6. Regulating supply

Introduction

  1. 6.1 There are several reform options available to the Victorian Government to supply eligible patients with medicinal cannabis, surveyed in the previous chapter. The supply option which best meets the Commission’s regulatory objectives is one in which cannabis is cultivated and manufactured under licence by private entities under regulatory arrangements that are based on those that apply to the cultivation of alkaloid poppies, the processing of poppy straw and the manufacture of therapeutic goods. This chapter details how this option could be put into effect.
  2. 6.2 New regulatory frameworks would need to be created. In the case of cultivation, a new framework would be required because cultivation of cannabis for medicinal purposes is currently not allowed. In the case of manufacture and product approval, a new framework would be needed because this activity is not presently regulated by the Victorian Government, but by the Commonwealth. Importantly, though, the scale of the new regulation required turns on what agreement is reached between Victoria and the Commonwealth, and the extent to which this results in a transfer of regulatory responsibility to Victoria.
  3. 6.3 Subject to the scope of collaboration between Victoria and the Commonwealth, the Commission has produced a model that incorporates all of the new regulatory frameworks into Victorian legislation. In doing so, it has sought to:
  • integrate legislative changes with existing provisions wherever possible
  • use familiar regulatory tools
  • impose the least regulatory burden necessary to achieve the scheme objectives
  • give flexibility to the regulator to manage risks
  • have regard to the requirements of the Single Convention on Narcotic Drugs 1961.

Nature of Commonwealth/state collaboration

  1. 6.4 As discussed in Chapter 4, for Victoria to enact laws giving effect to a legally stable medicinal cannabis scheme, collaboration with the Commonwealth should be pursued. This could take a number of different forms, but in each case would have the effect of removing medicinal cannabis from the Therapeutic Goods Act 1989 (Cth) and placing the regulation of medicinal cannabis with the Victorian Government.
  2. 6.5 The most efficient solution, in the Commission’s view, would be for the Commonwealth Minister for Health to determine that medicinal cannabis products of a specified kind would be more appropriately regulated under a Victorian scheme, by way of a declaration under section 7AA of the Therapeutic Goods Act.1 The effect of such action would be that medicinal cannabis products intended to be used therapeutically would be excluded from the application of the Therapeutic Goods Act and instead regulated under cannabis-specific Victorian laws. Only medicinal cannabis products manufactured in compliance with the Victorian scheme and approved for sale in Victoria would be included in such an arrangement.
  3. 6.6 Before making such a determination, the minister would need to have regard to (but is not limited to considering):2
  • the likelihood that, if not regulated under the Therapeutic Goods Act, the goods could cause harm to the public
  • whether it is appropriate to regulate the goods under the Therapeutic Goods Act
  • whether the risks posed by the goods would be dealt with more appropriately under another scheme.3
  1. 6.7 The purpose of affording the minister this power was intended to:

ensure the Therapeutic Goods Administration (TGA) is not involved in the regulation of products for which there is no public health focus or for which there may be sound public policy reasons for their not being regulated under the therapeutic goods legislation.4

  1. 6.8 If an exclusion determination were made in respect of Victorian-compliant cannabis products, the products covered by the determination would cease to be ‘therapeutic goods’ for the purposes of the Therapeutic Goods Act.5 Because other legislation relies on this definition, consequential amendments to avoid cannabis products being captured by other schemes would be needed.6
  2. 6.9 An alternative form of Commonwealth-state collaboration would be for the Commonwealth Health Minister to partially exempt certain medicinal cannabis products from portions of the Therapeutic Goods Act.7 In the Commission’s view, this option would not serve the regulatory objectives as well as a declaration that excluded Victorian medicinal cannabis products from the legislation entirely, and could lead to regulatory confusion.8
  3. 6.10 Whichever option is agreed on, Victoria would also need Commonwealth support in the form of licences and permissions for cultivators and manufacturers to operate under the Victorian scheme. First, the Commonwealth Health Minister would need to grant licences to Victorian-licensed manufacturers under section 9 of the Narcotic Drugs Act 1967.9 This would enable relevant entities in Victoria to manufacture cannabis products without contravening the prohibitions in the Narcotic Drugs Act. Second, Commonwealth assistance would be required to import cannabis seeds and/or plants for use by cultivators in starting their crops. An import permission would need to be granted by the Commonwealth Secretary of the Department of Health.10 In addition, an import permit would be required from a Director of Quarantine for the importation of cannabis seeds or live plants.11

Cultivation and manufacture

  1. 6.11 In considering how cultivation and manufacture should be regulated in Victoria, the following questions must be answered:
  • Who should be allowed to cultivate and manufacture cannabis products?
  • Who should be required to hold a licence and what form should licences take?
  • What regulatory tools should be used to uphold quality and ensure security, and who will be responsible for their enforcement?
  • How can the government ensure that the quantity of cannabis produced is appropriate to satisfy patient demand?
  • How should the cultivation and manufacturing scheme interact with the chosen distribution model?

Industry structure

  1. 6.12 Two options are available for the Victorian Government to structure the cannabis production industry:12
  • separate entities to cultivate cannabis plants and manufacture refined medicinal cannabis products
  • single entities to cultivate cannabis and convert it to refined products.
  1. 6.13 Each option has its advantages. In the case of separate cultivation and manufacture, the expertise necessary to cultivate cannabis is distinct from the expertise involved in making extracts,13 so that using separate companies may allow specialist expertise to be utilised more effectively. Separation also mitigates the risks associated with crop failure, although with cannabis grown indoors this may be less of a concern than in other industries.14 Some United States jurisdictions operate on a separate licensing model, most notably Colorado.15 It is possible that the benefits associated with separate cultivation and manufacture are only seen when the industry has reached quite a large scale, as is the case in Colorado.
  2. 6.14 Other jurisdictions which allow the production of refined cannabis products tend to regulate the industry on the basis that a single entity will both cultivate and refine cannabis.16 There are many benefits to doing so. There are fewer security concerns where cannabis does not have to be transported from a cultivator to a manufacturer. There are fewer entities for the authorities to oversee, reducing the cost of administering the scheme. More sophisticated research and development may be able to take place where the company controls both aspects of production. It may also be easier to regulate the quality of the finished product, as many features of cannabis quality control relate to cultivation conditions. The selection of licensees would also be simpler. Finally, cannabis for medicinal purposes tends to be grown indoors, and it may be inefficient to prevent a cultivator from incorporating a manufacturing section into their existing facility.
  3. 6.15 These and other factors that would influence a decision as to whether to keep the cultivation of cannabis plants separate from the manufacture of refined medicinal cannabis products, or whether a single entity should be able to be both a cultivator and manufacturer of medicinal cannabis, are discussed in more detail in the following sections.

Coordination of regulatory processes

  1. 6.16 Expertise associated with regulating alkaloid poppy cultivators, which could be employed in regulating the cultivation of cannabis, is concentrated in the Department of Economic Development, Jobs, Transport and Resources (DEDJTR). The supervision of the manufacture of medicinal cannabis products would more naturally be a function performed by the Department of Health and Human Services. However, the need to have separate licences, administered by different government agencies, does not mean that single entities could not perform both functions. It would simply mean that a single licensed cultivator and manufacturer would be subject to inspections from two different agencies in respect of different aspects of its commercial activity.

Comparison with alkaloid poppy industry

  1. 6.17 Although the Commission’s proposals draw from the regulatory mechanisms that are already in place for the alkaloid poppy industry,17 there are features of that industry that set it apart from the proposed cannabis industry and limit the extent to which the way its regulations can be replicated in a medicinal cannabis scheme.
  2. 6.18 The structure of the alkaloid poppy industry is premised on a different model of production from the proposed manufacture of cannabis. The end product of poppy cultivation is a set of pharmaceuticals—various opiates, all of which have been approved by the TGA. These products are manufactured by companies that hold manufacturing licences under the Therapeutic Goods Act. Separate licences for the cultivators are required, in part because cultivation is regulated by the Victorian Government while the regulation of manufacture is the responsibility of the Commonwealth.18
  3. 6.19 Because poppies are grown outdoors and are harvested only once per year, there is a need for a large amount of land to cultivate them, and this activity is more naturally carried out by specialist farmers. Similarly, the process of manufacturing the opiates is a sophisticated, industrial-scale exercise, requiring significant plant and capital.19 In short, the cultivation activities are not well suited to the entities carrying out the manufacture, and vice versa. For this reason, the industry involves a small number of licensed manufacturers purchasing poppy straw from a large number of licensed cultivators. This is also partly a consequence of the large demand for opiates (domestically and internationally).20

The Single Convention on Narcotic Drugs

  1. 6.20 Article 23(2)(d) of the Single Convention on Narcotic Drugs provides that all cultivators of cannabis plants shall be required to deliver their total ‘crops’ of cannabis (that is, flowering tops and resin) to the government agency that has responsibility for regulating cannabis production.21 It is possible that, by allowing licensed cultivators to deliver products to a separately licensed manufacturer, which then delivered finished products (not the ‘crop’) to the government agency, Victoria’s scheme would not be in strict compliance with the Single Convention on Narcotic Drugs. The counter-argument is that the system of licences proposed below, while not demanding delivery of crops to the state, is nonetheless set up to ensure that cannabis products cannot be delivered to any entity other than the government, thereby upholding the purpose of Article 23.

Allowances for alternatives within recommendations

  1. 6.21 The decision as to how to structure the industry is a complex one that requires detailed economic analysis by government and consultation with industry. The recommendations in this chapter are advanced on the assumption that separate licences would be granted in respect of the cultivation function and the manufacturing function.
  2. 6.22 If the government were to decide to proceed with an industry structured around combined cultivating and manufacturing facilities, the structure conveyed in the discussion below could still be used, with dual licensing of these facilities.22 Alternatively, the licences for cultivation and manufacture could be merged, with responsibility for administering the combined licence concentrated in a single agency. This is a matter for government to resolve.
  3. 6.23 A further variation, not discussed below, would be for cannabis to be cultivated by licensed cultivators and turned into refined cannabis products (such as oils and tinctures) by compounding pharmacists. Pharmacists are exempt from the requirement to hold a TGA manufacturing licence and from the prohibition on the supply of unapproved goods, provided they ‘extemporaneously’ compound a medicine, on the premises where it is to be supplied, for a particular person.23 A pharmacist could obtain dried cannabis from the Secretary of the Department of Health and Human Services (which would have been purchased from a licensed cultivator) and refine it at the premises of a pharmacy or pharmacy department.
  4. 6.24 The Commission considers that this would not be a useful option. Although exempt from the listing and manufacturing requirements of the Therapeutic Goods Act when compounding, pharmacists would still be subject to the Narcotic Drugs Act, such that without a licence under that legislation their compounding activity would be unlawful. There would also be administrative difficulties regarding reporting of quantities of drugs manufactured. Finally, as cannabis products are no longer included in pharmacopoeias and formularies to which pharmacists turn for reference, few may consider themselves qualified to prepare cannabis-derived products.24

Licensing cultivation

  1. 6.25 Licences to cultivate should be granted by the Secretary of DEDJTR. Recipients could be either individuals or corporations. The licensing scheme should be set out in the Drugs, Poisons and Controlled Substances Act 1981 (Vic) in very similar terms to the provisions allowing for licensing of alkaloid poppy cultivators.25

Recommendation

  1. 19 Cannabis should be grown for medicinal purposes by cultivators licensed by the Secretary of the Department of Economic Development, Jobs, Transport and Resources.

 

Managing the risks

  1. 6.26 Submissions and consultations drew attention to the diversion risks associated with the cultivation of cannabis by private industry. They are addressed in the proposed scheme, as they are in the alkaloid poppy scheme,26 through the use of licences, licence conditions, risk management plans, inspections and potential enforcement.
  2. 6.27 Victoria Police recommended that ‘if commercial cultivation is to be included in the scheme, then strong consideration must be given to the security of the product’.27 ACES Group submitted that ‘proper and robust security measures will need to be a focal point in the current debate’.28 Against this, it was observed that cannabis is the most accessible illicit drug and one of the most affordable, meaning that there would low incentives for diversion.29
  3. 6.28 The way in which specific risks would be addressed under the proposed scheme is set out in the following table:

Table 2: Risks associated with cultivation of medicinal cannabis and the regulatory responses proposed to control these risks

Risk

Regulatory response

Diversion occurs because of criminal intervention by third parties (potentially causing risks to public safety)

Risk management plan addresses facility security measures, location, secrecy, surveillance

Diversion occurs because of criminal conduct by employees or contractors

Risk management plan addresses assessment, training and supervision of employees and contractors

Criminal record checks required for employees

Licence conditions require destruction of unused cannabis

Diversion occurs because of criminal conduct by managers/owners

Fit and proper person test before licence is granted

Chief Commissioner of Police has veto power

Licence conditions require:

  • that all cannabis cultivated is delivered to a licensed manufacturer or destroyed
  • that all unused cannabis is destroyed

Diversion occurs during transport

Risk management plan addresses how transportation will be securely undertaken

Cannabis grown is of poor quality

Addressed through quality control regime

 

 

  1. 6.29 Controlling diversion to the illicit market is also a requirement of international law. The Single Convention on Narcotic Drugs requires states to ‘adopt such measures as may be necessary to prevent the misuse of, and illicit traffic in, the leaves of the cannabis plant’.30
  2. 6.30 As observed in consultations, the scheme must be designed to control the risk that cannabis will be diverted to the illicit market at ‘weak points’ in the supply chain.31 This requires careful assessment, properly resourced. It would be inappropriate merely to duplicate the policies associated with the alkaloid poppy scheme, because the risks associated with cultivating poppies are different from those associated with the cultivation of cannabis. For example:
  • Cannabis with significant THC content can readily be used illicitly, while alkaloid poppies require sophisticated processing, making cannabis a more attractive target for theft.32
  • The waste products of medicinal cannabis production (the leaves) have value on the illicit market, if they have significant THC content, while poppy straw remnants do not.
  • Medicinal cannabis tends to be grown indoors, while alkaloid poppies are grown in the field, meaning the risk of theft of cannabis by third parties is lower.
  • Alkaloid poppies are typically grown as a rotation crop (alternated with other crops), while there is no need to rotate cannabis, meaning that cannabis licensees would probably only grow cannabis.
  • Recreational use of alkaloid poppies can result in harm or death to the user, which is not the case for cannabis.
  • Organised crime would be likely to have a greater interest in high-THC cannabis, as it is easier to transform into an illicit substance, and less interest in high-CBD cannabis.
  • There is a greater illicit market for cannabis than heroin, making cannabis a more attractive criminal target than alkaloid poppies.33
  1. 6.31 Victoria Police underlined the need for careful consideration of the risk of diversion in its submission:

If commercial cultivation is to take place in Victoria, Victoria Police recommends that strong consideration be given to implementing mandatory, stringent security requirements around cannabis cultivations to prevent theft and diversion. Such security requirements should be developed by subject matter experts, and these requirements will need to be heightened in comparison to poppy cultivations.34

  1. 6.32 Submissions made a range of suggestions for how security should be safeguarded, including through background checks, auditing and inspection of potential cultivators, location of cultivation facilities, security systems and monitoring of facilities, tracking of products, harvesting and transport of raw material, and destruction of waste.35 ACES Group observed that a security framework around medicinal cannabis could be drawn from ‘overseas jurisdictions, particularly in the US where extensive security regulations and experience with managing security around medicinal and retail cannabis provides valuable insights for any future development’.36
  2. 6.33 In the Commission’s view, risk management plans are a better tool for controlling diversion risks than prescriptive regulations. This approach allows the controls to be calibrated to the level of risk.37 The detail of the government’s industry-wide risk assessment would then be reflected in departmental policies on and the assessment of risk management plans, rather than uniform regulations. Diversion should also be controlled by requirements, described below, requiring that licensed cultivators deliver to licensed manufacturers.38

Who could obtain a licence?

  1. 6.34 The requirements for an applicant to obtain a cultivation licence should be based on the requirements in the alkaloid poppy scheme. In particular, to obtain a licence, a cultivator should be required to overcome the following hurdles:39
  • satisfying the Secretary that they are a fit and proper person40 to hold a cultivation licence, entailing criminal history checks of the applicant and associates and an assessment of the suitability of the applicant, including consideration of their reputation and character, whether they have a history of non-compliance with cultivation obligations, their corporate structure and ownership, and their financial circumstances
  • suitability of the premises, including location, facilities and proposed security arrangements
  • submission of a satisfactory risk management plan
  • satisfying the Secretary of their intended commercial activities
  • payment of the prescribed fee.
  1. 6.35 The Secretary should be enabled to investigate the above matters for the purpose of determining whether to grant a licence, including by inspecting the nominated premises and requesting criminal record checks.41 The Chief Commissioner of Police should have the power to object to the issue of a cultivation licence.42

Risk management plans and licence conditions

  1. 6.36 As mentioned above, the risk management plan submitted by the applicant would be an opportunity for the applicant to prove its capacity to control the following matters:
  • secure facility (building type, alarms and surveillance, lighting, signage, fencing and so on)
  • appropriate location
  • employee and contractor management
  • auditing and record-keeping processes
  • transportation without diversion.43
  1. 6.37 As in the poppy cultivation scheme, DEDJTR officers should assess the risk management plan of each applicant against departmental guidelines, to ensure that sufficient security measures have been implemented. Experience with the alkaloid poppy scheme suggests that this should not be an overly burdensome exercise, with only a modest number of personnel required for the task (depending on the number of licensees). The cost could be borne by the cultivator.
  2. 6.38 Terms and conditions imposed on the licence should allow DEDJTR to control the activities of the cultivator. Conditions would include at a minimum:44
  • that all cannabis grown must be delivered to a licensed manufacturer or destroyed45
  • that the cultivator must comply with their risk management plan46
  • specification of the amount and area of cannabis that may be grown47
  • that only suitable employees may be employed.48
  1. 6.39 Other optional conditions could also be specified by DEDJTR on grant of the licence.
  2. 6.40 Under the alkaloid poppy scheme, a further mandatory condition of a cultivation licence is that cultivators must at all times have a current contract with a licensed processor.49 This would not be necessary if the industry were based around combined cultivator-manufacturer entities. If single licences were granted, the condition would be removed; if dual licences were granted to single entities, the condition could be altered to require that the two types of licence be held concurrently.
  3. 6.41 Chapter 7 of this report considers the quality-control standards that should be imposed on cultivators. As set out there, the Commission considers that it is appropriate for quality standards to be imposed on cultivators of medicinal cannabis. These standards should be enforced through licence conditions.
  4. 6.42 The various decisions that could be made that would adversely affect the holder of a cultivation licence should be capable of review by the Victorian Civil and Administrative Tribunal.50

Recommendation

  1. 20 The licensing and regulation of medicinal cannabis cultivators should be modelled on Part IVB of the Drugs, Poisons and Controlled Substances Act 1981 (Vic) as it applies to alkaloid poppy cultivation. Key features of the scheme should be as follows:
  2. (a) Applicants for a cultivation licence would be subject to a fit and proper person test, required to satisfy the Secretary of their intended commercial activities, and pay a prescribed fee.
  3. (b) The Chief Commissioner of Victoria Police would be able to oppose the issuing or renewal of a licence to an applicant, in which case the Secretary would be unable to issue or renew it.
  4. (c) Licensees would be required to ensure that their employees are of suitable character.
  5. (d) Licensees would be required to prepare and submit a risk management plan addressing safety and diversion risks associated with cultivation and how they will be addressed.
  6. (e) Licensees would be required to comply with appropriate quality control measures.
  7. (f) All cannabis grown would be required to be delivered to a licensed manufacturer or destroyed.
  8. (g) Licensees would be required to have a contract with a licensed manufacturer at all relevant times.
  9. (h) The Secretary would have the power to suspend or cancel a licence, including at the request of the Chief Commissioner of Police.
  10. (i) Applications would be able to be made to the Victorian Civil and Administrative Tribunal for review of a decision by the Secretary to refuse to issue or renew a licence, or to suspend, cancel or amend it.

 

 

Inspections and enforcement

  1. 6.43 The holder of a cultivation licence would be inspected regularly by DEDJTR inspectors to ensure compliance with the conditions of the licence.51 In particular, inspectors would review the cultivator’s adherence to their risk management plan.52 A variety of enforcement actions (such as imposition of licence conditions, product forfeiture and infringement notices) would be available to inspectors if non-compliance were observed, with the ultimate sanction of licence suspension, cancellation or non-renewal available.53 Licence sanctions would also be available if information came to the attention of DEDJTR suggesting that the licensee was no longer fit and proper to hold a licence.54

Recommendation

  1. 21 The Secretary of the Department of Economic Development, Jobs, Transport and Resources should:
  2. (a) monitor and enforce compliance by licensed cultivators with licence conditions and risk management plans
  3. (b) be empowered to appoint inspectors for this purpose
  4. (c) be resourced accordingly.

 

Authorised low-THC cannabis producers

  1. 6.44 As discussed in the issues paper, it is already possible for a person to cultivate cannabis in Victoria. However, they are only able to do so under an authority, and are only permitted to cultivate cannabis with less than 0.35 per cent THC,55 for non-therapeutic purposes.56 This variety of cannabis is known as low-THC cannabis or industrial hemp. Therefore, at present, authorised low-THC cannabis producers could not cultivate cannabis (even low-THC cannabis) for the purposes of producing medicinal cannabis.
  2. 6.45 It would be a straightforward legislative amendment to expand the activities permitted to be conducted by authorised low-THC cannabis cultivators, so that they could cultivate cannabis to be used in the manufacture of medicinal cannabis products.57 However, the Commission’s view is that this would not be a good policy outcome. The risk assessment undertaken in the decision to grant an authority to a low-THC cannabis cultivator in Victoria is specific to the purposes for which cultivation occurs (and to the cultivation practices adopted) and would not be well adapted to medicinal cannabis. In addition, both Commonwealth and international law draw a clear distinction between low-THC cannabis grown for fibre and seed, on the one hand, and cannabis grown for its cannabinoids (whether medicinal or recreational) on the other.58
  3. 6.46 Nonetheless, cultivators of low-THC cannabis already authorised to operate in Victoria59 may have useful expertise which could be harnessed in the establishment of a Victorian medicinal cannabis scheme. It may be appropriate to allow low-THC cannabis cultivators to supply seeds to licensed medicinal cannabis cultivators,60 or to hold a medicinal cannabis cultivation licence in addition to their existing low-THC cannabis authority, for the purpose of obtaining cannabinoids other than THC.

Licensing manufacture

  1. 6.47 Like cultivators, manufacturers of cannabis products should be required to hold licences issued by the State of Victoria. Licences to manufacture refined cannabis products should be able to be granted by the Secretary of the Department of Health and Human Services, but as a practical matter would be administered and supervised by the Office of Medicinal Cannabis. Recipients could be either individuals or corporations.

Recommendation

  1. 22 Medicinal cannabis products should be made by manufacturers licensed by the Secretary of the Department of Health and Human Services.

 

Interaction with Therapeutic Goods Act 1989 (Cth)

  1. 6.48 The Commission assumes for the purposes of this section that entities producing medicinal cannabis in Victoria would be licensed by the Secretary of the Department of Health and Human Services to manufacture cannabis products. They would not be regulated by the TGA,61 nor be required to hold concurrent manufacturing licences under the Therapeutic Goods Act.62 However, as discussed above, the division of regulatory responsibility is a matter for negotiation between the Commonwealth and the State of Victoria.

 

Managing the risks

  1. 6.49 As is the case with cultivation, there are risks that would need to be addressed under the proposed scheme. In broad terms, this is how the recommended legal arrangement would respond to the major risks:

Table 3: Risks associated with manufacture of medicinal cannabis products and the regulatory responses proposed to control these risks

Risk

Regulatory response

Diversion occurs because of criminal intervention by third parties (potentially causing risks to public safety)

Risk management plan addresses facility security measures, location, secrecy, surveillance

Diversion occurs because of criminal conduct by employees or contractors

Risk management plan addresses assessment, training and supervision of employees

Criminal record checks required for employees

Licence conditions require destruction of unused cannabis

Diversion occurs because of criminal conduct by managers/owners

Fit and proper person test before licence is granted

Chief Commissioner of Police power to oppose

Licence conditions require:

  • that all cannabis products are delivered to the government or destroyed
  • that all unused cannabis is destroyed

Diversion occurs during transport

Risk management plan addresses how transportation will be securely undertaken

Cannabis products are of variable quality

Manufacturing licences may only be granted where applicant satisfies Secretary of capacity to comply with production standards

Products are subjected to testing

Cannabis products contain unsafe contaminants and harm public health

Manufacturing licences may only be granted where applicant satisfies Secretary of capacity to comply with production standards

Products subject to testing for contaminants

Premises subject to inspections

Recall procedures in place

 

 

  1. 6.50 Like the licensing of cultivators, the regulation of licensed manufacturers by the Department of Health and Human Services would have as its objective both ensuring security and maintaining quality standards. In addition to licence conditions, because the state would be the sole purchaser of cannabis products, it could also exercise control through the terms on which cannabis is purchased.63

Who could obtain a licence?

  1. 6.51 The requirements for an individual or corporation to be granted a manufacturing licence ought to include all those set out above for cultivation licences.64 The Secretary of the Department of Health and Human Services should have equivalent powers to investigate licence applications in this regard.65 Only entities which succeeded in the competitive selection process would be eligible to be granted a licence.66
  2. 6.52 In addition, an applicant for a manufacturing licence should be required to demonstrate, to the satisfaction of the Secretary of the Department of Health and Human Services, that it is capable of complying with the relevant quality standards and that its proposed operating facilities are appropriate.67 The applicant’s suitability would be established by submitting documentation showing its ability to comply with the standards, together with an initial inspection by a delegate of the Secretary. Further detail on the possible quality standards and their enforcement is described in Chapter 7.

Risk management plans and licence conditions

  1. 6.53 The risk management plan submitted by an applicant for a manufacturing licence should serve a similar function to that submitted by an applicant for a cultivation licence. In addition, applicants should be required to submit details of the manufacturing processes they will follow, and how these are compliant with applicable standards (set out in Chapter 7).
  2. 6.54 As would be the case for cultivators, the terms and conditions imposed on the manufacturing licence would allow the Secretary of the Department of Health and Human Services to exercise control over the activities of the manufacturer. Conditions should include:68
  • where manufacture is permitted to take place69
  • that only suitable employees may be employed
  • compliance with manufacturing quality standards70
  • that all cannabis products must be delivered to the Secretary of the Department of Health within four months of the harvest date71 or be destroyed72
  • that the licence holder must at all times hold a manufacturing licence under the Narcotic Drugs Act.73
  1. 6.55 The holder of a manufacturing licence should be subject to inspection by appointed inspectors working in the Department of Health and Human Services to ensure their compliance with the conditions of the licence. A new category of inspectors should be created under the Drugs, Poisons and Controlled Substances Act, to inspect manufacturers.74 The Department of Health and Human Services already has a body of authorised officers responsible for inspections relating to, among other things, food safety,75 radiation,76 and public health generally.77 Staff could be appointed specifically to inspect cannabis manufacturers, or the Department’s existing authorised officers could be given an additional role as inspectors of medicinal cannabis manufacturing facilities (as currently occurs for alkaloid poppies in the DEDJTR).
  2. 6.56 Inspectors should review both whether the manufacturers had adhered to their risk management plans and applicable quality rules (discussed in detail below). A variety of enforcement actions (including licence conditions, product forfeiture and infringement notices) would be available to inspectors if non-compliance were observed, with the ultimate sanction of licence non-renewal, suspension or cancellation available to penalise unrectified non-compliance.78 As with cultivation licences, if information came to the attention of the Department suggesting that the licensee was no longer fit and proper, action could be taken in relation to the manufacturing licence.79
  3. 6.57 As in the case of cultivation licences, any decision of the Secretary that would adversely affect the holder of a manufacturing licence should be capable of review by the Victorian Civil and Administrative Tribunal.80

 

 

 

Recommendations

  1. 23 Medicinal cannabis products should be made by manufacturers licensed by the Secretary of the Department of Health and Human Services under arrangements modelled on those for licensing manufacturers under the Therapeutic Goods Act 1989 (Cth) and processors of poppy straw under the Drugs, Poisons and Controlled Substances Act 1981 (Vic). Key features of the scheme should be as follows:
  2. (a) Applicants for a manufacturing licence would be subject to a fit and proper person test, required to satisfy the Secretary of their intended commercial activities, and required to pay a prescribed fee.
  3. (b) Applicants for a manufacturing licence should be required to demonstrate to the Secretary their capability to comply with quality standards.
  4. (c) The Chief Commissioner of Victoria Police would be able to oppose the issuing or renewal of a licence to an applicant, in which case the Secretary would be unable to issue or renew it.
  5. (d) Licensees would be required to hold a manufacturing licence under the Narcotic Drugs Act 1967 (Cth) at all relevant times.
  6. (e) Licensees would be required to ensure that their employees are of suitable character.
  7. (f) Licensees would be required to prepare and submit a risk management plan addressing safety and diversion risks associated with cultivation and how they will be addressed.
  8. (g) Licensees would be required to comply with appropriate quality control measures.
  9. (h) Licensees would be required to deliver all medicinal cannabis products to the Secretary within four months of the harvest date and destroy any unused material.
  10. (i) The Secretary would have the power to suspend or cancel a licence, including at the request of the Chief Commissioner of Police.
  11. (j) Applications would be able to be made to the Victorian Civil and Administrative Tribunal for review of a decision by the Secretary to refuse to issue or renew a licence, or to suspend, cancel or amend it.
  12. 24 The Secretary of the Department of Health and Human Services should:
  13. (a) monitor and enforce compliance by licensed manufacturers with licence conditions and risk management plans
  14. (b) be empowered to appoint inspectors for this purpose
  15. (c) be resourced accordingly.

 

Selection of licensees

  1. 6.58 If it were intended that the production of cannabis products in Victoria would result in a commercial, market-driven industry, limited only by consumer demand for medicinal cannabis, there would be no need to control the number of entities permitted to take part in the industry. Any entity capable of satisfying the legal requirements would be eligible to be granted a cultivation or manufacturing licence, and the market would determine how many such entities could be accommodated. Some would see this as a preferable state of affairs—for example, Cannabis Science Australia submitted that ‘any farming concern that can meet the necessary standards should be allowed to grow the product’, because otherwise companies that are financially sound but know little about the medical science around cannabis would be able to ‘buy their way into the industry’.81
  2. 6.59 However, this is not the system suggested by the terms of reference, which reflect the intention to make medicinal cannabis available only to patients in ‘exceptional circumstances’. In practice, this amounts to a cap on the demand for medicinal cannabis products. Therefore, if private industry were to be involved in the production of medicinal cannabis in Victoria, the government would need to control the number of companies and/or individuals licensed to cultivate and manufacture cannabis products for medicinal purposes, or at least restrict significantly the amount of cannabis each could cultivate/manufacture; otherwise the amount of cannabis produced could greatly exceed the amount required to be supplied, leading to significant diversion risks.82
  3. 6.60 The Law Institute of Victoria also made this observation, noting that ‘a regulated scheme should balance supply and demand to limit the risk of diversion’.83 This is also necessary to ensure that, as required by international law, the state government can ‘control’ the cultivation and distribution of cannabis.84 The Single Convention on Narcotic Drugs places obligations on signatories to limit the amount of cannabis produced to that which has been ‘estimated’ in advance to the International Narcotics Control Board.85 The Commonwealth would be unable to comply with this obligations unless Victoria exercised control over the number of market participants and the amount they were permitted to produce.
  4. 6.61 Some jurisdictions limit the number of entities that are permitted to cultivate and/or manufacture cannabis by stating in legislation how many licences of each kind may be granted, and running a ‘competitive selection’ process to choose those that will receive the licences.86 However, these jurisdictions allow for the private distribution of medicinal cannabis (that is, directly from producer to patient). Under the Victorian scheme, all medicinal cannabis produced would be purchased by the state government, meaning that it would also have the ability to exercise control over licensees’ activities through contract.87
  5. 6.62 The Commission considers that the Victorian Government should control the number of entities granted cultivation and manufacturing licences,88 and that this process should be integrated with the purchasing process. This exercise would be simpler and faster if cultivation and manufacturing were carried out by single entities. The Commission also considers that the government should use its position as sole purchaser of medicinal cannabis products to set standards for the production of medicinal cannabis—for example, to establish more stringent production practices, set performance targets, set an expected product range or quantity, or provide research and development incentives.89

Licence duration

  1. 6.63 Under the poppy scheme, cultivation licences can be granted for a period of up to three years90 while processing licences can be granted for up to one year.91 This arrangement was considered necessary in order to comply with the system of estimates imposed on the Commonwealth by the International Narcotics Control Board.92
  2. 6.64 In the Commission’s view, it would be undesirable to limit the duration of medicinal cannabis manufacturing licences to one year, as occurs for processors in the poppy scheme. While acknowledging the importance of making arrangements that enable the Commonwealth to comply with the system of annual quotas and estimates, the Commission does not consider it necessary to limit licence duration to one year in order to do so.
  3. 6.65 Should the government need to alter the amount produced from year to year, it could do so through contractual arrangements and licence conditions. More importantly, the cultivation and manufacturing licences issued must be of sufficient duration for the licensees to develop compliant cultivation and refining technology and expertise,93 and to make engagement with the competitive selection process financially worthwhile.

Distribution

  1. 6.66 A Victorian medicinal cannabis scheme would need to provide for cannabis products to be distributed to patients. As reflected in submissions received, there is a tension between two key concepts in designing a distribution system: accessibility and control.
  2. 6.67 Having regard to Australia’s obligations under the Single Convention on Narcotic Drugs, the Commission considers that the system of distribution should be as follows:
  • All licensed manufacturers are obligated by the terms of their licence to deliver all cannabis products they make to the Victorian Government, specifically the Secretary of the Department of Health and Human Services.
  • The Secretary of the Department of Health and Human Services distributes the finished cannabis products to pharmacies.
  • Patients are dispensed cannabis products by their local pharmacy, which has been designated by their doctor.

Government as single purchaser

  1. 6.68 As explained in Chapter 4, the Single Convention on Narcotic Drugs requires distribution to be co-ordinated by a government agency. Countries which permit the cultivation of the cannabis plant for the flowering tops or resin must set up a system in which ‘[a]ll cultivators of [the cannabis plant] shall be required to deliver their total crops of [cannabis]’94 to ‘a government agency’,95 which must ‘purchase and take physical possession’ of them.96
  2. 6.69 A system in which the government purchases all medicinal cannabis produced has been implemented in the Netherlands and Israel, although those nations adopt slightly different models in practice. In the Netherlands, there is only one licensed producer97 (Bedrocan BV), which produces a number of strains of cannabis. The cannabis produced is supplied to the government in dried form, in bulk. The product is divided, packed, labelled and distributed to pharmacies by a company under contract to the government. It is then dispensed on a doctor’s prescription. The Dutch Office of Medicinal Cannabis does not itself process and distribute the products, but an employee of the Office attends at the time of delivery. The Dutch Office of Medicinal Cannabis also arranges for testing of the cannabis, to test for contaminants and cannabinoid content, and will only distribute cannabis that passes these quality tests.98
  3. 6.70 In Israel, licensed producers, of which there are many, produce a range of cannabis products, including dried plant matter, edibles, oils, tinctures and so on, and deliver these to Sarel Corporation, a government-affiliated company.99 Sarel then delivers the cannabis products to patients. Unlike the Netherlands, patients do not fill prescriptions, but are associated with a particular producer and registered with the government.100
  4. 6.71 One World Cannabis drew on the Israeli system to comment on the advantages of the state controlling distribution:

Israel … decided for a division between growers and supply to patients for the same reasons Israel does not allow any pharma companies straight access to patients. … This [separate] distributor will also be the long arm of the national cannabis agency to purchase and hold all the cannabis products that [have] been harvested. The distributor will also perform quality assurance on the cannabis it buys from the cultivators or refuses to buy due to lack of quality.101

  1. 6.72 As mentioned above, manufacturers should be required, under the conditions of their licence, to deliver all finished cannabis products to the Secretary of the Department of Health and Human Services (formally, pursuant to a contract with the associated body corporate).102 The price would be set by agreement with the government. The Secretary could elect, as other jurisdictions have, to arrange for a contractor to complete deliveries to pharmacies. The purchasing process would also specify whether dividing and packaging should be the role of the government or licensed manufacturers.

Recommendation

  1. 25 All medicinal cannabis products made by licensed manufacturers should be purchased by the Secretary of the Department of Health and Human Services.

 

Distribution through pharmacies

  1. 6.73 A number of submissions supported distribution through pharmacies.103 This was the main alternative proposed to collectives or ‘dispensaries’. As discussed in Chapter 5, neither a collective-based model nor a dispensary model would be well suited to achieving the Commission’s regulatory objectives.104
  2. 6.74 The Commission considers that cannabis should be distributed to patients through pharmacies. There are many reasons for this. Pharmacists have expertise in advising patients on the use of medicines,105 and patients are accustomed to collecting medication from their local pharmacy. Pharmacies have security arrangements in place so that cannabis can be stored securely.106 Importantly, pharmacists and pharmacies are already licensed,107 so that enforcement action can be taken if a pharmacist deals inappropriately with cannabis, and a new set of licences need not be established. Finally, pharmacies are already distributed throughout the state, making them readily accessible by patients, including in regional areas. There appears to be no legal impediment to the distribution of medicinal cannabis by pharmacies, even if such products are not approved by the TGA.108
  3. 6.75 EROS raised concerns about distribution by pharmacies, contending that a pharmacy owner who has a personal objection to cannabis may decline to stock medicinal cannabis products.109 The Commission acknowledges this is a possibility, but considers that the benefits of using the large number of pharmacies in Victoria outweigh this potential risk.
  4. 6.76 Where a patient is an inpatient in a hospital, pharmacy departments could be used to distribute medicinal cannabis to patients.110

Recommendation

  1. 26 Medicinal cannabis products purchased by the Secretary of the Department of Health and Human Services should be dispensed to patients through pharmacies and pharmacy departments.

 

 

  1. 6.77 The rules imposed on pharmacies and pharmacy departments regarding the dispensing of cannabis could be modelled on the program for opioid replacement therapy in Victoria, as suggested by the advisory committee and others with whom the Commission consulted.111 While there would be a diversion risk associated with medicinal cannabis,112 not all features of the opioid replacement therapy scheme would be required—for example, patients receiving opioid replacement therapy must in general consume their dose of methadone (or other product) while they are at the pharmacy unless specifically authorised to obtain a ‘take away’ dose. This would not be necessary or practical for cannabis. In addition, the therapeutic index113 of opioid replacement drugs such as methadone is very small, and the risk of overdose correspondingly high, while the dangers associated with patients ‘double dosing’ is much lower in relation to cannabis products.
  2. 6.78 An adapted version of the opioid replacement therapy scheme could function as follows:114
  • A patient’s doctor nominates the pharmacy at which they will collect medicinal cannabis.
  • The patient may attend only the nominated pharmacy to collect medicinal cannabis.
  • The patient may be dispensed the medicinal cannabis product they have been prescribed, and may only receive a one-month supply.
  • Pharmacies would stock medicinal cannabis on an ‘opt in’ basis, and would need to notify the Department of their wish to participate. However, training on the system is available.
  • Pharmacies could charge a dispensing fee or mark up to patients, on top of the cost of the medicinal cannabis.115
  • Patients could be transferred to another pharmacy; the new pharmacy must make contact with the previous pharmacy to confirm the patient’s details, last dose and so on.116
  • Guidelines issued by the Office of Medicinal Cannabis would be used to encourage a dialogue between the pharmacy and the authorising medical practitioner.
  1. 6.79 Much of the above process could be established through departmental guidelines, as occurs with the opioid replacement therapy program. Pharmacists should be required to store cannabis in accordance with the requirements for Schedule 8 and Schedule 9 poisons.117 Once the scheme is established, consideration could be given to less restrictive arrangements, particularly for low-THC products. If the scheme established allowed for the production of vaporisable forms of cannabis (that is, cartridges or refill vials of liquid), patients would need to have a means of accessing vaporising devices.118
  2. 6.80 In summary, the risks associated with the distribution of cannabis would be addressed under this scheme as follows:

Table 4: Risks associated with distribution of medicinal cannabis products to patients and the regulatory responses proposed to control these risks

Risk

Regulatory response

Patients give or sell their authorised supply to non-authorised users

Limited amounts may be dispensed

Patients use the same authority at a number of pharmacies, obtaining multiple quantities

Patients must attend a single pharmacy designated by their doctor and follow a set process if they wish to transfer to another.

Patients obtain cannabis using forged authorities

Communication encouraged between pharmacists and medical practitioners

Forging an authority would be an offence

Pharmacists or pharmacy staff misappropriate cannabis

Professional obligations on pharmacists and regulatory obligations on pharmacies

Record-keeping requirements for cannabis products

Theft of cannabis from pharmacies through burglary

Secure storage requirements for cannabis products

 

 

Recommendations

  1. 27 Dispensing of medicinal cannabis products to patients should be through pharmacies and pharmacy departments that elect to participate in the scheme.
  2. 28 Dispensing of cannabis by pharmacies and pharmacy departments should be modelled on the Victorian program for opioid replacement therapy and include the following features:
  3. (a) Patients or carers specified in the Authority to Dispense Medicinal Cannabis would be able to obtain medicinal cannabis products only by attending at the specified pharmacy or pharmacy department.
  4. (b) Pharmacies and pharmacy departments would be able to dispense to patients or carers only the medicinal cannabis product(s) specified in the Authority to Dispense Medicinal Cannabis.
  5. (c) Pharmacies and pharmacy departments would be required to store medicinal cannabis products pursuant to requirements comparable to those that apply to the storage of Schedule 8 and Schedule 9 poisons.

 

 

  1. 6.81 To combat diversion and ensure patient safety, a medicinal cannabis scheme would need to limit the amount of medicinal cannabis a patient could purchase at any one time. For prescription medicines, these restrictions are imposed largely through limits on Pharmaceutical Benefits Scheme payments,119 and these would need to be replicated in a Victorian scheme. Other restrictions placed on dispensing by Victorian law may also need to be replicated.120 There would need to be a means for the Victorian Government to monitor the type and amount of medicinal cannabis dispensed to patients through pharmacies and pharmacy departments. This information would be important for an effective review to be undertaken of the scheme, and for preparing manufacturing estimates for the forthcoming year. These requirements could be imposed on pharmacists in conjunction with the record-keeping requirements that, consistently with Schedule 8 and Schedule 9 poisons, should be imposed in respect of medicinal cannabis.121

Recommendation

  1. 29 The Secretary of the Department of Health and Human Services should require pharmacists to notify the Secretary about the amount and type of products they dispense to patients under an Authority to Dispense medicinal cannabis.

 

Cost considerations

  1. 6.82 Several submissions drew attention to the importance of cost in any medicinal cannabis scheme, with many commenting on the need to ensure cannabis products were affordable.122 Cheryl Wright stated that ‘[t]he price needs to be regulated as well. Otherwise it will be out of the reach of the average family.’123 A submission from the cannabis community of Victoria observed that ‘[m]any chronically and terminally ill patients suffer financial hardship.’124 Cancer Council Victoria observed:

There is a risk that if patients cannot afford the approved product they will resort to sourcing illicit cannabis in respect of which product quality and consistency cannot be guaranteed.125

  1. 6.83 As the Victorian Government would be the sole seller of medicinal cannabis under the scheme described above, it would have the ability to control the price. While pharmaceuticals listed on the Pharmaceutical Benefits Scheme are sold to pharmacists by private wholesalers, then subsidised by the Commonwealth through reimbursement on claim by the pharmacy, the proposed scheme would involve a direct transaction between the government and the pharmacy.
  2. 6.84 The government should impose price controls on pharmacies, consistently with arrangements for therapeutic goods subsidised under the Pharmaceutical Benefits Scheme.126 This is because participation in the scheme at its outset is important, and price controls are fundamental to ensuring the scheme is accessible for vulnerable people. However, this must be balanced against the fact that pharmacists should be permitted to earn some mark-up or fee to make their participation in the scheme financially worthwhile.

Recommendation

  1. 30 The Secretary of the Department of Health and Human Services should from time to time designate a price above which medicinal products cannot be sold, incorporating the mark-up able to be charged by pharmacists.

 


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