Canadian court hands Organigram partial win in ‘edible’ cannabis dispute

Health Canada breached its duty of procedural fairness when it decided that licensed producer Organigram Holdings’ lozenges should be classified as “edible” cannabis rather than extracts, a federal justice said in granting the company’s application for judicial review.

Justice Cecily Strickland kicked the decision back to Canada’s health department to review its initial decision and make a new determination involving the lozenges, known as Jolts.

Millions of dollars could be at stake in the outcome of the legal dispute, given that cannabis extracts are potentially a much more lucrative product than edibles under Health Canada’s classification system for ingestibles.

In an interview with MJBizDaily, Organigram CEO Beena Goldenberg said the decision is a “win” for the company, even though Health Canada might ultimately return the same decision.

“Our decision to seek a judicial review was unprecedented in the cannabis industry,” she said.

Still, the federal court did not address Organigram’s key assertion: Health Canada had treated the company unfairly by deciding Organigram needed to yank the lozenges from store shelves years after they were introduced into the market.

The justice also did not rule on the “reasonableness” of Health Canada’s initial decision.

Moncton, New Brunswick-based Organigram had asked the court to quash the Health Canada decision, saying the ruling effectively killed off the market for the products, which had become an increasingly popular segment of the struggling cannabis sector.

Historic decision

Still, Strickland’s decision is historic when it comes to the cannabis industry.

It was the first time a licensed producer applied for a judicial review of a decision made by Canada’s federal government.

Organigram originally launched Jolts in August 2021. Health Canada’s crackdown on extracts wasn’t evident until early 2023.

The distinction between a cannabis edible and extract has major implications for the marketability of those products in Canada.

That’s because any cannabis product classified as an “extract” has 100 times more allowable THC per package than a product classified as an “edible,” making it more appealing to some consumers.

Health Canada did not immediately respond to queries from MJBizDaily, so it’s unclear how long the regulator will take in making its redetermination.

“Essentially what she (the justice) is saying to Health Canada is they have to reissue the compliance letter, and you have to give Organigram the opportunity to respond to it, including the issues raised at the 11th hour,” Trina Fraser, a partner at Brazeau Seller Law in Ottawa, Ontario, who leads the firm’s cannabis practice, told MJBizDaily in a phone interview.

“And then you have to make the decision over again.

“Organigram went to the federal court with a plea that the minister’s decision was unreasonable. But. unfortunately, we didn’t get a decision on that issue.”

The ruling

Strickland said the Canadian government failed to give Organigram an adequate opportunity to respond to one of the key factors on which Health Canada relied when making its decision.

“When all of the circumstances of the case are taken into account, I find that there was a breach of procedural fairness arising from inadequate notice of Health Canada’s reliance on a factor contained in the Compliance Promotion Statement and, as a result, that Organigram was not afforded a meaningful opportunity to respond to that concern and thereby prejudiced in its ability to respond to that concern,” the justice noted in her decision.

According to Strickland, Health Canada made the key decision based in part on an internal document called the Classification Policy, which was not referenced in the federal agency’s decision involving the lozenges.

The Classification Policy focuses on the classification of ingestible cannabis products and is dated Sept. 8, 2022.

“The specific concerns raised in the notice of noncompliance are said to have been based on the classification factors of product representation, product format, and public perception or history of use,” Strickland wrote.

“These are the three factors set out in the Classification Policy, which appears to be an internal Health Canada document.”

However, the Classification Policy is not referenced in the notice of noncompliance provided to Organigram and other licensed producers.

Strickland also said the lack of notice and disclosure of Health Canada’s concerns arising from a fourth factor – the physical characteristics of the Jolts – “precluded Organigram from responding to concerns not previously raised in the notice of noncompliance.”

The justice added that Health Canada introduced the fourth factor in its decision – the product’s sensory and physical characteristics – but that was omitted from the notice of noncompliance sent to the company.

In effect, Strickland ruled that Organigram was not given an opportunity to respond to Health Canada’s objection to Jolts’ size and shape or suitability for sublingual use, which was one of the key reasons Health Canada rejected the lozenges being classified as an extract.

In her ruling, the justice “found no evidence in the record before me to support (Health Canada’s) inference that the size and shape of the Jolts may cause consumers to not follow the instructions for use.”

Organigram’s Goldenberg, for example, told MJBizDaily the instructions on the Jolts package “say to put it under your tongue or between your gum and cheek for sublingual absorption.”

Strickland also flagged Health Canada’s procedures.

“The process by which Health Canada assesses the classification of products, as submitted by producers, as either edible cannabis or cannabis extract, is relatively new and appears to have been in transition during the time leading up to the making of the decision,” she said.

“Health Canada should consider clearly identifying the policy(s) and procedures upon which it will rely in making determinations of noncompliance based on the classification of cannabis products and inform concerned parties concerned accordingly,” she suggested.

‘Action plan,’ if necessary 

For her part, Goldenberg called the decision a “win.”

“I think the verdict was a win for Organigram in that Health Canada was found to have procedural unfairness, they had brought other factors into their determination of Jolts as an ‘edible’ than what was in the original guidance to licensed producers in terms of product classification,” she said.

Goldenberg said the company plans to provide the agency with some relevant facts.

“For example,” she said, “one of the points Justice Strickland made was that Health Canada added a factor (in its final decision) of the physical size and shapes of the Jolts.”

Goldenberg contends Health Canada’s point of view was that, given the size and shape, the product doesn’t fit well under the tongue.

“But our product was designed specifically for that use (to fit under a tongue or between a gum and cheek),” she said.

“We have some new information to share with Health Canada. Maybe they might not consider it; maybe they will come to the same determination.

“But they have to go back and revisit it, and they have to provide us a chance to provide that information.”

What happens if Health Canada still renders the same decision?

“We’re assessing various options with respect to what we want to do with the future of Jolts, based on whatever Health Canada’s reconsideration is,” Goldenberg said.

“At this point, we don’t want to go down that path until the door is (fully) shut on what was a successful product.

“Depending on how quickly this reassessment happens, we will have an action plan in place.”

The justice’s decision is available here.

Source: https://mjbizdaily.com/canadian-court-hands-organigram-partial-win-in-edible-cannabis-dispute/