Legal defense coverage may be more pertinent to the cannabis business than any other in Canada right now. In the case of cannabis sales, legal defense coverage will be called upon to defend a consumer product that causes impairment and, therefore, risk of bodily injury – both to the consumer and potentially others.

Like liquor retailers, cannabis retailers will be subject to a strict and varied regulatory framework. A cannabis retailer’s policies and procedures will be scrutinized for compliance with the law. This is where defense coverage becomes invaluable. Understanding what evidence to marshal and what’s needed to ultimately defend and limit a business’ exposure will be critical to indemnification.

Federal Penalties

Canada’s federal Cannabis Act imposes a number of requirements on retailers, including who can supply cannabis, which types are permitted and how they’re allowed to package and promote their products. The Act also specifies strict financial penalties for businesses failing to meet these provisions when it comes to distribution and import/export. The law also provides a catch-all violation for offences not necessarily spelled out in the Act.

Distribution Violations – Businesses will be liable for a fine to be determined by the court for an indictable offence, or up to $100,000 for a summary offence, for distributing:

  • Cannabis not authorized under the Act
  • To a minor under 18 years old
  • To an organization
  • Cannabis not derived from a federally-licensed source

Individuals 18 years or older (e.g. sole proprietors) will be liable to imprisonment for up to 14 years for an indictable offence, or up to $5,000 or imprisonment for up to 6 months or both, for distributing:

  • More than 30 grams of dried cannabis
  • To a minor under 18 years old
  • To an organization
  • Cannabis not derived from a federally-licensed source

Import/Export Violations – For import/export violations, an organization is liable for fines up to $300,000.

Catch-all Violations –Where a punishment is not specifically provided for in the Cannabis Act, the “catch-all” penalty can apply for:

  • An indictable offence, with a fine of up to $5 million or imprisonment for a term of not more than three years or to both.
  • A summary offence, with a fine of up to $250,000 or imprisonment for a term of up to six months or both for a first offence. For subsequent offences, a fine of up to $500,000 or imprisonment for a term of not more than 18 months or both.
  • Where a “catch-all” penalty applies, each day the offence is committed constitutes a new and separate offence, and therefore is subject to its own punishment.

Provincial Penalties

In addition to the federal Cannabis Act governing retail sales, each individual province will impose their own financial penalties against businesses that fail to meet their local legislative and regulatory requirements as well. Here’s an overview of local penalties by province:

British Columbia – In BC, the Cannabis Control and Licensing Act provides penalties against licensed corporations should they violate restrictions including possession limits, public intoxication, distribution of illegal cannabis and violating licensing requirements for retail sales. Fines can be up to $100,000.

Ontario – Ontario’s Cannabis, Smoke-Free Ontario and Road Safety Statute Law Amendment Act fines a licensee business up to $1 million for violating licensing requirements or selling illegal cannabis. For those businesses that violate the restriction against selling to minors (19 years or younger in Ontario), corporations are liable for fines up to $500,000.

Alberta – The Alberta Gaming and Liquor Statutes Amendment Act, says their provincial liquor licensing board may impose a fine up to $1M and refuse to reinstate a license until the fine is paid if they believe a licensee has committed any act contrary to the public interest or that detracts from the integrity with which activities authorized by the license are to be conducted in Alberta.

Manitoba – According to the Non-Smokers Health Protection and Vapour Products Act of Manitoba, a corporation violating the restrictions on indoor/outdoor public use is liable for a fine between $500 and $3,000 for a first offence; between $750 and $5,000 for a second offence and between $1,000 and $15,000 for a third.

While the Cannabis Act has created opportunities for sellers across the country, Canadian cannabis retailers will also now face significant operational exposure, both federally and provincially. Legal defense coverage will be key to defending against exposure and regulatory discipline. HUB brokers who specialize in the cannabis industry can help you determine if your legal defense coverage is adequate for the new, heightened risk.

Guest bloggers
Lorne P.S. Folick: Lorne is a founder and name partner of Dolden Wallace Folick LLP. He acts for Canada’s largest commercial and personal lines insurers, and underwriters in London. He is a published expert in the areas of complex personal injury, liquor liability, professional liability and cannabis. He has presented at national and international conferences to insurers and businesses, on the topic of cannabis legalization and cannabis liability.

Denny Chung: Denny is an associate with Dolden Wallace Folick LLP. His practice involves a broad range of insurance matters, including bodily injury, professional negligence and errors & omissions, liquor liability, and cannabis. He has assisted in researching and drafting policies for clients with respect to cannabis regulation compliance and claims exposures.