We attended the ODC’s consultation session on proposed medical cannabis license changes so you didn’t have to

We attended the ODC’s consultation session on proposed medical cannabis license changes so you didn’t have to

The Office of Drug Control (ODC) held consultation sessions in three capital cities over the last week seeking feedback on their proposed changes to Australia’s commercial medical cannabis licensing system. FreshLeaf attended the Sydney workshop on February 3rd and here’s our take:

Context

The Narcotic Drugs Act was amended in 2016 to enable the ODC to issue licenses and permits to companies wishing to cultivate, research and manufacture medical cannabis in Australia. Written into those amendments was a requirement for the framework to be reviewed within two years of operation. That produced the McMillan Review, published September 2019, which contained 26 recommendations. All of which have been accepted in principle by Hon Greg Hunt MP, Minister for Health.

The ODC held consultation sessions last November to inform stakeholders of a suite of changes being implemented over the coming months. The most significant of those changes is Recommendation 7 which stipulates that ‘The Narcotic Drugs Act 1967 should provide for the issue of a single licence to authorise all or some of cultivation, production, manufacture and research of such products’.

Implementing this change also gives the ODC the opportunity to overhaul the legislation, regulation, policy, and operational structure of Australia’s medical cannabis system. This is no small project, and the draft amendments will take several months to finalise. When the actual amendments will be made will depend on the government’s legislative agenda, so it’s possible that if things go smoothly this could all be wrapped up before the end of the year, but it may also stretch into 2021.

Why a single license?

The ODC has struggled to manage an overly prescriptive, risk averse (verging on paranoid) and nearly broken piece of legislation which has dictated how commercial activities must be authorised by the government.

One of the many challenges with the existing system has been that activities are siloed into license types. And even for companies that operate all licensed activities within the same facility, simple things like transferring trimmed flower to the processing room require disproportionate levels of paperwork and needless delays.

The ODC has also been swamped with license applications. Since 2016 they have received nearly 300 license applications and approved just 100 of those, with 92 currently valid. George Masri from the ODC disclosed that they are continuing to receive around 7-12 new license applications every month.

Part of the problem has been under-resourcing at the ODC. When Mr Masri took the top position at the ODC in 2018, there were only 10 people employed by the Office. Today there are around 30 working just on medical cannabis (remember the ODC also handles the poppy industry).

Of course, 15 of those 30 people are contractors because the government, in their infinite wisdom, has put a cap on the number of permanent staff in the ODC (and other areas of the public service). This means there’s a higher rate of turnover as contractors look for more reliable employment, and a greater burden on the Office as they must regularly hire and train replacements. But hey, at least the government can pretend they’re ‘cutting costs’ and keeping the public sector ‘lean’, even though they’re actually making things less efficient and wasting more taxpayer money in the process. But moving on.

The problem isn’t just the absolute level of resourcing in the Department, it’s also how those resources are used. Under the current system, license applications must include an impractical level of operational detail that most applicants don’t (and in many cases, can’t) know. For example, it’s unlikely that an applicant will already have built their facility and mapped out exactly how every work process will function. But complete Standard Operating Procedures are required in a license application.

The ODC is required to assess all license applications fairly, and on a first-come-first-served basis. Most new applications are necessarily incomplete, and many are submitted by folks who have the best intentions but lack the resources and skills necessary to get a license approved and actually run a successful cannabis company. So, without some kind of triage to separate the wheat the from the chaff, the ODC spends an enormous amount of time going back and forth with applicants who aren’t going to make the cut.

Allocating most of the ODC’s resources to assessing new license applicants means fewer people can receive and approve permits. So existing license holders are also affected, with some industry members reporting to FreshLeaf that they currently wait months for permits to be issued. And that’s without the ongoing trouble-shooting required to amend permits as operational activities change.

So, firstly (and to paraphrase an ODC staff member) the current framework contains way too many explicit requirements in the legislation itself, which would be better managed through regulation. And the regulations are also too prescriptive, with many features that would be better managed through departmental policy. Secondly, (in our assessment) the ODC has been historically under-resourced and continues to suffer under a head-count cap and a backlog of applications. And those resources at its disposal are forced to waste time assessing applications that should never have been made in the first place and would have benefitted from an early and firm ‘no’. And this diverts resources from existing license holders and restricts their ability to function.

That’s the system as it stands today. But things are about to change for the better.

Proposed single license model

Disclaimer: these are provisional, draft proposals being considered by the ODC. The final version may be different to how it is described here.

Under the current framework, a license is only issued once every piece of operational detail is finalised and the facility has been constructed, inspected and approved by the ODC. Once that’s in place, companies apply for permits to authorise them to cultivate or manufacture specific quantities of material.

Under the new proposed model, there would be three distinct steps. First, companies would apply for a license (or a ‘provisional license’ or something similar, terminology to be finalised) and specify the kinds of ‘primary activities’ they would like to undertake. So a license would still stipulate whether someone is a cultivator/manufacturer/researcher. The major difference is the level of information required at this initial step.

Instead of having to submit every operational detail, the ODC is considering limiting this step to high-level considerations. Things like the fit and proper persons test, a business plan, and some idea of the operational structure of the project including a proposed location. This first phase would not require applicants to provide site plans, floor plans, SOPs etc.

Once approved, applicants will have a period of time (up to 24 months but could be shorter) to complete the second phase. This tiered approach is designed to achieve two things: first, it creates an opportunity for the ODC to triage applicants without having to wade through thousands of pages of submissions. If you can’t get past the fit-and-proper test, or provide a convincing business plan, you’re out. Second, it allows companies to get some kind of formal indication from the government that they’re on the right track, which will hopefully allow them to go out and fundraise without having to pre-emptively invest in constructing a full facility (although some industry members expressed scepticism that this would do much to help).

The second phase of the process would comprise the bulk of the work for applicants. Within the specified time period, companies would need to submit a comprehensive operationally- and site-specific, application. This would include site and floor plans as well as all the intended ‘ancillary activities’ to be conducted by the entity such as storage, disposal, testing, transport etc. The ODC would require applicants to fully construct their facilities and implement their operational structures, which would all be inspected by the ODC prior to approval.

Successful applicants would then be issued with a ‘schedule’ that would sit underneath their ‘license’ and include these operational details. It would be possible for companies to have multiple different schedules underneath their one, single license. Only companies that have both a license and a schedule would be able to apply for permits which would authorise cultivation/manufacture quantities.

The ODC is also considering making licenses perpetual. This would only apply to licenses that also have a corresponding schedule. There are ongoing fees and compliance inspections built into the framework, so it’s unnecessary for companies to re-apply for licenses, and this would reduce compliance work for the ODC and increase business confidence.

Permits

The McMillan Review didn’t go into a lot of detail about permits, other than to point out they will need to be considered in implementing a single license system.

FreshLeaf understands that many industry members would like the ODC to move towards a notification system for permits. Or some kind of initial approval with a notification system for amendments. The problem with permits has been that the ODC can take months to approve them. And very minor changes to permits, which do not affect the quantities produced or the risks involved, require permit amendments that can also take months to process.

At the consultation session, ODC representatives were clear that they would not be moving to a notification scheme for permits. But they did indicate that they would be triaging permit amendment requests. Major change requests (called ‘variations’ in the provisional lexicon), such as requests for an increase in cultivation volumes, would be assessed as usual. But minor amendments (called ‘modifications’) such as transferring a few seedlings from one permit to another without increasing cultivation volumes, would be assessed more quickly (likely in under 6 hours). And there would be a lower cost associated with such minor modifications. But more on fees shortly.

Transitions

With 92 current licenses operating under the existing system, and ~200 in the queue, how would companies transition to this new license system? This is another open question that the ODC has yet to figure out entirely.

The ODC was keen to remind us that, until the new system is finalised and legislated (which could still be a year away), the current system stands. Existing license holders and those in the queue will continue to be managed and assessed under the current system.

The ODC hypothesised that, once the new system was legislated, existing license holders may be allowed to wait until their licenses expire and only then transition to the new license structure. They would of course need to have their operations reviewed prior to doing this, to ensure they can transition smoothly.

For those in the queue, the ODC may let applications go through via the old system and transition later, or they may choose to assess applications under the new arrangements even if they submitted under the old one. This is very much up in the air and the ODC has yet to finalise transition plans.

Fees, charges and revenues

Many of us (including FreshLeaf) have been guilty of oversimplifying the way in which license costs are determined by the ODC. On more than one occasion, we have asserted that the ODC should charge whatever they like, so long as they can get the job done. Other industry members have proposed simply doubling or tripling the license application fee to help with the backlog and triage issues.

But government departments must follow strict guidelines on calculating these things, based on the real amount of work involved to assess and approve applications. One of the many problems has been that these costs were estimated before the system was implemented, under the assumption there would be a dozen license applications.

The ODC has proposed (not finalised) a new schedule of costs and fees for the existing and new systems. As it turns out, the original prices weren’t indexed to keep up with inflation, so they’ve provided the current price, what the current prices would be if they have been indexed properly, the proposed new price, and the value and percentage differences.

Here’s a summary of the fees:

Fees: Current V Proposed
Fee or Charge Current price Indexed price (to 20/21) Proposed Price (20/21) Difference in price Price Difference % (Current) Price Difference % (indexed)
Single License Application $5,040 $5,440 $6,390 $1,350 27% 17%
Double License Application $6,300 $6,800 $7,310 $1,010 16% 8%
Triple License Application $6,800 $8,300 $2,000 32% 22%
Permit Application $1,830 $1,970 $3,470 $1,640 90% 76%
License Variation – Simple $3,900 $4,210 $1,110 -$2,790 -72% -74%
License Variation – Complex $3,900 $4,210 $5,560 $1,660 43% 32%
Permit Variation $1,730 $1,870 $2,920 $1,190 69% 56%
Permit Modification Request $120 New Fee New Fee New Fee
Pre-commissioning inspection $4,818 $5,200 $5,610 $792 16% 8%

 

It’s all pretty minor in terms of operational costs. What’s interesting is the introduction of the permit modification request (discussed in the Permits section), and the tiering of license variation costs to reflect simple vs complex requests.

Other major changes have been proposed to the annual Charge for license holders:

Charges: Current V Proposed            
  Current price Indexed price (to 20/21) Proposed Price (20/21) Difference in price Price Difference % (Current) Price Difference % (indexed)
Annual Charge $27,380 $29,540 $23,080 -$4,300 -16% -22%
Follow-up Audit $3,145 New Charge New Charge New Charge
Follow-up Inspection $6,645 New Charge New Charge New Charge
Follow-up Sampling Assessment $1,221 New Charge New Charge New Charge
Enforcement Action – Minor $4,471 New Charge New Charge New Charge
Enforcement Action – Moderate $5,186 New Charge New Charge New Charge
Enforcement Action – Major $7,059 New Charge New Charge New Charge

 

Instead of everyone paying the same annual charge regardless of the amount of work required from the ODC, the new proposed cost schedule breaks this down into line items. So license holders will pay a lower annual charge, and then pay per audit, inspection, assessment or enforcement action their business attracts. This is a fairer and more transparent way to manage charges, and there was general support for it from industry representatives.

Lingering issues

None of this is locked in yet and details can, and will, change before everything is finalised. But in addition to the understandable grey areas, which the ODC is diligently trying to colour in, there are a couple of more tricky issues the ODC is yet to address. The first is research institutions. At the moment, the ODC lacks clarity on how it will accommodate academic and other non-profit or public research groups wishing to work with cannabis plants. There should certainly be some kind of discount afforded to these groups.

The other is how third-party testing and analytical service providers will fit into this model. According to the legislation, even the act of diluting a cannabis solution to run through an analytical instrument counts as ‘manufacture’ and requires an ODC license. In 2017, the ODC released a policy statement stipulating that such third party analytical labs can be covered by the manufacturing license of the product supplier. But ODC representatives at the consultation session were unclear as to whether that policy would continue, or if there may be some kind of explicit carve-out to authorise such activities.

What’s next?

The ODC will publishing the slides from this consultation session shortly, so make sure you give them a look over. There will be further consultations held on the single license transition, as well as a consultation paper on the fees and charges specifically.

FreshLeaf will be covering all of these events and reports as they come out, so stay tuned for more info!


FreshLeaf Analytics, a division of Southern Cannabis Holdings, is the leading supplier of data about the medicinal cannabis industry in Australia. We have access to medicinal cannabis product, pricing and clinical data sets from some of Australia’s leading healthcare companies and organizations including healthcare clinics, pharmacies, product suppliers and the TGA. The FreshLeaf Analytics team provides custom research, analysis and consulting services in the Medicinal Cannabis market in Australia. The FreshLeaf Analytics team can be contacted on +61 2 8203 8741 or info@freshleafanalytics.com.au

 

 

 

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