Legal cannabis is the fastest growing industry in the world, with the USA and Canada already reaping billions of dollars in economic activity per year
From 2014 to 2016, growth of the cannabis industry in North America was an eye-watering 34% a year according to ArcView Group, with the US industry already responsible for more than 120,000 full-time jobs in 2016.
In the last few years medicinal cannabis has been legalised in Chile, Brazil, Mexico, Germany, Switzerland, Ireland, South Africa and Australia. These countries have joined established medicinal cannabis markets including Israel, the Netherlands and Switzerland.
But North American revenues have been largely generated from high-volume, low price retail cannabis and the infrastructure that goes along with the dispensary model popular in the USA. In Israel, the Netherlands and Canada, most medicinal cannabis is accessed through a direct link between the provider and the patient, and in Australia medicinal cannabis is being distributed through the existing pharmacy and hospital systems. This means the size, growth rate, and composition of Australia’s medicinal cannabis industry will be substantially different, with some diverse and unique features and opportunities.
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Although licenses for cultivation and manufacture are granted in Australia at the Federal level, patient access is mostly managed by the States, with the whole process involving several regulatory bodies with both integrated and overlapping powers and responsibilities. The main ones are:
The Therapeutic Goods Administration (TGA) – Federal
The TGA is a body within the Federal Department of Health that regulates medicines in Australia, similar to the US FDA. Among other things, it manages the Standard for the Uniform Scheduling of Medicines and Poisons (SUSMP), or the ‘Poisons Standard’, that classifies medicines into 10 categories with different levels of restriction. Cannabis and THC medicines are now in Schedule 8, and CBD is in Schedule 4:
|SUSMP Classification||Description||Medical Cannabis|
|Schedule 8||Controlled Drug – Substances which should be available for use but require restriction of manufacture, supply, distribution, possession and use to reduce abuse, misuse and physical or psychological dependence||Cannabis (except when separately specified in Schedule 4) and THC|
|Schedule 4||Prescription Only Medicine, or Prescription Animal Remedy – Substances, the use or supply of which should be by or on the order of persons permitted by State or Territory legislation to prescribe and should be available from a pharmacist on prescription||CBD|
This might seem straightforward, but Australian States also have Health Departments and their own powers to classify and regulate medicines. Usually they follow the Federal Poisons Standard, but this is not always the case, and has led to some confusion regarding medical cannabis. For example, Health House International imported a CBD oil with 1% THC earlier this year expecting it be classified as a Schedule 4. However, the Western Australian Health Department determined it to be schedule 8 under the SUSMP.
The TGA is also responsible for assessing new medicines. This requires the drug ‘sponsor’ to provide evidence that a medicine is safe and effective. This evaluation process can take over 10 months and cost the sponsor upwards of AUD$250,000. Once approved, a medicine is listed on the Australian Register of Therapeutic Goods (ARTG) and, depending on the Scheduling, can be bought at pharmacies, or accessed via prescription from a doctor or specialist.
Until a medicine is approved, it is considered ‘unregistered’ and can only be accessed through clinical trials or strictly controlled ‘special access’ schemes. This is where almost all cannabis medicines currently fit in Australia.
The Federal Office of Drug Control (ODC)
The ODC is another body within the Federal Department of Health that is responsible for managing the cultivation, production, manufacturing, import and export of medical cannabis in Australia, and reporting on controlled substances to the UN International Narcotics Control Board (INCB). The ODC issues medical cannabis cultivation licenses and permits, and oversees industry regulation at a Federal level.
The ODC sits at the very ‘top’ of the cannabis supply chain, and the cannabis medicines that are regulated by the TGA must come from companies that have either imported or manufactured medical cannabis with permission from the ODC.
There are extensive license requirements that have been designed to maintain Australian compliance with international drug treaties including strict rules regarding oversupply. As a licensed cultivator, before you can plant any crops, you need to submit a permit application requesting permission to grow a specific quantity of a specific strain. This must be accompanied by a signed contract with a licensed manufacturer that shows they will take full control of the plants after you have cultivated them.
The manufacturer needs to submit a corresponding permit application that shows they will turn your plants into a specific quantity of a particular medicine, and demonstrate those medicines are being created to satisfy a specific, unmet need.
This is why most medical cannabis companies in Australia are both vertically integrated (doing both cultivation and manufacture) and invest heavily into scientific R&D and clinical trials. Since 2015, Australia has become a hive of medical scientific activity, including large-scale clinical trials and numerous research programs at several universities including Sydney University, Melbourne University, RMIT, and Canberra University.
Health Departments – Australian States and Territories
Every State and Territory in Australia has their own Health Departments and drug scheduling schemes. Most have created additional layers of regulation and control specific to medical cannabis. This means that, although Australia’s system is substantially Federal, the State and Territory levels are still very important.
When a doctor requests permission to prescribe an unregistered cannabis medicine through the Special Access Scheme Category B pathway, they need both Federal and State Health Departments to approve the request. Depending on the regulations, this could mean that a request approved by the Federal level could be blocked by the State/Territory level or vice versa.
Some States/Territories have created their own cultivation and manufacture schemes so the State Government can provide medicines directly to patients. This is the case for children with intractable epilepsy in Victoria. Although this is the only patient group currently being assisted through the Victorian Office of Medical Cannabis, other patients in Victoria are still able to request access to cannabis medicines through the Federal ‘special access’ schemes.
The State leading the way in terms of patient access regulations is South Australia. Not only have they accurately mirrored the Federal scheduling of cannabis medicines, but they have made it easier to prescribe Schedule 8 medical cannabis under certain conditions.
Usually, to prescribe medical cannabis through the Special Access Scheme Category B process, permission must be granted by both Federal and State/Territory Health Departments. In South Australia, a State approval is not required for patients:
- aged 70 years or older
- who are Notified Palliative Care Patients
- who are not drug dependent, for regular use for a period of less than 2 months
A summary of the current State/Territory patient access regulations can be found here.
What does this mean for Australian industry?
Some industry analysts believe that Australia’s climate makes it an ideal country to grow medical cannabis for large-scale export. Others such as Ripple Capital’s Director Michael Katz claim a competitive advantage will come from ‘high-end pharmaceutical products and scientific research’. As with many greenfield industries, there are opportunities to enter the market at multiple points, including providing plant genetics to extraction IP, financial services to medical device development.
With such huge and diverse potential, will cannabis end up being Australia’s next growth engine? Early industry forecasts predicted the industry would be worth at least $100 million in the first year. And although none of the ASX-listed cannabis companies are yet to make substantial revenues in Australia, their combined market capitalizations are currently three to four times that number.
And that’s with Australian companies totally confined to domestic demand and patient access regulations. Cannabis exports are not yet allowed, although the ODC has started to seriously look at lifting that restriction. With the recent legalization of medical cannabis in Germany and Mexico, global exports will jump-start the Australian industry and allow local companies to access millions more patients in need of cannabis medicines.
Australia’s stringent drug regulations mean high-quality cannabis medicines will take a while to become more readily available. The ongoing medical scientific research being undertaken across the country will help speed that along. The key this industry will continue to be the education of health professionals, regulators and commercial operators. And as the evidence mounts, patient access will expand, and cannabis companies will start the long but valuable process of drug registration.