The Not For Resale ("NFR") distribution entry model to the Canadian market is acutely misunderstood. This discussion will outline the top 3 NFR "myths", and explore potential legal risks multi-level marketing (“MLM”) businesses face.
NFR is a Canadian Importation Rule
Not For Resale is not an importation rule. It is actually an export rule. It is currently illegal to import certain products (such as Natural Health Products) from the United States, or elsewhere, and to "resell" them onto a third country without the proper governmental permissions. For example, without the proper licenses, it may be illegal to import a wellness product from the US to Canada, only to ship it off again to China.
Rather, the "personal use" exemption is the importation rule which allows businesses to ship certain products to Canada without licensing. The Personal Use Exemption however, comes with a variety of restrictions businesses should be aware of. For example, certain common dosages of vitamins, or even daily household ingredients found in your local country may be considered illegal in Canada. The personal use exemption rule is in no way a cure-all.
NFR means Canadian MLM laws do not apply to my company.
No. MLM laws may still apply to businesses even if a company uses an NFR/Personal Use Only model. In fact, if your business is found to be already operating an MLM in Canada, your business may not be able receive regulatory approval from the Competition Bureau. In other words, "operation may bar evaluation". Worse yet, if your business is found to be operating an MLM improperly, it could be found to be operating a Pyramid Scheme under section 55 of the Competition Act. Penalties include six figure fines, and potential imprisonment.
NFR means I can ship my products without licensing them.
Wrong. Certain products have mandatory licensing requirements. For example, Class II, III, IV medical devices, and certain natural health products always require licensing. In shipping products without a license, you may risk having your product either shipped back to you, or confiscated at the border. Other products, such as cosmetics, do not require a license, but may require a notification to the government.
As has been discussed, NFR is a highly misunderstood, and often misused concept. As such, direct sales businesses need to make sure they have proper legal guidance when expanding into the Canadian market. Otherwise MLMs may risk having their products confiscated, lose the ability to obtain a written opinion from the Competition Bureau, or worse yet, be found in contravention of Canada's pyramid scheme laws.
Originally published 30 June, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
