EDN52 Obtaining and Renewing a Cannabis Licence

From: Canada Revenue Agency

August 2019

This version replaces the one dated May 2018 and includes updated information on the timing for the submission of the CRA licence application and on the calculation of financial security. It also contains information that appeared in Excise Duty Notice EDN56, New Cannabis Licence Applications – Supplemental Information, published in January 2019, which is now cancelled.

The purpose of this notice is to provide information about the licensing requirements for persons who wish to obtain or renew a cannabis licence to undertake activities in relation to cannabis products under the Excise Act, 2001. Persons who wish to cultivate, produce or package cannabis products should carefully review the information on licensing included in this notice. It provides the licensing requirements, suspension and cancellation processes as well as the conditions applicants must meet to obtain or renew a cannabis licence.

The information included in this notice is for reference purposes only and does not replace the Excise Act, 2001 or its regulations. Should there be any discrepancy between the information in this notice and that contained in the Act or its regulations, the legislative provisions apply. If the information in this publication does not completely address your particular situation, you may wish to refer to the Act or its regulations, or contact your CRA regional excise office for additional information. These offices are listed at Contact Information – Excise Duties, Excise Taxes, Fuel Charge and Air Travellers Security Charge.

In this publication, all legislative references are to the Excise Act, 2001 (the Act), unless otherwise specified. Also, all references to the Regulations are to the Regulations Respecting Excise Licences and Registrations.

Overview

As part of the Government of Canada's ongoing efforts to regulate and restrict access to cannabis products, the CRA is responsible for administering and enforcing the excise duty framework for all cannabis products, which generally applies to all cannabis products sold for both medical and non-medical purposes. Cannabis products include dried cannabis, fresh cannabis, cannabis oil, cannabis plants, cannabis plant seeds, as well as the following, which will be legal for sale effective October 17, 2019: edible cannabis, cannabis extracts and cannabis topicals.

Under subsection 14(1.2) of the Act, a cannabis licence issued to a person by the CRA only takes effect when a licence or permit is issued to that person by Health Canada under subsection 62(1) of the Cannabis ActFootnote 1 . For information on licences and permits from Health Canada, go to canada.ca/cannabis.

Requirement to obtain a cannabis licence

When a licence is required

Unless specified in the Act, every person who wishes to produce or package cannabis products must obtain a licence under that act. This includes persons who produce cannabis products for research and development or educational purposes.

To produce cannabis means to obtain it by any method or process, including by manufacturing, synthesis, altering its chemical or physical properties by any means, or cultivating, propagating or harvesting it or any living thing from which it may be extracted or otherwise obtained. It also includes packaging the cannabis product.

The Act prohibits any person from producing, packaging or possessing non‑duty‑paid cannabis products without a cannabis licence except under specific circumstances. Persons producing, packaging or possessing non‑duty‑paid cannabis products without a licence may be subject to fines and/or terms of imprisonment.

When a licence is not required

Under section 158.01 of the Act, a cannabis licence is not required where:

  • cannabis products are produced in Canada by an individual for their personal useFootnote 2  and in accordance with the Cannabis Act;
  • cannabis products are produced in Canada by an individual, under the Cannabis Act, for the medical purposes of the individual; and
  • cannabis products are produced in Canada by an individual who, under the Cannabis Act, is a designated person who is authorized to produce cannabis products in Canada for the medical purposes of another individual.

Also, under subsection 158.02(3) of the Act, a licence is not required for industrial hemp by‑products produced by an industrial hemp grower.

Licensing conditions

Subsection 23(3) of the Act provides that the activities that may be carried on under the licence, and the premises where these activities may be carried on, may be specified in the licence. In addition, conditions considered to be appropriate by the CRA in the circumstances may be imposed on the carrying on of these activities.

Pursuant to section 24 of the Act, a licensee must comply with the Act and its regulations when carrying on the activities specified under their licence.

Eligibility for a licence

A person must meet specific eligibility criteria to obtain a licence under the Act.

General requirements

Pursuant to paragraphs 2(2)(a) and (b) of the Regulations, a licence will only be issued if the person:

  • is not the subject of a receivership in respect of their debts;
  • has not failed in the 5 years immediately before the date of the licence application to comply with any Act of Parliament (other than the Excise Act, 2001) or of a provincial or territorial legislature that deals with the taxation or control of tobacco or alcohol, or any regulations made under it; and
  • has not acted to defraud Her Majesty in the 5 years immediately before the date of the licence application.

Individuals

Under paragraph 2(2)(c) of the Regulations, a licence will only be issued to an individual if that individual:

  • is at least 18 years of age; and
  • has sufficient financial resources to conduct the business in a responsible manner.

Partnerships or unincorporated bodies

Composed of individuals

Under subparagraph 2(2)(d)(i) of the Regulations, a licence will only be issued to a partnership or unincorporated body composed only of individuals if:

  • each individual is at least 18 years of age; and
  • the partnership or unincorporated body has sufficient financial resources to conduct its business in a responsible manner.

Composed of corporations

Pursuant to subparagraph 2(2)(d)(ii) of the Regulations, a licence will only be issued to a partnership or unincorporated body composed only of corporations if each of the corporations has sufficient financial resources to conduct its business in a responsible manner.

Composed of individuals and corporations

Under subparagraph 2(2)(d)(iii) of the Regulations, a licence will only be issued to a partnership or unincorporated body composed of individuals and corporations if:

  • with respect to the individuals, each of them is at least 18 years of age; and
  • with respect to the partnership or unincorporated body and the corporations, each of them has sufficient financial resources to conduct its business in a responsible manner.

Corporations

Under paragraph 2(2)(e) of the Regulations, a licence will only be issued to a corporation if the corporation has sufficient financial resources to conduct its business in a responsible manner.

Applying for a licence

New licence applications

For new applicants, a licence application will be accepted by the CRA only when the person has submitted their completed application to Health Canada.

For new applicants that submitted their application to Health Canada prior to May 8, 2019, a licence application will be accepted by the CRA when the applicant has received a "No Objection" notification from Health Canada and has established the physical location for the proposed business.

Under section 2 of the Regulations, every person who wishes to obtain a cannabis licence is required to complete Form L300, Cannabis Licence Application, and submit it to their regional excise office.

An applicant who requires more space to provide information on individuals, partners, directors, officers or shareholders should also complete Form L300SCHB, Information Relating to Individuals, Partners, Directors, Officers or Shareholders, and submit it with Form L300.

There are no fees related to the application for or the issuance of a cannabis licence.

Licence renewal

Licences are not renewed automatically. A cannabis licensee who wishes to renew their cannabis licence must complete Form L300, and submit it to their regional excise office at least 30 days before the expiry date. The applicant must check the box "Renewal" on the form to indicate that the application relates to the renewal of an existing licence. The person must continue to meet the requirements of the Regulations as described in the section "Eligibility for a licence" of this notice.

More than one premises

A cannabis licence authorizes a person to carry out their activities at a single location or at several locations. Pursuant to subsection 2(1) of the Regulations, a person who submits an application for a cannabis licence and who has more than one business location must complete Form L300SCHA, Other Business Location(s), in which all the premises requiring authorization for the purposes of the licence is listed, and submit it with Form L300.

Financial security requirements

Pursuant to paragraph 23(3)(b) of the Act, every person that submits an application for a cannabis licence or the renewal of that licence must provide financial security in an amount determined in accordance with the Regulations and in a form and amount acceptable to the CRA. Financial security is a condition of licensing and must be posted before a licence is issued or renewed, and it must be maintained during the licensing period.

For new licence applicants, financial security only needs to be posted after a licence has been issued under the Cannabis Act by Health Canada. A licence under the Excise Act, 2001 will not be issued by the CRA until the applicable financial security has been posted.

Cannabis licensees that wish to renew their licence must provide any additional financial security that may be required with the application at the time that it is submitted to the CRA.

Amount of financial security required

As per paragraph 5(1)(b) of the Regulations, the amount of financial security must be sufficient to ensure payment of the total amount of all cannabis duty and additional cannabis duty payable indicated by the cannabis licensee for any calendar month. The minimum amount of financial security required is $5,000 and the maximum amount is 5 million dollars. The cannabis duty and, where applicable, additional cannabis duty payable refers to the net amount of duties indicated on the licensee's cannabis duty return after all deductions and refunds are claimed.

Subject to the minimum and maximum amounts, licence applicants who package cannabis products generally need to provide financial security as follows:

  • for a new cannabis licence application, financial security is calculated as:

[(estimated number of grams of dried cannabis that will be sold over the first 12 months × $1.00 per gram) + (estimated number of milligrams contained in the total THC of the edible cannabis, cannabis extracts including cannabis oil, and cannabis topicals that will be sold over the first 12 months × $0.01)] ÷ 12

  • for a renewal application, financial security is the highest amount of cannabis duty and, where applicable, additional cannabis duty payable for a calendar month in the previous 12 calendar months.

For licence applicants who will not be packaging cannabis products and will only be cultivating or producing cannabis products, the amount of financial security required is $5,000.

Anyone requiring assistance in determining the correct amount of security to be provided to the CRA may contact their regional excise office.

Example

A new cannabis licence applicant expects to sell approximately 1,000,000 grams of dried cannabis and will produce cannabis oil with a total THC of 1,000,000 milligrams that will all be packaged and sold in the 12 months after the licence is obtained. The financial security requirement is calculated as follows:

[(1,000,000 grams × $1.00 per gram of dried cannabis) + (1,000,000 milligrams contained in the total THC of the cannabis oil × $0.01 per milligram)] ÷ 12

The applicant would need to provide financial security in the amount of $84,167.

Maintenance of financial security

A cannabis licence issued under the Act remains in effect for a maximum period of 2 years, provided that it is not suspended or cancelled prior to expiration. Since the provision of adequate financial security is a condition of licensing, the licensee must ensure that the level of financial security provided remains sufficient for the term of the licence.

The cannabis licence of a licensee who fails to maintain a sufficient level of financial security may be suspended or cancelled and the renewal of the licence may be denied.

Increase in financial security required

A licensee who determines that the level of financial security has or may become inadequate must immediately contact their regional excise office to discuss the situation or to obtain assistance in determining the correct amount of financial security to be provided.

For licensees packaging cannabis products, if the amount of financial security provided by a licensee is reviewed and it is determined that additional financial security is required, the licensee must provide the additional security amount without delay.

Increase in financial security not required

Adjustments may not be required for minimal changes to the amount of financial security. If the CRA has reviewed the financial security requirements, a cannabis licensee may not be required to increase the amount of financial security if:

  • the amount of financial security required is $100,000 or less and the additional amount of financial security is less than 10% of that amount; or
  • the amount of financial security required exceeds $100,000 and the additional amount of financial security required does not exceed $10,000.

Decrease in the amount of security

If, at any time, a decrease in the total amount of financial security is warranted, the licensee may request in writing that the excess amount of security be returned. The excess amount of security will only be returned if:

  • the amount of financial security required is $100,000 or less and the excess amount of financial security is greater than 10% of that amount; or
  • the amount of financial security required exceeds $100,000 and the excess amount of financial security is greater than $10,000.

Acceptable forms of financial security

Pursuant to subsection 5(2) of the Regulations, financial security must be provided in Canadian funds in the form of cash, certified cheque, transferable bonds issued by the Government of Canada (non-certificated) or surety bonds issued by an approved entity.

For more information on the acceptable forms of financial security, refer to Excise Duty Memorandum EDM2-2-3, Government of Canada Bonds and Surety Bonds, and Excise Duty Memorandum EDM2-2-4, Approved Financial Institutions and Acceptable Bonding Companies.

Certification

An authorized person must sign the completed Form L300. If the applicant is a corporation or an association, or an organization that has duly elected or appointed officers, the authorized person is the president, vice-president, secretary or treasurer (or other equivalent officers). If the applicant is a sole proprietorship or partnership, the proprietor or a partner, respectively, must sign the application.

Registration for cannabis stamping regime

Subsection 158.03(1) of the Act provides that, on application, the CRA may issue cannabis excise stamps to a cannabis licensee. The purpose of the cannabis excise stamp is to indicate that cannabis duty and, where applicable, additional cannabis duty were paid on the cannabis products and that the cannabis products were produced for the legal market.

Any person packaging cannabis products subject to duty must be licensed and must register under the cannabis excise stamping regime by completing and submitting Form L301, Registration for the Cannabis Stamping Regime. For more information, see Excise Duty Notice EDN54, General Overview of the Cannabis Excise Stamps.

Authorized representative

A licensee may wish to authorize an individual (such as an accountant, a lawyer or an employee) or a firm as their representative for their excise duty program account. To authorize a representative to discuss their excise duty program accounts by telephone or mail, the licensee may complete and submit Form RC59, Business Consent for Offline Access. To authorize a representative for online access, the licensee must use the "Authorize a representative" service in My Business Account. A representative who wishes to request online access to a licensee's account information must follow the electronic authorization process at Represent a Client, on the Canada.ca website. For more information on the application process for an authorized representative, see the article "Changes to Form RC59 after May 15, 2017" in Excise and GST/HST News – No. 102 (July 2017).

Email notification

A licensee may provide their email address on Form L300 if they would like to register to receive any CRA mail online. To view CRA mail online, the licensee must be registered through My Business Account. If the licensee has a representative, then the representative must be registered under Represent a Client and be authorized on the licensee's account. All CRA mail available in My Business Account will be considered to have been received on the date that the email notification is sent. Any mail that is eligible for electronic delivery will no longer be printed and mailed.

Effect and duration of licence

Once a decision is made to issue a licence, the regional excise office will issue a cannabis licence approval letter, in which the following will be specified: the legal name of the entity that holds the licence, the complete mailing address, the premises authorized under the licence, and the effective and expiry dates of the licence.

The cannabis licence is effective from the date indicated on the licence approval letter and generally remains in effect until the expiry date indicated in that letter. According to section 4 of the Regulations, a licence issued under the Act remains in effect for a maximum period of 2 years, provided that it is not suspended or cancelled prior to expiration.

The CRA may amend, suspend, cancel or impose additional conditions on a cannabis licence at any time while it is in effect. For more information on the grounds for suspension or cancellation of a licence, see the section "Suspension or cancellation of a licence" in this notice.

Notification of changes

Pursuant to sections 6 of the Regulations, a licensee must notify their regional excise office, in writing, of any changes to their information without delay. Such changes may include:

  • a change of name, or legal entity;
  • the discontinuance of the operations covered by the licence;
  • a change in the list of premises;
  • a change in activities;
  • a change in any other information provided on, or in support of, the licence application, including officers and directors; or
  • a change to the address where the books and records are maintained

Name change

In the case of a name change, a cannabis licensee must notify their regional excise office in writing before the change occurs or as soon as possible after the change. No new cannabis licence or excise duty program account number (for example, 12345 6789 RD 0001) will be issued.

Change of legal entity

Where a change of legal entity occurs (for example, a proprietorship incorporates or a corporation merges with another corporation), the existing cannabis licence will be cancelled and the new legal entity will have to apply for a new licence by completing Form L300, and submitting it to their regional excise office. A copy of the new or revised certificate of incorporation or the certificate of amalgamation along with a replacement form of financial security must be sent with the form.

Facilities, personnel and equipment

Under section 13 of the Regulations, and as a condition of a licence under the Act, all licensees must provide the following at each premises listed in the licence:

  • adequate space for the examination of goods or records by a CRA officer;
  • the equipment and personnel necessary to ensure that the goods or records to be examined are made available to the CRA officer; and
  • the personnel necessary to provide information to a CRA officer, for audit purposes, with respect to the operations, inventory system and records of the licensee.

Refusal to issue or renew a licence

The decision to issue or renew a licence rests with the CRA. An application for a cannabis licence could be denied in any of the following circumstances, even if an appropriate licence has been granted by Health Canada:

  • the eligibility requirements are not satisfied;
  • there is reason to believe that access to the premises of the person will be denied or impeded by any person; or
  • it is not in the public interest to issue a licence.

A determination to not issue a licence would not prevent the submission of a subsequent application for a licence at any future point. An applicant could also apply to the Federal Court for a judicial review of the decision of the CRA to not issue a licence.

Suspension or cancellation of a licence

Under subsection 23(2) of the Act, a licence may be suspended or cancelled in certain circumstances.

A licensee could apply to the Federal Court for a judicial review of the decision of the CRA to suspend or cancel a licence.

Suspension

Reason

Under subsection 23(2.1) of the Act and pursuant to subsection 10(1) of the Regulations, a licence may be suspended if, at any time:

  • the licensee fails to notify the CRA of any changes to their licensing information as required by the legislation;
  • the licensee fails to provide at the premises adequate space, equipment and/or personnel required for the examination of goods and records by an officer;
  • access to the premises of the licensee is denied or impeded by any person;
  • the licensee fails to meet any of the conditions of the licence;
  • a licence or permit issued under subsection 62(1) of the Cannabis Act to the licensee is amended, suspended or cancelled; or
  • it is otherwise in the public interest for the licence to be suspended.

Notice of suspension and recourse

Under subsection 10(2) of the Regulations, if a licence is suspended, a written notice will immediately be sent by the CRA to the licensee to advise of the suspension and to provide the grounds for the suspension. When a licence has been suspended, it means that, from the date of suspension, the person can no longer carry on any activities under that licence until it is reinstated.

Pursuant to subsection 10(3) of the Regulations, a person who receives notice that their cannabis licence is suspended may, within 90 days from the date of suspension, make representations to the CRA regarding why the licence should be reinstated.

Reinstatement

When the grounds for the suspension of a licence no longer exist, the licence may be reinstated. When a licence is reinstated, the licensee is advised in writing by the CRA. Reinstatement means that the licensee will be permitted to carry on the activities from the date of reinstatement.

Cancellation

Reason

Under subsection 23(2.1) of the Act and pursuant to subsection 12(1) of the Regulations, a licence may be cancelled if, at any time:

  • the licensee requests in writing that the licence be cancelled;
  • a licence or permit issued under subsection 62(1) of the Cannabis Act to the licensee is amended, suspended or cancelled;
  • the licensee becomes bankrupt;
  • the licensee no longer meets the eligibility or any other requirements to possess the cannabis licence;
  • the licensee ceases to carry on the business or activities for which the licence was issued;
  • the licensee acts to defraud Her Majesty;
  • access to the premises of the licensee is denied or impeded by any person; or
  • it is otherwise in the public interest for the licence to be cancelled.

Notice of cancellation and recourse

Under subsection 12(2) of the Regulations, before a licence is cancelled, written notice is sent by the CRA to the licensee 90 days before the cancellation, along with all relevant information concerning the grounds for the cancellation. Written notice is not provided if the licensee requested that their licence be cancelled.

When a licence is cancelled, the licensee can no longer carry on any activities under that licence and the licensee can no longer possess stamped or unstamped cannabis products.

Pursuant to subsection 12(3) of the Regulations, a person who has received notice of the cancellation of their licence may, within 90 days from the date of the notice, make representations to the CRA regarding why the licence should not be cancelled.

The CRA will review the representations and confirm its decision in writing.

Upon cancellation of a licence, any financial security that has been posted by the licensee that is in excess of any liabilities of the licensee to pay cannabis duty or, where applicable, additional cannabis duty will be returned to the licensee.

Further information

For all technical publications related to the Excise Act, 2001 and its regulations, go to Excise duties technical information under the Excise Act, 2001.

To request an excise duty licence for cannabis products, contact your regional excise office. These offices are listed at Contact Information – Excise Duties, Excise Taxes, Fuel Charge and Air Travellers Security Charge.

For all enquiries on the application of excise duty to cannabis products, call 1-866-330-3304 (option 1) or send an email to cannabis@cra-arc.gc.ca.

To request a ruling or interpretation related to the application of excise duty to cannabis products, write to:

Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
Place de Ville Tower A 11th floor
320 Queen St
Ottawa ON  K1A 0L5

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