Bank Act
The Bank Act gives scheduled banks the right to take security interests in farm assets, crops and other agricultural products in exchange for the extension of credit. When a borrower makes a grant of security under the Bank Act, title to the pledged asset is deemed to transfer to the lender. As a result, unique issues arise where Bank Act security is taken in respect of an agriculture product that is also a controlled substance, such as cannabis. Accepting a security interest in cannabis may result in the lender holding title to a controlled substance and may increase the risk of exposure to possible regulatory or criminal liability. That being said, the decision as to whether or not to take Bank Act security will involve a balancing of the limitations of existing Personal Property Security Act (PPSA) security as against the legal and reputational risk of taking a grant of Bank Act security. Where cannabis may constitute all or part of the collateral securing a loan, it is important for lenders to consult counsel in order to design an appropriate security package to limit exposure and maximize coverage.
Licences
There is considerable uncertainty across Canada as to whether a licensed producer can grant, and a creditor can take, a security interest in a producer’s licence, as courts have not yet had the opportunity to determine whether a producer’s licence is an "intangible" for the purposes of the respective provincial PPSAs. However, the uncertainty over whether a producer’s licence constitutes "intangible" property for the purposes of the respective PPSA should not affect the nature of the security documentation. In a properly drafted security document, a typical grant of a security interest from a borrower will attach to all of its present and after-acquired assets, property and undertakings. It is also typically subject to the usual carve-out for restricted assets. As a result, where a producer’s licence is capable of being charged, it will be. If not, then a lender should consult counsel to ensure that the security package provides for secondary or overlapping coverage.
