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What were Ready to Build letters (“RTBs”)? In a nutshell, they amounted to a conditional MMPR production licence. In an affidavit filed by the government in Allard et al. v. Her Majesty, Health Canada employee Todd Cain explained:
“Other significant elements of Health Canada’s strategy for providing for reasonable access to a quality supply of dried marijuana for medical purposes included [p]roviding applicants with “Ready to Build” letters upon the completion of the paper review process, upon request. These letters advise applicants that if they complete their site build as described in their application, if the site is verified by a pre-licence inspection, and if security clearances are granted, the applicant’s licence may be issued. This letter is intended to provide applicants with documentation they may use to make necessary financial and other business-related arrangements.”
According to Cain’s affidavit, as of December 22, 2014, RTBs had been issued in 15 of 310 pending MMPR applications.
Although Cain’s affidavit uses the word “may” (i.e. “…the applicant’s licence may be issued”), I have seen RTBs which state that, subject to inspection and security clearance, a producer’s licence “will” be issued. So even though there were conditions attached, it’s not surprising that this unequivocal wording in RTBs created a form of currency in the MMPR industry. They gave applicants the comfort to proceed with the significant investment required to complete their build-out, and gave them an enhanced ability to raise the funds to do so. Applicants with a RTB in hand are also much more appealing acquisition targets.
So what has changed? Several months ago, Health Canada started informally telling MMPR applicants that RTBs would no longer be issued. When asked to confirm the status of RTBs, Health Canada representative Andria Sherstone recently verified this change, advising that “Health Canada is no longer issuing these letters”.
application
Health Canada MMPR Licensed Producer Application Processing Step Sheet
This doesn’t surprise me at all. In fact, what surprises me is that Health Canada was ever prepared to fetter its broad discretion under the MMPR by issuing these letters in the first place.
It remains to be seen how RTBs will be interpreted by the courts and to what extent Health Canada will be bound by them, but it looks like we will find out relatively soon. CEN Biotech Inc.’s judicial review application relies heavily on the fact that it was issued a RTB, alleging:
“The Minister failed to observe procedural fairness and the principles of natural justice in making her decision by failing to consider that her delegates represented to the Applicant, and the Applicant acted on the representations, that a license would be granted upon completion of the expedited build out and the completion of the pre-license inspection.”
Why did Health Canada stop issuing RTBs? Health Canada continues to ‘move the goal posts’ as it continues along the steep curve of learning how to effectively implement and manage the MMPR program. Those in the know understand that, although not publicly stated anywhere by Health Canada, applicants’ facilities are now required to achieve at least level 7 security (regardless of the security level mandated by the Directive on Physical Security Requirements for Controlled Substances), are now required to have a unique quality assurance person attached to their application (even though I was previously told that the same QA person could perform that role for multiple licensees) and are now required to present a ‘business plan’ outlining, among other things, how the applicant plans to acquire patients (without violating the prohibition on advertising its products to the general public). The fact is that Health Canada had to stop issuing RTBs because it was already in the position of having to ‘renege’ on them in order to require applicants with RTBs to comply with newly imposed requirements (I have seen this happen).
Without a RTB, how does an applicant find out that it has passed the review phase? Here is what Health Canada says will happen now:
“When Health Canada believes that an application is ready for a pre-license inspection during the review stage, the department will contact the applicant and identify the information that needs to be confirmed before a pre-license inspection can be scheduled. Health Canada will communicate with the applicant via email the status of their application, as well as the information that the applicant needs to confirm before a pre-license inspection can be scheduled. This includes, among other things, how the applicant has indicated in the application how they would comply with Division 3 (Security Measures) of the MMPR.”
What does this change mean for MMPR applicants? Without a doubt, this change will force applicants to revisit their business plans, many of which had contemplated a RTB as a trigger for build-out and/or a future round of financing. But at the end of the day, I don’t think that the death of RTBs really changes much. We have already seen that RTBs do not actually amount to any sort of guarantee that a licence will result.
Also remember that some time ago, Health Canada changed the sequence of its MMPR application processing steps. It will no longer commence its ‘in-depth review’ of an application until all required security clearances have been granted. The security clearance phase is currently the bottleneck in the application process for the majority of applicants. Confirmation that all required security clearances have been granted is really the point at which the level of risk attached to an application significantly drops. The issuance of a RTB thereafter wouldn’t lower the risk much more.
As confirmed by Cain’s affidavit, the vast majority of rejected applications are rejected prior to the in-depth review and pre-licence inspection phases. By that point, the application has been confirmed to be complete, the quality assurance person has been approved, and all security clearances have been obtained. The ‘in-depth review’ phase tends not to be a point of rejection, but rather an interactive process with Health Canada to scrutinize the applicant’s SOPs, security protocols and business plan. While there will inevitably be issues raised by Health Canada throughout the in-depth review and pre-licence inspection phases, they are typically not fatal in nature.
In order to limit its liability exposure, Health Canada also needs to be careful to issue rejections at the earliest possible juncture in the application process. The exposure to judicial review applications citing violations of procedural fairness and principles of natural justice will only increase when the licensing process is 18-24 months in duration (as estimated by Health Canada) instead of early MMPR days when some licences issued within 3 months.
Throughout this protracted licensing process, MMPR applicants have already learned that to be successful, they must be responsive, cooperative and most of all…patient! This is but one (more) small bump on the road.
trinaTrina Fraser is a partner with Ottawa business law firm BrazeauSeller.LLP. Her business law practice includes advising MMPR industry participants on regulatory issues.
braz
What were Ready to Build letters (“RTBs”)? In a nutshell, they amounted to a conditional MMPR production licence. In an affidavit filed by the government in Allard et al. v. Her Majesty, Health Canada employee Todd Cain explained:
“Other significant elements of Health Canada’s strategy for providing for reasonable access to a quality supply of dried marijuana for medical purposes included [p]roviding applicants with “Ready to Build” letters upon the completion of the paper review process, upon request. These letters advise applicants that if they complete their site build as described in their application, if the site is verified by a pre-licence inspection, and if security clearances are granted, the applicant’s licence may be issued. This letter is intended to provide applicants with documentation they may use to make necessary financial and other business-related arrangements.”
According to Cain’s affidavit, as of December 22, 2014, RTBs had been issued in 15 of 310 pending MMPR applications.
Although Cain’s affidavit uses the word “may” (i.e. “…the applicant’s licence may be issued”), I have seen RTBs which state that, subject to inspection and security clearance, a producer’s licence “will” be issued. So even though there were conditions attached, it’s not surprising that this unequivocal wording in RTBs created a form of currency in the MMPR industry. They gave applicants the comfort to proceed with the significant investment required to complete their build-out, and gave them an enhanced ability to raise the funds to do so. Applicants with a RTB in hand are also much more appealing acquisition targets.
So what has changed? Several months ago, Health Canada started informally telling MMPR applicants that RTBs would no longer be issued. When asked to confirm the status of RTBs, Health Canada representative Andria Sherstone recently verified this change, advising that “Health Canada is no longer issuing these letters”.
application
Health Canada MMPR Licensed Producer Application Processing Step Sheet
This doesn’t surprise me at all. In fact, what surprises me is that Health Canada was ever prepared to fetter its broad discretion under the MMPR by issuing these letters in the first place.
It remains to be seen how RTBs will be interpreted by the courts and to what extent Health Canada will be bound by them, but it looks like we will find out relatively soon. CEN Biotech Inc.’s judicial review application relies heavily on the fact that it was issued a RTB, alleging:
“The Minister failed to observe procedural fairness and the principles of natural justice in making her decision by failing to consider that her delegates represented to the Applicant, and the Applicant acted on the representations, that a license would be granted upon completion of the expedited build out and the completion of the pre-license inspection.”
Why did Health Canada stop issuing RTBs? Health Canada continues to ‘move the goal posts’ as it continues along the steep curve of learning how to effectively implement and manage the MMPR program. Those in the know understand that, although not publicly stated anywhere by Health Canada, applicants’ facilities are now required to achieve at least level 7 security (regardless of the security level mandated by the Directive on Physical Security Requirements for Controlled Substances), are now required to have a unique quality assurance person attached to their application (even though I was previously told that the same QA person could perform that role for multiple licensees) and are now required to present a ‘business plan’ outlining, among other things, how the applicant plans to acquire patients (without violating the prohibition on advertising its products to the general public). The fact is that Health Canada had to stop issuing RTBs because it was already in the position of having to ‘renege’ on them in order to require applicants with RTBs to comply with newly imposed requirements (I have seen this happen).
Without a RTB, how does an applicant find out that it has passed the review phase? Here is what Health Canada says will happen now:
“When Health Canada believes that an application is ready for a pre-license inspection during the review stage, the department will contact the applicant and identify the information that needs to be confirmed before a pre-license inspection can be scheduled. Health Canada will communicate with the applicant via email the status of their application, as well as the information that the applicant needs to confirm before a pre-license inspection can be scheduled. This includes, among other things, how the applicant has indicated in the application how they would comply with Division 3 (Security Measures) of the MMPR.”
What does this change mean for MMPR applicants? Without a doubt, this change will force applicants to revisit their business plans, many of which had contemplated a RTB as a trigger for build-out and/or a future round of financing. But at the end of the day, I don’t think that the death of RTBs really changes much. We have already seen that RTBs do not actually amount to any sort of guarantee that a licence will result.
Also remember that some time ago, Health Canada changed the sequence of its MMPR application processing steps. It will no longer commence its ‘in-depth review’ of an application until all required security clearances have been granted. The security clearance phase is currently the bottleneck in the application process for the majority of applicants. Confirmation that all required security clearances have been granted is really the point at which the level of risk attached to an application significantly drops. The issuance of a RTB thereafter wouldn’t lower the risk much more.
As confirmed by Cain’s affidavit, the vast majority of rejected applications are rejected prior to the in-depth review and pre-licence inspection phases. By that point, the application has been confirmed to be complete, the quality assurance person has been approved, and all security clearances have been obtained. The ‘in-depth review’ phase tends not to be a point of rejection, but rather an interactive process with Health Canada to scrutinize the applicant’s SOPs, security protocols and business plan. While there will inevitably be issues raised by Health Canada throughout the in-depth review and pre-licence inspection phases, they are typically not fatal in nature.
In order to limit its liability exposure, Health Canada also needs to be careful to issue rejections at the earliest possible juncture in the application process. The exposure to judicial review applications citing violations of procedural fairness and principles of natural justice will only increase when the licensing process is 18-24 months in duration (as estimated by Health Canada) instead of early MMPR days when some licences issued within 3 months.
Throughout this protracted licensing process, MMPR applicants have already learned that to be successful, they must be responsive, cooperative and most of all…patient! This is but one (more) small bump on the road.
trinaTrina Fraser is a partner with Ottawa business law firm BrazeauSeller.LLP. Her business law practice includes advising MMPR industry participants on regulatory issues.
braz
