CmB magazine cmba-achc.ca spring 2017 | 49
compliance with the regulations," and has
stated that it expects "licensed producers of
marijuana for medical purposes will take
timely and appropriate corrective actions when
any issue of non-compliance… is brought to
their attention."
3
So in a nutshell, Canada has a system of
exempt home marijuana producers and a
growing number of commercial producers.
e challenge is that Canada's nascent
licensing framework for regulated grow ops
is quite clearly in its early stages. Mortgage
brokers, lenders, insurers and other industry
groups have complained that there is really
no compliance mechanism for the home
growers – no one is checking to ensure that
they are growing only their permitted number
of plants, or that their grow operations are
safe and do not cause harm to the interior of
homes, such as moisture and mould, which
can rampantly infest walls and other surfaces
and structures.
As a result, few mortgage lenders are willing
to take on the risk of having their security
seriously diminished in value by permitted but
unsupervised marijuana production.
Adding to this problem, is a lack of
standardized remediation measures which
are needed to ensure that a problem grow op
has been cured of its contamination issues. A
significant concern is that most stigmatized
properties which have previously been used
as grow ops, cannot be resold and added to
the housing stock without being cleared under
remediation standards. e lack of remediation
standards not only impacts the housing stocks,
but also presents an ongoing safety concern for
homeowners and the public at large, who may
be unwittingly exposed to contamination.
Now, as most of us already know, Prime
Minister Trudeau plans to introduce new
legislation in July of 2018 – the marijuana
industry will be further expanded by
permitting the growing and selling of cannabis
for recreational use, which will of course
mushroom the number of grow op homes in
Canada beyond any possible projections. We
expect there to be a new licensing regime for
marijuana dealers. So while this is good news
for anyone wanting to get into the marijuana
game, there will continue to be unresolved
risks and challenges in the mortgage industry
for the financing of grow op properties, at least
for the foreseeable future.
Below, legal analysts share their thoughts
on the proposed new legislation and the
challenges for legal marijuana businesses in
this new transition period.
1 www.hc-sc.gc.ca/dhp-mps/marihuana/info/licenced-
producer-producteurautorise/decision-r-v-smith-eng.
php
2 www.hc-sc.gc.ca/dhp-mps/marihuana/info/licenced-
producer-producteurautorise/decision-r-v-smith-eng.
php
3 www.hc-sc.gc.ca/dhp-mps/marihuana/info/list-eng.php
Few mortgage lenders are willing to take
on the risk of having their security seriously
diminished in value by permitted but
unsupervised marijuana production.
Despite the heightened risk of banking cannabis-
related businesses, the current legal landscape for
medicinal cannabis, and the expected regulatory
framework for legalized recreational cannabis provide
financial institutions with various controls to monitor and
legitimately bank cannabis-related clients. For instance,
the current licensing regime for medicinal cannabis
producers is comprehensive and requires that the
Canadian government complete extensive reviews and
background checks on each licensed producer. A similarly
comprehensive licensing regime is expected under the
new legislation to legalize recreational cannabis. Financial
institutions could rely on the government's stringent
vetting process to confirm the legitimacy of a cannabis
producer when onboarding a client.
Licensed medicinal cannabis producers are also
required to keep records of all cannabis-related activities
and inventories, as well as file ongoing monthly reports.
These monthly reports are very detailed and include,
among other things, the total amounts produced, the total
amount released for sale, the total amount received from
other licensed producers, and the total amount sold or
transferred to registered clients, other licensed producers
and licensed dealers. Under the proposed legislation
to legalize recreational cannabis, licensed dealers will
most likely be required to file similarly detailed monthly
reports. Financial institutions could rely on the information
in these reports to monitor a client's financial activity and
determine whether account transactions mirror expected
cannabis inventory and sales.
The decision to open, close or refuse any particular
cannabis-related account will ultimately be made by
each financial institution based on a number of factors
specific to that institution. However, the regulatory
regime for medicinal cannabis and the expected
framework for legalized recreational cannabis in Canada
can provide financial institutions with the means to
legitimately bank cannabis-related clients in a lawful and
rewarding way, meeting the growing financial needs of
the cannabis industry in Canada. ■
