There have been many successes and failures with legalization of
cannabis in Canada at every level. There have been companies that
thrived, a few that survived, and many that are no longer with us. The
system has created new channels of trade, many jobs, and innovative
products that many consumers want without any major concerns about
public safety. However, the system has also kept the door open for the
black market and the uncertainty and restrictive rules have been an
impediment to many who have entered it and a barrier to many more. These
rules include, but are not limited to, broad restrictions on the manner
in which cannabis and cannabis products may be marketed and advertised,
limitations on the channels through which companies may sell their
products in various jurisdictions, and the significant governmental
charges that are imposed on the sale of cannabis products that can make
margins razor thin.
With the cannabis industry moving to the next phase of its lifecycle,
many are now looking forward to the removal of other products from the
list of controlled substances. The most popular has been
psilocybin/psilocyn, more colloquially known as magic mushrooms. Novel
research is focused on the potential medical and health benefits that
may be linked to these active ingredients as well as certain
non-psychoactive components of the mushrooms. As a result, many
companies are developing products that they plan to market as having
utility as natural health products.
Given the federal governments reliance on tobacco regulations and the
controlled drug regime in developing the statutory regime that applies
to cultivation, marketing, and sale of cannabis, it is reasonable to ask
whether the approach taken with cannabis is a reasonable predictor of
how the next controlled substance will be treated as it moves towards
legalization. In our view, these questions may be premature. While the
appetite to legalize medical and recreational cannabis was present and
had long been strong in many segments of the population, it was still a
huge challenge to convince many decision-makers to take the first step
to decriminalize cannabis and a further leap to endorse legalization.
Regulation and Control
Arguably, the same impetus does not presently exist for products that
contain psilocybin/psilocyn despite the evidence coming out of various
research initiatives about the potential medical and health benefits of
psilocybin/psilocyn. Since the stigma attached to these substances is
still quite significant, it will be difficult to get the same
fence-sitters or doubters who ended up supporting cannabis to also
support the decriminalization or legalization of magic mushrooms. As
such, companies and investors looking at the magic mushroom industry
should familiarize themselves with the regulations as they exist now
with the expectation that they may not change in the near future.
Psilocybin and psilocyn are regulated as controlled substances, listed in Schedule 3 of the Controlled Drugs and Substances Act.[1]
Although the restrictions and penalties imposed for the improper use of
psilocybin are less significant than with respect to substances listed
in Schedules 1 or 2 (e.g., heroin, methamphetamines), there are still
burdensome regulatory requirements that apply to the use of psilocybin
for commercial and non-commercial purposes, including research and
development of new products and treatments using the substance. That
said, it is still possible to procure, use, and create products from
magic mushrooms, but one must do so within the confines of the
controlled substances regime in Canada.
Research and Clinical Purposes
The first step many companies are taking is collaborating with
universities and health care professionals to fund testing of psilocybin
or psilocyn either in a research setting or in preclinical or clinical
trials. To support this kind of work, the controlled substances legal
regime in Canada allows investigators affiliated with such institutions
to apply for an exemption from the restrictive regime to acquire
psilocybin or psilocyn for research or clinical purposes. This
exemption allows investigators to acquire, possess, and use the
controlled substances under strict conditions. Investigators are not
permitted to transport or sell the substances and must keep detailed
records regarding their possession and use of the substances. The
investigator and the institution involved in the research or other
initiative are jointly responsible for the security of the substances
and ensuring that the substances do not leave their control.
Licensed Activities
For many businesses, the objective is not research and development of
new products and treatments. Instead, these businesses focus on the
cultivation, manufacture, transport, import, export, or sale of
psilocybin and/or psilocyn within the confines of the legal regime in
Canada. Under the current statutory regime, parties may obtain a
dealer’s licence for certain controlled substances.[2] Psilocybin and psilocyn are both listed in schedules which permit the issuance of a dealer’s license under the Food and Drugs Regulations.[3]
Under these regulations, an individual or company can apply to be
allowed to produce, assemble, sell, provide, transport, send, deliver,
import, or export psilocybin or psilocin as a licensed dealer. As part
of this process, the applicant will need to appoint two key people who
will take responsibility over the operations. The first is a “senior
person in charge”[4]
who is responsible for management of the activities related to the
restricted drug. The senior person in charge is not mandated to have
any prerequisite qualifications. The applicant will also need to appoint
a “qualified person in charge”[5]
who is responsible for supervising the activities with respect to the
restricted drug and ensuring compliance with the law. The qualified
person in charge must meet all the qualifications set out in the
regulations.[6]
The applicant has the option to name an alternate qualified person,
given the critical nature of their role. The same person could fill both
roles as long as the prerequisites for the “qualified person in charge”
are met.
In addition, depending on the type of activity one wishes to conduct
with the restricted drug, specific information will need to be provided
to ensure that an application is eligible for approval. For example,
when applying for import or export licences, one will also need to apply
for a permit for each shipment going in or out of the country.[7]
This allows the government to continuously and consistently track every
gram of the restricted drug in the country. In connection with any
application, the government will conduct criminal background checks. If
the individual applying for a licence has a criminal conviction, it is
more likely than not that the individual’s application will be refused,
or dealer’s licence revoked.
It is important to note that once an applicant obtains a licence, the
activities that the licensee may engage in are limited to the strict
confines of the licence. For example, the parties to whom a licensed
dealer can sell to are limited to researchers and clinical testing sites
that have obtained an exemption described above or the Minster of
Health. However, these requirements are not at odds with the objective
of many companies to create a medical or therapeutic product based on
the restricted drug. The upside for these companies could be incredibly
high if their research leads to the development of an effective
pharmaceutical or marketable natural health product. Either way, in our
view, the regime that exists today with respect to the exploitation of
psilocybin and psilocyn is unlikely to change in the foreseeable future.
As a result, persons that are interested in entering the industry
should familiar themselves with the current restrictions and
requirements that apply to these substances. In our view, any notion
that magic mushrooms will be legalized for recreational use in the short
to medium term in Canada is premature.
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