Australia: Medicinal cannabis - cultivation, production, and manufacture

IN BRIEF - MARKET ENTRANTS MUST APPLY FOR RELEVANT LICENCE AND PERMITS

In February 2016, amendments to the Narcotic Drugs Act 1967 (Cth) (ND Act) and the Therapeutic Goods Act 1989 (Cth) (TG Act) provided for the heavily regulated cultivation, production and manufacture of cannabis in Australia from 29 October 2016, subject to state approval. The new legislative framework will open up potential commercial opportunities in the new cannabis production industry. However, the complexity of the framework presents various difficulties for parties looking to enter this new industry.

This is the first article in our two part series on the regulatory framework surrounding medicinal cannabis in Australia. Our second article about access and distribution will feature in next month's CBP Focus.

This article seeks to explain the regulatory framework as it applies to market entrants.

MEDICINAL CANNABIS INDUSTRY KEY TERMS

  1. Cannabis: (marijuana) the plant of the genus Cannabis.
  2. Medicinal Cannabis: cannabis products prescribed to relieve the symptoms of a medical condition.
  3. Cannabinoids: the components contained within the cannabis plant that produce pharmacological effects.
  4. Cannabidiol: (CBD) a non-psychoactive cannabinoid that appears to have positive effects on patients.
  5. Tetrahydrocannabinol: (THC) the principal psychoactive cannabinoid of cannabis.
  6. Industrial Cannabis: (Hemp) cannabis with a THC level of no more than 1%, primarily used for fibre and oil.
  7. Cultivation: growing the cannabis plant.
  8. Production: harvesting the cannabis plant.
  9. Manufacture: extracting active ingredients from the cannabis plant, and creating medicine in its dosage form.

NARCOTIC DRUGS ACT ENABLES AUSTRALIA TO MEET ITS UN NARCOTICS CONVENTION OBLIGATIONS

Australia is a signatory to the United Nations' Single Convention on Narcotic Drugs, 1961 (Convention), an international treaty to prohibit production and supply of narcotic drugs except for specific purposes such as medical treatment and research.

The Convention stipulates that supply of relevant substances must meet demand. The Convention is governed by the UN's International Narcotics Control Board which monitors the global production, distribution and use of all legally produced substances named in the Convention; including cannabis.

The ND Act enables Australia to meet its obligations under the Convention. Particularly, to ensure that domestic levels of narcotic drugs manufactured do not exceed domestic medicinal and scientific demand. Prior to the recent legislative amendments, cultivation and production of cannabis (other than industrial hemp) in Australia was illegal.

Recent changes in state legislation (as a result of changing public perception) have meant that consumption of medicinal cannabis is now legal in some states. The recent legislative amendments are a response to these changes, and an effort to provide a sustainable source of medicinal cannabis in Australia.

COMMONWEALTH CONTROLS REGULATION OF CANNABIS PRODUCTION AND CULTIVATION, JOINTLY RESPONSIBLE WITH STATES FOR MANUFACTURE

The TG Act is a federal law administered by the Therapeutic Goods Administration (TGA), part of the Commonwealth Department of Health. The ND Act is also a federal law and is administered by the Office of Drug Control (ODC), a new body established under the framework within the Commonwealth Department of Health.

The Commonwealth, through the TGA and ODC, controls all regulatory aspects of the production and cultivation of cannabis. Manufacture is a joint responsibility between the TGA, the ODC, and the states.

CULTIVATION AND PRODUCTION OF MEDICINAL CANNABIS REQUIRES LICENCE AND PERMIT FROM OFFICE OF DRUG CONTROL

The ND Act provides that before cultivating or producing cannabis, a person must have a licence and a permit from the ODC to do so. The TGA and the states have no control over the cultivation or production of cannabis.

Licences are either:

  • medicinal cannabis licences (for the cultivation and production of cannabis and cannabis resin for medicinal purposes), or
  • cannabis research licences (for the cultivation or production of cannabis for research related to the medicinal use of cannabis)

Licences must be obtained for the person undertaking the cultivating or producting, whereas permits must be obtained for each specific activity undertaken.

CANNABIS RESEARCH LICENCE REQUIREMENTS

To obtain a cannabis research licence, an applicant must explain to the ODC the purpose of the research and how it relates to medicinal cannabis or medicinal cannabis products. The applicant must be a fit and proper person and the growing location, facilities and security must be appropriate and sufficient.

MEDICINAL CANNABIS LICENCE REQUIREMENTS

A medicinal cannabis licence will not be granted unless the cultivation or production of cannabis is for supply to a person licensed to produce cannabis or licensed to manufacture medicinal cannabis products. It is understood that, in practice, the applicant must demonstrate that they are known to the producer or manufacturer and that the producer or manufacturer is willing to enter into a contract for the supply of cannabis raw material.

To obtain a medicinal cannabis licence, the applicant must also satisfy the ODC that:

  • the applicant and each relevant business associate and employee is a fit and proper person
  • granting the licence would be consistent with Australia's obligations under the Convention
  • the growing location, facilities, and proposed security are suitable

MEDICINAL CANNABIS PERMIT APPLICATION AND OBLIGATIONS

A holder of a licence must apply for a permit in relation to the activities permitted by the licence before undertaking those activities. The ODC has a broad power to grant or refuse a permit.

The permit will specify such things as:

  • types and strains of cannabis plant cultivated
  • maximum size of crop and number of plants cultivated
  • maximum quantity of cannabis or resin produced and allowed in the holder's possession
  • period of cultivation and production
  • period for which the permit is in force

A licence holder must also:

  • inform its employees of the conditions imposed upon them
  • employ suitable staff, and
  • allow the ODC to monitor and inspect the cannabis or cannabis resin

MANUFACTURERS OF MEDICINAL CANNABIS MUST OBTAIN ALL NECESSARY MANUFACTURING LICENCES

To manufacture medicinal cannabis in Australia, a manufacturer must obtain all of the following licences:

  1. Manufacturing Licence under the ND Act

This licence pertains to the security and prevention of diversion in accordance with the Convention and is administered by the ODC. The number of licences granted will depend on the demonstrated demand.

  1. Manufacturing Licence under the TG Act

This licence ensures that the products produced are of an acceptable quality and is administered by the TGA. The manufacturer must adhere to the standard prescribed by the TGA in its Manufacturing principles for medicinal products (and refer to the TGA's Guidance on GMP compliance for the manufacture of medicinal cannabis for supply under 'approved access' provisions), and the World Health Organisation's guidelines on good agricultural and collection practices (GACP) for medicinal plants.

  1. Manufacturing Licence under the relevant states and territories legislation.

KEY ISSUES FOR MEDICINAL CANNABIS PRODUCTION MARKET ENTRANTS

Despite the new framework, the key issues that will continue to impact the viability of the industry include that:

  • the high cost of applying for and complying with the relevant licences and permits creates a financial barrier to entrants
  • the requirement to prove demand before supply provides an additional administrative hurdle which is difficult to accurately prove, and
  • the high security measures required result in high production costs and may restrict the market to large pharmaceutical companies who can afford such measures

Jon Meadmore
Corporate advisory
Colin Biggers & Paisley

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.

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Authors
Melanie Williamson
Harriette Watson
 
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