3 April 2019

This note is to alert industry to a clarification of the processing rules under the Narcotic Drugs Act 1967 (the ND Act) around the timing of a medicinal cannabis cultivation and production permits (under a medicinal cannabis licence) and the relationship with narcotics manufacturing licences.

The threshold requirement to apply for a medicinal cannabis cultivation and production permit is outlined in Section 10J of the ND Act - there must be a contract in place between the holder of the medicinal cannabis cultivation and production permit and the holder of a narcotics manufacturing licence.

Previously, the holder of a cultivation licence was required to demonstrate that their associated manufacturer held both a licence and a permit prior to the Office of Drug Control (ODC) being able to issue a cultivation permit. The purpose of such supply control was to ensure that ODC did not issue cultivation permits for quantities in excess of that required for manufacturing purposes.

However, the ND Act does not require such an additional control, and it is therefore possible for the holder of a cultivation licence to apply for (and potentially be granted) a medicinal cannabis cultivation and production permit in advance of their narcotics manufacturing partner being granted a manufacture permit.

This does place the risk of supply failure back on the cultivator. If, for example, a cultivator's manufacturing partner was unable to secure a manufacture permit under the ND Act, then the cultivator may find themselves with a crop with no end point of supply. Such a crop would be inconsistent with the objects of the ND Act, and the ODC would require the cultivator to either demonstrate a lawful supply pathway, or would order destruction of that material.

Note there are two exceptions to the general threshold requirement above:

  1. Where an entity is vertically integrated, there is clearly no requirement to have a contract with itself as laid out in Section 10J of the ND Act. ODC would look to that applicant providing evidence of the business planning in support of cultivation and production permit quantities being requested. Critically, the supply failure risk remains the same should the entity fail to secure the necessary narcotics manufacture permit.
  2. Where an entity is supplying cannabis in raw form to the holder of licence to manufacture therapeutic goods under Section 3-3 of the Therapeutic Goods Act 1989 (the TG Act, the process for the dose control and packaging of otherwise raw cannabis products) and that cannabis is not undergoing any additional manufacture steps (using the definition of 'manufacture' in the ND Act), then there is no requirement for the therapeutic goods manufacturer to hold a narcotics manufacture licence under the ND Act. The Narcotic Drugs Regulation 2016, Regulation 7B outlines that purpose.

    Subsequently the contractual requirements under 10J(2) of the ND Act do not apply. In these circumstances, the ODC would again look to the entities involved providing business planning evidence to outline quantities for production and manufacture.

    NB: this exception does not apply in the otherwise normal case where the holder of a narcotics manufacture licence under the ND Act also holds a licence to manufacture therapeutic goods under the TG Act. See also the ODC discussion on the differences and interactions between these two licences.

In practical terms, this means that a cultivator can begin to apply for a permit covering the cultivation and production of medicinal cannabis as long as there is a demonstrable (contract or otherwise) relationship between a manufacture and clear evidence of a supply requirement.