Daniel Chitiz and Alastair McNish: Ontario tobacco farmers facing a new regulatory regime

March 23, 2015

New Regulatory Regime for Raw Leaf Tobacco Farmers in 2015

2015 is the first year of a new system for regulating the Ontario tobacco industry.   The Ontario Ministry of Finance is now responsible for overseeing all aspects of the tobacco supply chain – from planting through to sales and export.  Tobacco farmers need to familiarize themselves with the new rules, regulations and procedures imposed by the Ministry of Finance as a result of amendments to the Tobacco Tax Act.

What’s New

Those involved in any part of raw leaf tobacco production and sale must now register with the Ministry of Finance and apply for a certificate to be permitted to carry out the activity (or activities) in which they are engaged.  Activities covered under the new rules include production, processing, selling and buying, importing and exporting, and transporting raw leaf tobacco.  Applications for producer certificates must be made annually, at least 30 days before the intended first planting date. 

There are monetary penalties for engaging in raw leaf tobacco activities without having the proper registration certificate in place.  These penalties can be substantial – up to $20,000 for repeat offenders.  The Ministry also has the power to deny, suspend or cancel a farmer’s registration as a tobacco producer.

The process of challenging decisions that affect tobacco farmers has also changed.  Under the previous regime, tobacco producers were regulated by the Ontario Flue-Cured Tobacco Growers’ Marketing Board, a “local board”, given authority under the Farm Products Marketing Act(which legislation applies to many other farmers in Ontario).  Tobacco farmers seeking a review of a board decision had a right of appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal.

Under the amendments to the Tobacco Tax Act, in certain circumstances the Ministry of Finance will hold a “show cause” hearing, where the farmer affected is given an opportunity to explain why a Ministry decision should be reversed.  The Ministry has not yet published a written procedure to be followed for these show cause hearings, as it has in other cases, such as tobacco retailers seeking to challenge a Ministry decision to prohibit sales of tobacco products.  In the case of a seizure of tobacco being sold or transported without applicable registration certificates in place, the Tobacco Tax Act allows affected parties to go to court to determine their rights.  An application to court may also be made where there is a dispute over the interpretation of a provision of the Tobacco Tax Actor its regulations and the Minister of Finance agrees that the dispute is a matter of public interest.

What’s Not New

For tobacco farmers, the rules introduced by the Tobacco Board over the past two years will have prepared them somewhat for the new regime.  With the production certificate application, farmers must state their planned production for the season and provide evidence that they have a contract with a purchaser that accounts for their entire anticipated tobacco crop.  By June 30th, they must confirm the acreage planted and identify their growing and storage locations.   Inspections by provincial tobacco inspectors will continue as in 2014.

In some respects the new system is less onerous than what the Tobacco Board had in place last year.  For instance, the labelling requirement for baled tobacco – each bale of tobacco had to be labelled with information about the grower and purchaser as soon as it was baled – is not part of the Ministry of Finance regulations.  With respect to acreage confirmation, the Tobacco Board’s practice of accurately confirming planted acreage by GPS measurement is also not part of the new rules.

Growing pains to be expected

The Ministry of Finance was already responsible for regulating the production and sale of cigarettes, cigars and other tobacco products.  It took over responsibility for regulating raw leaf tobacco following the passage of Bill 186 – Supporting Smoke-Free Ontario by Reducing Contrab and Tobacco Act.   As its name suggests, the new laws are intended to curb the production and sale of illegal tobacco through greater provincial oversight.

As a result, tobacco farming has effectively been taken out of the regulatory environment that other Ontario farmers operate in, and into a new regime managed exclusively by the Ministry of Finance.  Tobacco farmers can expect there will be some growing pains, as the Ministry of Finance begins to implement its own procedures and gets a better handle on what is needed to reduce the risk that raw leaf tobacco is diverted into the black market.

While the Ministry of Finance has published several bulletins and guidelines on itswebsitewhich generally outline the new rules and regulations, tobacco farmers looking to navigate their way through the new regulations may want to consult legal counsel to assist them.

 

* A version of this article was featured in the Tuesday, March 17, 2015edition of Ontario Farmer. 

Alastair McNish, Daniel Chitiz, Litigation, Litigation News