On 5 September 2019, Professor John McMillan AO’s Final Report (Report) on the operation of the Narcotic Drugs Act 1967 (ND Act) was tabled in Parliament. Section 26A of the ND Act required the Minister to cause a review of the operation of the ND Act to be undertaken.
The Report contains 26 recommendations to the regulatory framework for the cultivation, production and manufacture of medicinal cannabis in Australia.
The review recognised the importance of streamlining the existing regulatory framework to reduce the red tape associated with this highly regulated (but fledgling) industry.
Australia is signatory to the international treaty known as United Nations Single Convention on Narcotic Drugs 1961 as amended by the 1972 Protocol (Single Convention) which was adopted in March 1961. The ND Act implements the Single Convention and establishes the regulatory framework to:
- to prevent the abuse and diversion of controlled narcotics; and
- to ensure that controlled narcotics are available for medicinal and research purposes within Australia.
Prior to 2016, cannabis was generally treated as an illegal narcotic in Commonwealth, State and Territory laws.
The ND Act was amended in February 2016 by the Narcotic Drugs Amendment Act 2016 (Cth) (Amendment Act). The Amendment Act established a national regime for cultivation and production of cannabis for medicinal and scientific purposes, and to facilitate scientific research. Importantly, the Amendment Act established a licensing and permit scheme to allow for cannabis supply for therapeutic purposes.
Currently the growth of this industry domestically is inhibited by the existing regulatory framework that limits patient access to medicinal cannabis and the high cost for treatment due to medicinal cannabis products not being subsidised under the Pharmaceutical Benefits Scheme. This has resulted in investment into the Australian industry being stunted compared to other more mature markets such as Canada, where medicinal cannabis has been legal since July 2001.
To fuel the industry, the Hon Greg Hunt MP, Minister for Health announced on 4 January 2018 that the Federal Government wanted Australia to become the largest exporter of medicinal cannabis in the world. This lead to the Federal Government releasing the Narcotic Drugs Amendment (Cannabis) Regulations 2018 (Cth) which permitted the export of medicinal cannabis products by amending the Narcotic Drugs Regulations 2016 (Cth).
This change focused both international and domestic interest on Australia as a potential global player in the medicinal cannabis market.
Despite this positive step, the existing regulatory framework impeded Australia's potential in this emerging industry.
Minister Hunt has accepted all 26 recommendations put forward by the Report.
Generally the recommendations aim to streamline the application processes and allow for flexibility in the administration of the legislative regime that governs the industry. Discussed below are some of the key recommendations that if implemented, will support growth in this burgeoning global market.
To remove any obstacles to the cultivation and sale of low-THC hemp products
There is a grey area in Australia surrounding whether Commonwealth laws (including the ND Act) apply to the cultivation and commercial sale of low-THC hemp products.
Hemp is a species of cannabis that has low concentrations of THC and therefore has no or low psychoactive effect and is therefore not regarded as a narcotic substance. The Australian hemp industry is however impacted by the current legislation.
The intent of the Single Convention was to limit access to narcotic drugs to only medical and scientific uses. The Single Convention actually declares that it does not apply to the cultivation of the cannabis plant exclusively for industrial or horticultural purposes.
However the ND Act definitions of the ‘cannabis plant’ results in Commonwealth laws applying to low-THC hemp products, despite this being contrary to the intention of the Single Convention.
The Report recommends that the Australian Government Department of Health continue to monitor and advise Government on options (if any) for altering the operation of the ND Act, consistently with the provisions of the Single Convention, to remove any unintended obstacles to the cultivation and commercial sale of low-THC hemp under State and Territory law.1
To establish a single licence structure for medicinal cannabis
The current framework under the ND Act is structured so that 3 separate licences and their corresponding permits are required before a party can lawfully undertake cultivation, production, research and manufacture of medicinal cannabis. This multi-licensing structure is not a requirement of the Single Convention.
This process has placed an unnecessary and costly burden on applicants and licence holders as it involves separate applications, duplication of information and sometimes multiple requests for further information from different ODC staff processing the separate applications. It has also clearly placed significant burden on the ODC itself. The complex licensing and permit requirements can also lead to ambiguity as to which licence is actually required for a particular activity or which licence the holder is required to comply with given imposed conditions may overlap over the 3 separate licences.
The Report recommends that the ND Act be amended to establish a new licence structure applying to medicinal cannabis products, including for the issue of a single licence to authorise all or some of cultivation, production, manufacture and research of such products.2
To grant a maximum of five years for medicinal cannabis licences (with rights to renew)
In Australia the relevant legislation does not specify the maximum allowable licence or permit term. However the Office of Drug Control (ODC) in the past was only prepared to grant licences for a period of no more than a year but recently that period has been extended but only up to 3 years.
Further the legislation does not have a mechanism to renew licences or permits. The only current options available to holders to "extend" the term of a licence or permit are:
- by lodging a fresh application, which is impracticable, costly and commercially unpalatable; or
- by applying to vary the licence or permit, with no guarantee that the ODC would agree to such extension.
While this may not be an issue for small medicinal cannabis ventures where investment is usually for a short term, this is a real deterrent for potential investors to commit large amounts of capital into a project that could only have a maximum term of 3 years to generate a sufficient commercial return.
The Report’s recommendations include that the ND Act be amended to provide:
- a medicinal cannabis licence, cannabis research licence or manufacture licence applying to cannabis products shall be granted for a maximum term of five years; and
- a licence holder may apply for renewal of the licence at the expiration of the licence term, in accordance with the Narcotic Drugs Regulation 20163.
In our view, this Report’s recommendations still do not address investor’s concerns given the short licence term. A critical issue for financial institutions and private equity is the long term viability of the business to continue to generate revenue from the medicinal cannabis facility, and an integral requirement is the longevity of the mandatory approvals.
In our view, finance will be difficult (if not impossible) to obtain for large scale export operations given the short duration of both the current and recommended maximum period for medicinal cannabis licences.
The Report notes that a regulator of medicinal cannabis licences must be satisfied that the licensee meets the high standards required by the ND Act to mitigate the risks of criminal diversion and infiltration. The Report suggests that a re-licensing or renewal process can trigger a reassessment of whether a licensee is fit and proper to continue to hold a licence.
We question whether this concern can be addressed by a regular audit and reporting process, similar to how the casino and liquor licence industry is regulated to ensure the suitability of licence holders.
If Australia’s aspiration to become the world’s largest exporter of medicinal cannabis is to be realised, then a further review of the licence regime is required.