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DIRECT SELLING INDUSTRY: NFR? Not for Real?

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Canada is often viewed as a natural extension of the American direct selling ecosystem: it has a common dominant language, similar culture, convenient land border, and a market of over 38 million people!

While there are many similarities, there are still unique legal and regulatory features that direct selling businesses operating in Canada must be aware of and adapt to — all of which can be easily avoided with the right planning, structuring or advice. This includes the appropriate “Canadianization” of plan documents and overall business strategies.

In the second of a 5-part series, we review one of the major risk areas facing the Canadian direct selling industry:

Importing to Canada under “NFR” Structures

Background

Direct sellers of natural health products (“NHPs”) wanting to test the Canadian marketplace have long been relying on Health Canada’s Personal Importation Policy (the “Policy”).

Commonly referred to in the industry as the “not-for-resale” policy (or “NFR” for short), NFR can be properly structured and used to send NHPs into Canada on a non-commercial basis.

Unfortunately, NFR is not well understood, and often misused or incorrectly used, risking increased scrutiny from Health Canada, and potentially stoppages or seizures at the border at time of initial import.

Common Misunderstandings with NFR

Perhaps the most misunderstood part of NFR is that it can be used for commercial imports! The opposite is in fact correct: any commercialization of the process makes the import illegal! In fact the Policy requires that products be imported for “personal use” which precludes the “commercialization” of the import (e.g., Health Canada expects that the import will NOT be as a result of commercial sales efforts in the Canadian marketplace, like payment of Canadian distributors in respect of the sales or a common relationship with active Canadian subsidiaries, etc.)

A second common risk can be found in poorly structured NFR programs, which while well-intentioned, do not actually conform to the requirements needed to make them administratively acceptable.

Where NFR is used improperly, the first point of contact is usually the Canada Border Services Agency (“CBSA”), which has the power to stop, inspect and detain goods (even those imported on a ‘personal’ basis) at the Canadian border. CBSA will generally then refer the imported goods to Health Canada for further review, and Health Canada will then attempt to determine if the importation of the unlicensed NHPs is in contravention of Canada’s Food and Drugs Act (specifically subsection 4(1) of the Natural Health Products Regulations). Such a conclusion usually results in a seizure and detention of the goods, problems for the direct selling company, and a number of unhappy customers – all risks that are generally fully avoidable!  

Commentary

The key to risk avoidance in this area is relying on NFR appropriately and that usually means proper structuring!

Many common structures in the marketplace are really “unreal” structures, in the sense that they are clearly not legally compliant. While proper structuring does not require a rocket scientist, it will generally require someone that has an understanding of proper import structures, and commercial drafting.

Do you require assistance in this area?  If so, please click here.

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