Lexpert Magazine

LEXPERT MAGAZINE | JUNE 2018 59 | CANNABIS BUSINESS | difficult proposition, especially for new entrants. According to a client bulletin is- sued by Blake, Cassels & Graydon LLP, cannabis companies have "begun to slowly pivot away from dilutive equity financing in search for debt financing to fund their growth." Credit unions, debt funds, equip- ment financiers and private lenders, Blakes says, have "increasingly been looking at and lending to cannabis companies." As McMillan's Munro sees it, however, the large banks will eventually come on- side. "Cannabis isn't just a garage industry anymore," he says. "We're talking about sophisticated issuers with sophisticated products who will increasingly attract ma- jor players." At the other end of the capital markets spectrum, M&A in the cannabis industry has already impacted Canadian jurispru- dence. Aurora's hostile bid to take over CanniMed erapeutics Inc. marked the first time securities regulators have considered the use of a shareholder rights plan to impose restrictions on a hostile bidder in the context of new take-over bid rules adopted in 2016. In December 2017, the Financial and Consumer Af- fairs Authority of Saskatchewan and the Ontario Securities Commission cease traded CanniMed's defensive rights plan and, in reasons released in March, provid- ed important guidance on the application of the new rules. "ere's something po- etic in the fact that a brand new industry represented the first test of brand new bid rules," says Osler's Watts. Barely one month aer the regulators' ruling, the parties struck a $C1.1 billion deal for Aurora to buy CanniMed in the largest M&A transaction to occur in the industry to date. It superseded by far the previous leader, Canopy's friendly $430 million purchase of Mettrum Health Corp. in 2016, and followed by mere weeks Aphria's $230 million acquisition of BC- based Broken Coast Cannabis Inc. On the listing and financing front, inde- pendent underwriters, many of them well versed in the junior resource industries, un- derwrote WeedInc.'s $34.5 million offer- ing earlier this year and Delta 9 Cannabis $23 million financing. Equity deals totaled over $700 million in the cannabis sector in January alone. Many lawyers also believe a wave of con- solidation that will fuel the M&A is inevi- table. "On the positive side, there are going to be people joining forces for synergistic reasons," Dhillon says. "And on the nega- tive side, there will be companies picked up cheap because they haven't executed well." From an operational perspective, the legalization of marijuana could have a pro- found impact on the Canadian workplace. "e legalization of marijuana will cre- ate a societal shi in perspective that will destigmatize its use and make things very interesting," says say Loretta Bouwmeester, who practises labour and employment law in Mathews Dinsdale & Clark LLP's Cal- gary office. Interesting, indeed. e 2017 Cana- dian Cannabis Survey, conducted by DriverCheck, an Ontario-based provider of workplace medical testing and assess- ment, showed that 23 per cent of workers use cannabis, 39 per cent have driven under the drug's influence, an equal number have been passengers in cars with drivers under the influence, 21.4 per cent used cannabis to get high before or at work, and 7.7 per cent did that weekly or daily. Otherwise, DriverCheck statistics show that 10.2 percent of roadside alcohol and drug tests conducted in 2014 in Ontario were positive for drug use — and 70 per- cent of the time the drug was cannabis. As well, 36 per cent of licensed commercial drivers involved in fatal accidents tested positive for drugs, with cannabis again the culprit 70 per cent of the time. "e Colo- rado experience suggests that we can expect a significant increase in overall use follow- ing legalization," Bouwmeester says. Just how endemic the workplace prob- lem is already appears from media reports in January 2018 that two Toronto police officers were suspended aer getting so high that they began hallucinating during a raid on a weed dispensary. ey did call for backup, but one of them experienced pot paranoia when more officers arrived, and immediately ran off. Although there's no doubt that cannabis can be an impairing agent, by causing eu- phoria, relaxation, time distortion, difficul- ty with divided attention, and impacting cognition and memory, accepted thresh- olds for measuring impairment are sadly lacking. "Legalization is arriving without proper tools to address the safety implica- tions," Bouwmeester says. Despite the fact that there are no tests of impairment, but only of recent use and likely impairment, employers will have to develop clear policies regarding their expectations for the duty of fitness. Addi- tionally, the extent of employers' duty to ac- commodate employers has yet to be delin- eated in the context of medical marijuana users. Overall, the rules for the workplace environment remain hazy; as long as they do, workplace law practitioners are likely to be in considerable demand. Meanwhile, lawyers advising the indus- try and its advertisers and marketers will have to find ways to cope with strict adver- tising, branding and packaging rules that render creativity a serious challenge. With more than 2,000 trademark applications and registrations covering "cannabis" or "marijuana" in the Canadian Trademarks Database, a comprehensive brand protec- tion strategy seems likely to be a condition of success in the industry. But that strategy is subject to various statutory limitations, including requirements to display graphic health warnings, adherence to standard- ized lettering, restrictions on the use of colour and "brand elements", and prohibi- tion of celebrity endorsement and con- sumer testimonials. Given these limitations, it's likely that IP lawyers will be busy protecting their cannabis clients with the tools that are at their disposal. ese include enforce- ment of plant breeders' rights, trade se- cret protections, and patents for inven- tions related to cannabis (although the plants themselves are not patentable in Canada). Otherwise, while the Tobacco Act contains many similar prohibitions on promotion, lawyers will undoubtedly seek to test the applicability of existing jurisprudence to the new legislation by way of endeavouring to give their clients the greatest latitude possible. What is certain is that lawyers of all ilks who are involved in the cannabis indus- try, will notice that the environment has changed noticeably. "For the last few years, the business community has viewed canna- bis as an industry seated at the kids' bench," Dhillon says. "But now it's sitting right at the head of the big boys' table." Julius Melnitzer is a legal affairs journalist in Toronto.

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