24 October 2016

The Office of Drug Control (ODC) is the regulatory body within the Department of Health that is responsible for licensing cultivation and production of cannabis for medicinal purposes. In addition, ODC works closely with states and territories in the regulation of narcotic drug manufacture, including the manufacture of medicinal cannabis products, and with other Commonwealth agencies in the control of import and export of narcotic drugs and precursors.

Compliance with the relevant legislation and conditions of a cannabis licence and permit is essential to prevent the diversion of cannabis to illegal purposes and to assist Australia in complying with its international obligations. ODC has adopted a compliance and enforcement approach that shifts to appropriately respond to the nature and gravity of non-compliant behaviour.

Given the high illicit value of cannabis, it is anticipated that some criminal elements may be attracted to the medicinal cannabis industry. However ODC believes that the majority of licence holders and their employees will be compliant with regulatory obligations.

ODC aims to build sound relationships with licence holders with a focus on capacity building to support regulatory compliance. ODC is committed to working with industry to jointly achieve strong and consistent regulatory behaviour.

ODC has developed a number of guidelines and guidance material to assist licence applicants and holders in designing and meeting standards related to the cultivation of cannabis for medicinal purposes and manufacture of medicinal cannabis products. During monitoring activities, ODC will engage with licence holders to gain an understanding of the business operations and will work with licence holders to jointly and cooperatively address any adverse concerns.

Monitoring compliance

There are a number of ways that ODC can detect or become aware of non-compliance by a licence holder. The first and most likely way is through self-reporting by a licence holder. It is anticipated that once a licence holder becomes aware of issues of concern, they will contact ODC to work through resolutions to such issues.

It is a regulatory obligation and condition of the licence that the licence holder notifies ODC as soon as practicable after it becomes aware of any matter that may affect their status as a licence holder. Compliance with this obligation will help prevent stronger regulatory action.

Alternatively, non-compliance may be detected through organised and planned monitoring activities undertaken by ODC (such as inspections). ODC also maintains close relationships with law enforcement agencies and other government agencies, undertakes sampling of cannabis crops cultivated under permits and will regularly perform desktop audits of licence holders.

Inspections

ODC has a number of authorised inspectors with monitoring, inspection and enforcement powers. The Narcotic Drugs legislation gives inspectors, for example, the right to enter premises without consent and without notice.

Licence holders have the right to observe inspections, but do not have the right to impede such activity, nor obstruct or hinder an authorised inspector – such behaviour would be an offence under Narcotic Drugs legislation.

An inspection falls into one of two categories; inspections related to licence and permit applications (generally announced inspections) and inspections (normally unannounced inspections).

Announced inspections are those inspections that are associated with a licence application and related to the operation of a permit. Unannounced inspections are those that are undertaken to verify compliance by the licence holder.

Depending on the business operations, a licence holder can expect to have one scheduled inspections for each licence or permit (normally 2-3 per year). ODC will also undertake a number of random and targeted unannounced inspections of licence holders to assess ongoing compliance. An unannounced inspection is precisely that, one that the licence holder has no forewarning of, and subsequently has no opportunity to make changes to business operations that might be non-compliant.

Inspections are expected to occupy a day of the licence holder’s time. Generally, two authorised inspectors will attend the cannabis site. For announced inspections, the licence holder will be charged an hourly fee of $470 per hour for each person involved in conducting the inspection (an estimated $7,050 per inspection).

Unannounced inspections do not attract such a fee.

Responding to, and managing, non-compliance

The compliance and enforcement framework adopted by ODC is based on risk management principles, meaning the response of ODC will be reflective of the risk that the non-compliance may lead to diversion of medicinal cannabis to illegal purposes.

To give some context to the way ODC will respond to non-compliance, below is a description of the tools that ODC may use and the situation in which they may be used.

  • Conversation

    Where an issue of non-compliance is reported to ODC by a licence holder, or if minor non-compliance is detected through monitoring or at an inspection, the authorised officer may engage in a conversation with the licence holder to discuss the ways in which the non-compliance can be addressed, rectified and prevented in the future. The outcomes of such conversations will be documented.

  • Directions

    ODC can issue directions that a person to take certain action, prevent particular activities from occurring, destroy cannabis or undertake other activities that ODC deems appropriate. Directions may be used in response to minor, major or critical non-compliance, to secure a cannabis site, or to ensure that nothing can leave a cannabis site. Failure to comply with a direction is an offence and grounds for revocation of a licence.

  • Variation/s to a licence or permit

    ODC can vary a licence or permit, of its own initiative and/or in response to a major or critical non-compliance. Variations may be imposed to restrict the activities undertaken by a licence holder or to restrict the volumes of cannabis that can be cultivated and/or produced. Making a variation to a licence or permit is a formal process that is more likely to be used for major and critical non-compliance.

  • Suspension of a licence or permit

    ODC can suspend a licence if satisfied that a reasonable ground exists to revoke a licence or permit. This would be determined case by case. During the period of a suspension of a licence or permit, the licence holder can still tend, nurture, harvest or store cannabis plants under the licence holder’s possession or control. However, production may only be permitted to occur if ODC specifically permits it in accordance with conditions specified in writing. It is an offence when a person undertakes production activities under a suspension if ODC has not permitted such activity and the conditions of such permission are not complied with.

    Cannabis production without a permit is likely to attract the attention of law enforcement as such activity no longer enjoys the protections of the medicinal cannabis scheme.

  • Revocation of a licence or permit

    Revocation of a licence is a formal process that would be used in response to critical non-compliance. Revocation requires ODC to be satisfied on reasonable ground of the facts leading to the revocation. ODC must revoke a cannabis licence if a licence holder or the business associate of a licence holder is no longer considered to be a fit and proper person and/or if the licence holder (including any officer or director within a body corporate) has engaged in conduct that constitutes a serious offence since the licence was granted.

    A number of other circumstances exist in which the ODC has discretion and may revoke a cannabis licence. These include, but are not limited to: the breach of a licence condition; the licence holder commits an offence against the Act; the site or security arrangements are no longer suitable; failure by the licence holder to provide information to ODC in a specified time; or the licence is no longer consistent with Australia’s international obligations.

  • Civil penalties

    There may be situations where the imposition of a civil penalty is a more suitable and effective response to non-compliance. When a civil penalty is imposed, the licence holder must pay a pecuniary penalty to the Commonwealth. Ultimately this is a debt that must be paid to the Commonwealth. The effect of a civil penalty on a licence holder can be significant and would only be used in respond to critical non-compliance.

  • Criminal prosecution

    A criminal prosecution is the ultimate sanction for breaching the law. ODC has well established relationships with the police force in each state and territory, as well as with the Australian Federal Police and the Australian Criminal Intelligence Commission. If ODC detects or suspects that any criminal offences have occurred, the matter will be referred to the relevant law enforcement agency for investigation. Criminal prosecution could result in a conviction that is accompanied by a custodial sentence.

A number of other enforcement tools are available for use by ODC including enforceable undertakings, injunctions and infringement notices. The powers for using these tools are outlined in the Regulatory Powers (Standard Provisions) Act 2014.