Last week, NSW Greens MP Cate Faehrmann introduced the Cannabis Legalisation Bill 2021 to the State Senate.

Now before you get your hopes up, this bill is not going to be passed into law. It won’t even pass the Senate. But that’s not the point – this is the Greens demonstrating their commitment to cannabis legalisation, and getting the issue on the agenda to be debated.

So this is an important piece of legislation that may end up influencing whatever recreational cannabis policy we end up with down the track. And it also gives us some idea about what the Greens expect the major parties, the public, and the media will say in response. A bit of shadow boxing, if you will. And it’s got some quirks that could do with a bit of a re-think, in my opinion.

To preface this, I support cannabis legalisation and I appreciate this bill is not necessarily intended to provide detailed answers to every question about how that might happen. So please take this as well-intentioned and constructive criticism.

Why legalise cannabis?

“Prohibition of cannabis creates far more harm than good, and it just does not work. It has not reduced cannabis use. It has not reduced harm. It has not reduced the amount of cannabis available on the black market. But it has made a lot of criminals very rich. It places a massive drain on the criminal justice system. It results in disproportionately high rates of criminal convictions and harassment of our First Nations people.” – Cate Faehrmann.

I couldn’t have said it better myself. And it’s clear from Faehrmann’s second reading speech that this proposal fits squarely in the field of harm reduction. There is a focus on protecting consumer health, preventing underage access, and controlling for product potency, quality and price.

But in my opinion, the model proposed in this bill could struggle to achieve these objectives. And that’s largely due to the central role of the proposed NSW Cannabis Authority.

The NSW Cannabis Authority

In Feahrmann’s bill, there are two broad categories of licences: production and distribution.

Production licences would authorise a company to engage in one or more ‘activities’. Non-exclusively, these include:

  • nursery activities – importing seeds, cultivating plants, and supplying seeds and propagation material
  • cultivation activities – growing for commercial supply
  • processing activities – packaging, extracting, manufacturing, and labelling products
  • wholesale distribution activities – buying/selling bulk products

Taking it from there are the distribution licence holders, who would be permitted to sell products to consumers (retail activity); and run a consumption venue (cannabis premises activity). Companies can only hold either a distribution licence or a production licence, so vertical integration is limited.

If a company held a production licence, under which they were permitted to conduct each of those activities listed above, they could do so under the same commercial roof. But if anyone wanted to specialise in a particular segment – say, become a dedicated cultivator but not bother doing processing – they would only be permitted to sell their produce directly to the Authority. And dedicated processors could only purchase cannabis directly from the Authority.

In this approach, licensed cannabis companies would only ever have two types of customers: consumers who purchase finished products from a store, and the Authority. There would be no business-to-business exchange of cannabis at all.

And when it came time to sell products to customers, the Authority would be responsible for determining what products were permitted, and the price at which they could be sold. Prices would be set to trade-off the twin objectives of keeping products cheap enough to reduce reliance on the black market, while keeping them expensive enough so as not to incentivise high-volume problematic use.

NSW Greens MP Cate Faehrmann (right): “Prohibition of cannabis creates far more harm than good.”

This price-setting approach differs significantly from the tax-driven price targeting we usually see in commercial cannabis frameworks. But it turns out this choice was made out of necessity. The Cannabis Legalisation Bill was introduced to the NSW Senate, and bills introduced to the Senate must not contain new taxes. So, it’s a parliamentary quirk, and not necessarily the first choice of method.

Tightly controlling the industry in this way could have some benefits. It would help reduce the over-commercialisation of the sector and avoid some of the worst excesses we see in markets with looser regulations. The intent, according to Faehrmann, is “to ensure a vibrant and diverse cannabis industry could establish itself in NSW and not be quickly dominated by a few big corporate players. That’s why we’ve created a framework that prevents vertical integration between producers and retailers.”

But this bill would go further than simply limiting vertical integration between producers and retailers. And in fact, the restrictions on producers (such as dedicated nurseries) selling to other producers (such as dedicated cultivators) could make it much less attractive for companies to specialise in one part of the production process. And perversely, this means it could be much more likely to see vertically integrated producers (who do nursery, cultivation, production and distribution).

It also means this system would lean very heavily on a single government entity. And the commercial industry would end up being essentially planned. I’m no free-marketeer, but I have reservations about the ability of any government entity to be efficient and sophisticated enough to successfully plan and execute the production, distribution and pricing of a whole category of consumer products. Especially while ensuring companies can remain profitable.

You have to wonder how attractive this industry would appear to prospective companies. It seems fairly risky to have the success of your entire business hinge on whether a single customer is prepared to purchase your material, or to contract you to produce enough to keep your head above water.

The other interesting part of the commercial regulations is to do with advertising. And compared to what I expected to see – a blanket ban on all advertising alongside plain packaging – the proposed approach is actually rather sensible.

Advertisements that can be seen or heard by the public would not be permitted, and unsolicited advertising of all kinds would be banned. But in-store/in-venue advertising would be permitted, so long as there are no promotions regarding special discount pricing or deals (which would also be prohibited). And that would extent to branded packaging.

Non-commercial legalisation

Leaving the industry stuff to one side, this bill also proposes to legalise home cultivation (six plants for up to two people, 12 plants for three or more people), legalise the non-commercial sharing of cannabis, and allow for licensed consumption venues and not-for-profit (NFP) cannabis social clubs.

The clubs stuff is interesting, although I should disclose I actually know very little about how NFPs operate or how cannabis social clubs structure their operations.

Clubs would be registered NFPs with a minimum of five members, and permitted to cultivate up to six plants per person, up to a total maximum of 99 plants (16 people at the per-capita max). The bill doesn’t specify if seedlings count as plants.

Cannabis produced by a club could only be supplied to club members and not in exchange for money or benefits of any kind. However, if a club chose to do so, they could sell their cannabis to the Authority. Which could then, presumably, be bought by a processor and end up in stores, which is kind of neat.

But if club members can’t pay the club for their cannabis, how would this operation work? Presumably the club would need founding members to stump up for fixed costs, and new members would likely need to be charged a membership fee of some kind. And in return, they get ‘free’ cannabis.

“We can’t have people with criminal records for something that is no longer criminal.”

So, there’s nothing to stop someone setting up a club that offers a specified quantity of cannabis per month and charges a standard monthly membership fee, in order to circumvent the not-for-sale restrictions. But at the end of the day, if the clubs are NFPs, that doesn’t really matter. The idea is to limit the commercialisation of cannabis, not to eliminate the exchange of money.

There are two other features of this bill worth highlighting. One is that, within 12 months of this bill passing, the Agency would be required to provide advice to the Minister regarding the expungement of cannabis convictions. Nice to see a deadline written into the legislation. Cannabis legalisation – like all drug law reforms – is a social justice issue. We can’t have people with criminal records for something that is no longer criminal.

The second is an amnesty. For the first 12 months after the passage of the bill, people involved in the illicit cannabis industry would have the opportunity to apply for commercial or social club licences. And the act of pursuing those licences would constitute a legal defence against prosecution for their ongoing unlicensed activities. That includes transitioning illicit cannabis genetics into the proposed new legal framework, which makes a ton of sense.

Australia’s medicinal cannabis framework was famously missing a local seed amnesty. The justification at the time was that the law couldn’t allow companies to profit from the proceeds of crime, or something to that effect. In New Zealand and Canada (and probably in other places I can’t think of right now), when medical cannabis systems were implemented, companies could legally acquire seeds and genetics from the very abundant and healthy local black market for an initial time period.

This meant companies could take advantage of local genetics and didn’t have to bother with the expensive, time consuming and unnecessary step of importing similar genetics from overseas. Especially given a recreational cannabis industry would not be able to legally import seeds or propagation material from overseas (due to international law), having an amnesty period would be essential.

Shadow boxing

But once again, this bill is not actually about how a recreational cannabis scheme would function in practice. It tells us more about the kinds of objections the Greens are anticipating to the bill than what an eventual legal cannabis system might actually look like. In particular, objections about products being too harmful or risky, industry gaining undue influence, and underage access.

These are legitimate concerns that should be addressed in any commercially legalised system. But this bill may have over-corrected somewhat. If you are going to create a new industry populated by for-profit companies, in a framework where their only supplier is also their only client who also has the sole power to dictate prices, you might need to sweeten the deal before people are prepared to take that kind of risk.

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  1. Firstly congrats Rhys on a great piece, a timely contribution.
    The state monopoly model you describe above does have its advantages from a harm reduction perspective. It’s based on previous government attempts to regulate tobacco.

    If anyone would like to read in further detail about this and other models including home grow and social clubs, and how they can reduce harm if implemented in thoughtful ways, I invite them to read pages 92-100 of my thesis on commercial model in the States –

    Hope you find it interesting and/or helpful.

    Cheers, Todd