Canadian Underwriter

Growth Industry

March 1, 2017   by Alexis Moulton, Partner; and Nathaniel Brenneis, Student-at-Law, McLennan Ross LLP

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It is difficult to go a day without hearing news about the potential benefits and ramifications of Canada’s increasingly permissive marijuana laws. While medical marijuana has been legal for more than 15 years, the regulations that govern its use and distribution are still in flux.

The Canadian government has announced that it would begin the process of legalizing marijuana for recreational use later this year, but no one knows what this new legal regime will look like. This state of affairs has fostered a degree of uncertainty and the insurance industry has largely adopted a “wait and see” approach as a result.

What is not uncertain, however, is that use and access to marijuana is growing. In 2013, 40,000 Canadians had received approval to use medical marijuana under Health Canada’s regulations, notes the Final Report of the Task Force on Cannabis Legalization and Regulations, commissioned by Health Canada and released last November. However, that only captures a small fraction of the patient population. A Health Canada survey released in 2012 found that about 400,000 Canadians reported using cannabis for medical purposes in 2011.

Alexis Moulton, Partner, McLennan Ross LLP

Further, the impending legalization has many across the country excited over marijuana’s economic potential. The potential economic impact for legal marijuana in Canada (medicinal and recreational) could approach $23 billion a year.

A 2016 report prepared by Deloitte Touche Tohmatsu Limited notes this figure takes into account the people who are “likely to consume” marijuana as well as ancillary markets related to security, transportation, etc. Sales alone could reach as high as $8.7 billion annually, which is similar to sales numbers generated by wine, it adds.


One of the main issues at the moment, however, is determining how to best supply the drug to patients who need it. Health Canada currently authorizes specific producers to distribute dried marijuana, fresh marijuana and cannabis oil to eligible persons.

Nathaniel Brenneis, Student-at-Law, McLennan Ross LLP

As of February 25, 2017, Health Canada reports there were 38 licensed producers in Canada, the majority of which are located in Ontario. But what about patients who wish to grow their own marijuana plants?

On August 24, 2016, the federal government introduced the new Access to Cannabis for Medical Purposes Regulations (ACMPR), which changed how patients with prescriptions for medical marijuana access their medicine. Under these new regulations, in addition to being able to purchase through licensed producers, Canadians may also apply to, and register with, Health Canada to cultivate a limited amount of their own plants.

The patients may also designate another party to grow marijuana for them, as long as this third party does not have a drug offence on his or her record. How much marijuana patients can grow and store is based on their prescription, with every gram of dried marijuana prescribed translating into five indoor plants or two outdoor plants. Health Canada reports that the average prescription under the ACMPR is one to three grams per day.

A large part of the impetus behind the ACMPR is the Federal Court’s decision in 2016, Allard v. Crown, where it struck down Canada’s previous regulation, the

Marijuana for Medical Purposes Regulations (MMPR). The court held that the MMPR violated Canadian Charter of Rights and Freedoms rights by prohibiting the personal production of medical cannabis. It deemed the cost of accessing the drug from licensed distributors was not an affordable option for everyone and, thereby, restricted patients’ rights.


Unfortunately, not everyone is satisfied with the Federal Court’s decision in Allard. Residential housing providers and landlords are concerned that personal cultivation could affect their property values and insurance premiums. After all, there are instances where personal cultivation has caused significant property damage.

In one widely publicized instance from Coquitlam, British Columbia, a landlord claims she incurred $135,000 in repair costs as a result of a grow-op that was operating in the basement of her property without her knowledge. Media reports indicate the tenants had a personal production licence from Health Canada, but were abusing this authorization and were growing more than 400 plants for illicit sale.

This case falls directly in line with the widely held fear that growing marijuana can cause significant harm to one’s property. The specific concerns are numerous and include risks associated with mould, improper electrical installation and associated fire hazards, unchecked use of pesticides and fertilizers, and break-ins and thefts, all of which result in dangers to neighbouring residences and first-responders.

However, these worries are largely shaped by Canadians’ current experiences with large-scale, illegal grow-ops and not with the comparably modest cultivation efforts of patients with a legitimate need.

In either case, landlords with personal growers as tenants could begin to see their insurance premiums increase or be excluded from coverage when they disclose that marijuana is being cultivated on the premises. As reported by Go Public in February, an insurer is said to have cancelled coverage for a British Columbia land owner after he notified the insurer that his tenant had begun growing marijuana on his property. The tenant in question was properly registered with Health Canada and his cultivation did not supersede the limits of his prescription.

The concern is that housing providers may begin off-loading both the related expense and risk onto their patient-tenants. For example, tenants with grow operations could be required to carry extra insurance, including growth restrictions in their contracts or requiring regular inspections.

However, these types of landlord-imposed restrictions would contradict the purpose behind the ACMPR: ensuring the drug is accessible to those who need it.

The scope of this issue is larger than many might realize. Health Canada statistics from the Allard decision indicate that before the MMPR forbid patients from growing their own marijuana, the number of personal production licences across the country was soaring. The total number of licences more than tripled from 9,000 to more than 28,000 between 2011 and 2013.

Some believe these numbers could explode now that the ACMPR has come into force, and insurers must be prepared to navigate the consequences.

The federal government has described the ACMPR as an interim fix en route to legalization and it is possible that these landlord-tenant issues will disappear under a new legal regime.

Whatever the law eventually looks like, insurers will, in all likelihood, be called on to fill in the gaps.


Only the aforementioned 38 licensed producers can legally sell, distribute and insure medical marijuana, although they

are prohibited from opening storefronts. Nonetheless, there are hundreds of marijuana dispensaries operating across the country. Despite their prolificacy, these stores are technically still illegal and remain subject to periodic raids by police.

However, enthusiasm for these raids has begun to wane now that legalization is closer on the horizon, allowing many dispensaries to operate uninterrupted.

How will legalization affect these types of distributors? Although many provincial governments across Canada may be looking to corner the legalized market with a centralized, government monopoly akin to how most provinces and territories manage alcohol sales, there is a strong argument for the current private-enterprise model to continue under stricter regulations.

Regardless of the distribution model, it remains possible that commercial landlords will start seeing marijuana retailers as tenants as early as this winter. Indeed, it was recently announced that Shoppers Drug Mart, the largest pharmacy chain in the country, has applied for a licence to distribute medical marijuana.

What will these marijuana distributors’ insurance policies have to look like? To get a better idea, it may be helpful to examine the coverage that the still-illicit dispensaries are already paying for.

While dispensaries cannot insure any of their marijuana-containing products, there are some that have managed to secure coverage for their premises, security systems, equipment and liability.

The biggest obstacle to insuring dispensaries, however, remains the pervasive stigma against the drug and those who wish to sell it.

Dispensary tenants in commercial buildings are often forced by their landlords to pay increased premiums. Moreover, there are reported instances where some insurers have refused to cover buildings that have leased premises to a dispensary, even when the business has arranged for its own insurance.

While this attitude will change after marijuana is made legal, insurance providers cannot afford to delay for much longer.

The country’s nascent marijuana industry remains in a state of flux, but Canadian insurers should begin to prepare for a world where marijuana is legal and readily available. It is difficult to predict how it is all going to work, but consideration must be given to the unique needs and challenges that legalization will bring.

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