February 4, 2023
 min read

When Australia legalises recreational cannabis what will our policy look like?

From an economic development perspective this makes a lot of sense - support and grow the local market to serve the local market and keep export opportunities open.

When Australia legalises recreational cannabis what will our policy look like?

Less than a week ago, a discussion paper from a government inquiry outlining options for Germany’s legal cannabis framework was leaked.

Reported in @Forbes and other publications, the paper shows the thinking around where the German policy position might land.

For some context, the German government is a centre-left coalition that came to power in 2021 promising cannabis reform. The coalition is intending to legalise cannabis on the basis of public health, protection of young people, and reducing illicit trade.

With this context in mind, some of the options that have been outlined make a lot of sense, but there are some in there that seem counter-productive to the intent of the reform such as limiting the THC percentage of goods that can be sold to 15%.

Parliamentarians and commentators have already pointed out that this will only serve in driving people away from the legal market (we only need to look to the US where a high proportion of consumers buy high THC products).

Now, keep in mind with any policy development - and taking the complexity and sensitivity of cannabis out of the equation - the final outcome is always a compromise, and not all parties will have their needs or wants met.

But the biggest part of this story is that all products must be grown and made in Germany.

No imports.

From an economic development perspective this makes a lot of sense - support and grow the local market to serve the local market and keep export opportunities open.

But the question of capacity comes into play.

At the moment, Germany’s capacity can only supply ~13% of the existing medical demand. Once recreational is brought into play as well as tourism demand, that number is going to skyrocket, and there are serious concerns about the German industry’s capacity to stand up that level of supply in a relatively short period of time.

Add to the mix the requirement to adhere to EU GMP regulation which is more stringent than many US regulatory frameworks.

This lack of capacity presents a risk of a perverse policy outcome where, if demand cannot meet supply, the illicit market will come and meet it. Just as it has in every market in the world.

I’m curious as to what Germany’s policy approach might mean for an industry like Australia’s.

For background, Australia has a small medicinal cannabis industry that adheres to EU GMP standards so the focus is on pharmaceutical goods. The cost of entry to market is huge, the timeframes are long, and the regulatory burden is high.

But as I’ve mentioned before, Australian attitudes towards cannabis are changing, and with Millennials and Gen Zs making up the majority of the voting cohort (we have compulsory voting in Australia), the shift in social and political attitudes is happening.

While I think we are 2-5 years away from legalisation, it is coming.

And we can learn a lot from watching the Canadian cannabis industry (which is most similar to ours being Federally legal and regulated under EU GMP) deal with the transition from medicinal to recreational. From watching, there are two things that Australia must start doing:

  • Prepare for the shift in market dynamics
  • Build its internal operational capacity

What do I mean by these things?

We saw in Canada the market dynamics shift when recreational became legal.

EU GMP cannabis is all about consistency, meeting the medical requirements for therapeutic goods, and export. The big corporate cannabis companies started to lose their market share as artisanal and craft producers started to win on quality, diversity of genetic supply, and brand.

But let’s come back to Australia for a second. We’re an isolated nation and are highly dependent on exports and imports for our GDP. Germany, being the largest market in the EU would have been a prize export opportunity for many Australian cannabis operators, but if this is off the cards, it requires a rethinking of strategy.

Even if Australia’s medicinal cannabis companies do successfully pivot to recreational (and there will be those that do), there is still a gaping hole in terms of industry capacity and this is strikingly similar to the German situation. Already, medicinal cannabis companies are looking internationally for talent from Israel, the Netherlands, Canada and beyond.

Australia has an opportunity here, if policymakers and industry can collaborate effectively, to design policy and legislation that enables Australia to build its capacity to service a (near) future recreational cannabis industry.

I suspect our policy goals will be similar to the Germans - public health, protection of young people, and diversion from the illicit markets - but we must also enable the industry, and learn not only from Germany and Canada, but also from the social equity successes and failures in the US.

With the capacity to grow cannabis anywhere there is power, water and a workforce; there is the ability to not only produce commercial cannabis in cities, but in regional areas.

Many regional areas have their young people leaving for jobs in the cities. Bringing cannabis jobs to these communities could be a reason for many to stay, an opportunity to import a workforce, and to revitalise some regions that are in decline.

Then from a policy perspective, it will be interesting to see how and if Australia will strike the right balance between free market conditions and heavy regulation.

My wish is that when Australia legalises cannabis we take a harm reduction approach for public health, make retailers accessible in all parts of the nation (not just cities), treat cannabis licensees like any other businesses and provide additional support including grant programs and tax incentives, and see education and training become mainstream through our vocational and tertiary education systems.

Will we avoid perverse policy outcomes and leverage the economic, social and regional development opportunities?

Time will tell.

Link to Forbes article by Dario Sabaghi: https://www.forbes.com/sites/dariosabaghi/2022/10/20/leaked-german-cannabis-legalization-plan-raises-questions-and-concern/?sh=2cc4769245a3

#cannabisindustry #medicinalcannabis #australiancannabis #policy #auspol #cannabisreform #economicdevelopment #regionalaustralia #EUGMP #AustralianTGA

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