As food makers eye cannabis, many fear being sidelined by costly regulations

HIGHLIGHTS

1. Dozens of Canadian food companies are interested in cannabis edibles.
2. Traditional food products and edibles cannot be manufactured in the same building, according to Health Canada’s draft regulations. Some warn that this rule could be prohibitively costly for food makers.
3. Consultation period for draft regulations ends on Feb. 20. 

Shasha Shaun Navazesh, chief executive of Toronto organic bakery Shasha Bread Co., has been experimenting with cannabidiol-infused snacks for years. With a CBD prescription from his doctor, the 62-year-old baker makes infused goodies at home, which he says help with inflammation in his joints, particularly during the colder months.

When cannabis edibles become legal later this year, Mr. Navazesh will be one of dozens of food makers across the country angling to enter the market. Like many in the food industry, however, Mr. Navazesh is warning that the federal government’s proposed approach to regulating edibles will be costly for manufacturers, perhaps prohibitively so for traditional food and beverage companies eyeing the space. That could leave the legal edibles market to cannabis growers, many of whom have little experience with food safety and production, he said.

According to the draft regulations for edibles, concentrates and topicals, published by Health Canada in December, traditional food products and edibles cannot be manufactured in the same building. Even food companies with experience keeping segregated kitchens within a single building for allergenic purposes will be required to build or lease separate facilities to make cannabis products.

"What that regulation effectively does is double the capital cost and operating costs to traditional food operators who want to get into the space,” Mr. Navazesh said.

Having to lease a separate facility isn’t a make-or-break factor for Mr. Navazesh, who has launched a cannabis-focused spin-off called Norleaf Foods Inc. and applied for a cannabis processing licence from Health Canada. But along with tight proposed rules for packaging and dosing – only 10 milligrams of Tetrahydrocannabinol (THC) per edible package – and strict limits on advertising and health claims, the challenges are adding up, he said.

“As it looks today, it's not particularly appealing, and one has to really question the return on investment at the beginning,” said Michael Graydon, chief executive of Food & Consumer Products of Canada (FCPC), an industry association that represents food manufacturers. FCPC is one of a number of organizations taking part in online consultations on the proposed regulations, which Health Canada is conducting until Feb. 20.

There’s no shortage of interest in the product category, said Mr. Graydon. Dozens of Canadian food makers, from mom-and-pop bakeries to multinational manufacturers, have spent the past year experimenting with recipes or watching the development of the edibles market in U.S. states that have legalized recreational marijuana use, he said. But the proposed regulations have given many companies pause.

Family-friendly firms were already having to assess the potential impact that selling cannabis products would have on their existing brands, he said. "It's a real struggle for many organizations in regards to, do we want to be in this space or not? And what could the damage to our organization or the benefit to our organization be? So I think there's a lot of soul searching going on right now.”

Julia Kirouac, chief executive of Toronto-based snack company Nud Fud Inc., had anticipated selling CBD-infused products later this year as a extension of her superfood product line. The separate-building rule, however, is too much of a financial burden for her small company of seven employees, she said.

"It seems to me that food companies are only pursuing that if they already have the cannabis people behind them, to finance [their new facilities]. For small independents, absolutely it seems like it would be pretty much out of reach," Ms. Kirouac said.

Certainly, some food companies are teaming up with deep-pocketed licensed marijuana producers (LPs) to build kitchens on cultivation sites, already licensed to process cannabis. Healthy snack maker Neal Brothers Brands Inc., for instance, has partnered with Newstrike Brands Ltd.; boutique chocolate company Hummingbird Chocolate is setting up shop inside Canopy Growth Corp.’s Smith Falls, Ont., facility, itself a former Hershey’s factory.

Meanwhile, alcohol makers such as Molson Coors Brewing Co., Constellation Brands Inc. and Anheuser-Busch InBev SA/NV, are moving aggressively to develop cannabis beverages in partnership with large LPs.

“The beverage folks seem more confident and committed,” said Brian Sterling, a food industry consultant with SCS Consulting. “That may be because alcoholic beverage makers are accustomed to highly regulated situations and supply chains, and they have the distribution connections that help them be more comfortable with running with cannabis-infused drinks.”

Most food makers, however, are moving cautiously. And rather than joining up with cannabis firms, the majority are planning their own route to market, and applying for their own cannabis processing licenses, Mr. Graydon said.

One of the biggest issues is uncertainty around CBD. The non-intoxicating drug is currently regulated under the Cannabis Act, meaning it can only be sold as a prescription medicine, or through licensed online or brick-and-mortar recreational cannabis dispensaries. Companies like Nud Fud and Norleaf are hoping that it will be reclassified as a Natural Health Product, similar to vitamins, minerals or probiotics, allowing CBD-only products to be sold in grocery stores and pharmacies.

“If and when [CBD reclassification] happens, then we'll pursue that route. We play within the natural food space anyway, so that's already easy to kind of get into. But if that doesn't change, that's a problem," Ms. Kirouac said.

Health Canada has promised consultations on cannabinoid-based Natural Health Products. But this won’t happen until after the current round of consultation on edibles is finished, according to Health Canada spokesperson Tammy Jarbeau, and both the timing and outcome of any future discussion is far from clear.

Mr. Graydon expects there to be considerable lobbying efforts from the food-industry in the coming weeks, ahead of Health Canada’s Feb. 20 consultation deadline. But pushing back against the proposed regulations will be a challenge for companies that don’t want to appear overly-eager to sell new products at the expense of consumer safety.

"There’s opportunity for changes to a lot of this stuff, but I think they will hold the line on producing edibles in the same location as regular food,” said Cameron Prince, vice-president of regulatory affairs with food safety consulting firm The Acheson Group.

“The food economy is super important to Canada, and now that Canada … is known around the world as producing cannabis and leading the way, they just don’t want any risk of cannabinoids getting into regular food that’s being exported, because it would really damage our reputation internationally," Mr. Prince said.