How a Celebrity Cannabis Brand Gets a Health Canada Licence

What to take away

The licence belongs to the producer, not the name

Health Canada issues cannabis licences under the Cannabis Regulations, which are made under the Cannabis Act. The licence classes are cultivation (standard, micro and nursery subclasses), processing (standard and micro), analytical testing, research, sale for medical purposes, and cannabis drug. Sale for non-medical purposes is not a federal licence class; provinces authorise that retail.

The applicant is a legal entity, and the people in key positions must pass security clearance. A celebrity who only licenses a name is not the applicant. That is why many brand deals are contracts with an existing licence holder rather than new applications.

How the application runs

Applications are filed through Health Canada's online licensing system. The file includes a site plan, security measures, record-keeping procedures, the name and qualifications of the quality assurance person, and security clearance applications for officers, directors and controlling shareholders. Each clearance application carries identity documents and a criminal record check.

Health Canada reviews the package, asks for anything missing and may inspect the site before it issues a licence. Health Canada publishes service standards for licence applications; check the current figure on canada.ca. The actual time depends mostly on how complete the first submission is.

Three routes a celebrity actually takes

The deal types in celebrity brands show who carries the loss under each structure. The three cannabis routes below differ mainly on who holds the licence.

Endorsement and royalty deal. The celebrity licenses name, image and likeness to a licensed producer in return for a royalty on sales. The producer keeps the licence and the liability. This is the most common structure and usually the fastest to sign.

Minority equity stake. The celebrity takes shares or options in the producer, sometimes alongside a marketing agreement. Value depends on the licence, production capacity and provincial listings, not on follower counts.

Own entity, own application. The celebrity incorporates, applies in the company's name and carries the compliance duties directly. Security clearances and inspections apply to the company's key people, so this route asks the most of the individual.

As an example of the first route, Houseplant, the brand co-founded by Seth Rogen and Evan Goldberg, was launched in Canada with Canopy Growth. Other large licensed producers in Canada include Aurora Cannabis, Tilray and Cronos Group. Check the licence holder named on any product before assuming who carries compliance.

What the promotion rules restrict

Section 17 of the Cannabis Act is a general ban on promotion unless the Act allows it. Among the listed forms is promotion through a testimonial or endorsement, however it is shown or communicated. The same section bars content that could appeal to young people and lifestyle imagery such as glamour or risk.

The Act defines promotion broadly. For the wider US and Canadian picture on endorsements, see how the SEC treats celebrity endorsements and investment stakes, which covers a different regulator. Section 16 exempts some reports, commentary and certain artistic or educational works, but only where no consideration is given. A royalty is consideration, so a paid celebrity deal does not fall under that exemption.

Under section 17, a paid celebrity testimonial or endorsement is the form of promotion the ban names first. Any deal needs a legal review before a single post goes out.

Non-compliance has a direct consequence. Health Canada can suspend or revoke a licence for non-compliance, and a revoked licence ends the brand's sales. The celebrity has no licence of their own to fall back on unless they hold one.

Provincial retail rules change the deal

Licensing is federal. Retail and distribution are provincial. In Ontario, cannabis is sold through the Ontario Cannabis Store, a provincially controlled retailer, alongside private stores licensed by the Alcohol and Gaming Commission of Ontario. Alberta runs a private retail system regulated by the Alberta Gaming, Liquor and Cannabis Commission. Quebec sells through the Société québécoise du cannabis, and Manitoba's private stores are supplied through Manitoba Liquor & Lotteries.

Each province also sets listing or registration fees and packaging and display requirements. A brand that clears Health Canada can still be refused shelf space because a provincial buyer does not want the product. Check each province's listing rules before the royalty is priced.

Illustrative example: a royalty deal that stalled at the provincial stage

This example is illustrative, not a reported deal. A producer signs a celebrity for a royalty on net sales, budgets for a national launch and clears federal licensing. Two provinces then decline to list the product over packaging and display rules. Revenue lands at about half the forecast, the royalty is paid on actual net sales, and a guaranteed minimum becomes a cash problem for the producer.

A shortfall like this is a risk the contract should price, not a licensing rejection. Deals that hold up tend to set a guaranteed minimum the producer can afford at low volume, or set none. Licensing terms for the wider brand deal are covered in franchising and licensing questions.

The paperwork checklist

Costs in Canadian dollars

Federal licence fees are set by the Cannabis Fees Order. For a standard cultivation licence, the annual fee is the greater of 2.3 percent of cannabis revenue and $23,000, and the entry-year figure for a single standard cultivation licence is $23,000. For a micro-cultivation licence with revenue of $1 million or less, the annual fee is the greater of 1 percent of revenue and $2,500.

These amounts are indexed each April 1, so check the current consolidation of the Order on the Justice Laws website before budgeting. Application fees are also set in the Order; confirm them on Health Canada's cost-recovery page.

Security clearance costs and provincial listing fees are not set by one published schedule in this article. Ask each province and the clearance provider for written amounts before signing. Royalty terms are negotiated, and this article does not quote a rate from a named deal.

Common questions