to black market products.”

For more information regarding the sale of consumer data by cannabis retailers, please read Legal Matters: What you need to know about selling customer information as a cannabis retailer, written by Roland Hung, Lisa R. Lifshitz, Matt Maurer, and Olivia Veldkamp of Torkin Manes LLP. 

To read the full article, please visit Business of Cannabis.