In the second part of a three-part analysis of Australia’s legal cannabis landscape, Cannabiz chief correspondent Steve Jones examines the Office of Drug Control’s role in hampering the industry’s progress.
Forecasting can be a precarious business. Take the Rand Corporation. In 1964, the American think tank famously gazed into the future and concluded that in 56 years’ time, in 2020, many families would have trained apes – live-in apes no less – to perform “low grade” household chores.
That means that a particularly clever chimpanzee should, by Rand’s reckoning, have made your cuppa this morning, maybe knocked up a bacon sarnie and then done the hoovering.
Even more bizarrely – if that’s possible – one Rand expert suggested those same primates would, by now, double as chauffeurs and later tonight give you a lift to the pub.
Today, while Rand points out that many of its 1964 insights came to pass, it accepts others were somewhat wide of the mark, including another forecast that the world’s population would balloon to eight billion by 2100.
“Their population calculations were off by about 80 years,” Rand said last month, pointing out in an admirably self-deprecating manner, that we’ve almost hit that milestone.
Rand, however, is not the only company to come a cropper in the treacherous art of forecasting.
While not quite matching the absurdities of the home-help ape predictions, Deloitte is one which might look rather sheepishly at a forward-looking report it presented to the Australian Government in 2016.
As legislation was being drafted to legalise medicinal cannabis in Australia, Deloitte was tasked with forecasting how many would-be cultivators and producers might want a piece of the cannabis action. Its assessment would shape how much support would be made available to the newly-formed Office of Drug Control (ODC).
Deloitte’s prediction, as became evident rather quickly, was miles out.
The unfortunate misreading of the level of interest was articulated in a submission from the Medical Cannabis Council into a 2019 review of the Narcotic Drugs Act.
“It is understood a Deloitte study anticipated that only around 18 applications would be made to the ODC,” the MCC noted. “Given that ODC resourcing was put in place in anticipation of that amount, it has been seriously underprepared for, and overwhelmed by, the actual number of more than 200 applications that have been submitted since 2016.”
The MCC went on to illustrate its point by citing the experience of one of its members which had been waiting 18 months for a research licence. It wasn’t the only company left hanging. Such a delay, it transpired, was the rule, not the exception.
Perhaps the most succinct description of events was delivered by Rhys Cohen, principal consultant at Freshleaf Analytics. “It’s been a complete schmozzle from day one,” he witheringly told Cannabiz.
Explaining further, Cohen recalled how the ODC malaise had its roots in the report.
“The challenge has been that regulators have been underfunded. Funding was based on the estimate that the Government should receive around 30 applications in the first year. They probably received 30 applications on the first day, and many hundreds since. It was in complete disarray, an absolute shambles.”
The unintended consequence of the underfunding was a huge backlog of applications.
The ODC, and the industry, has been playing catch up ever since.
“I know of some licence applicants who had to wait 700 days to be approved from the date of the initial submission,” Cohen continued. “It was explicitly set up to discourage jokers and to encourage only large, well-resourced, sophisticated operations. The problem is the jokers and the have-a-goers were still sending in applications and they needed to be assessed by someone at the ODC before they could be rejected.
“Basically, guff has been clogging up the scheme. That’s why we have so few locally cultivated products.”
And therein lies one of the fundamental barriers that, according to many, has held back the industry in Australia and with it, hampered wider consumer access to products.
Furthermore, it has led to a proliferation of imported medicines, the quality of which is far from certain.
Stories of torturous, tortoise-like processes, needless duplication and seemingly irrelevant paperwork are widespread. Those who have braved the bureaucracy and been granted licences and permits all tell weary tales of endless delays where patience has been a necessary virtue.
The protracted nature of the system was one of the core discussion points during the Senate Inquiry which explored barriers to accessing medicinal cannabis. Recommendation 15 called for an “immediate review into the resourcing and staffing levels of the ODC”.
The McMillan Review
Pre-dating the inquiry however – and arguably of greater significance – was the John McMillan review of the 1967 Narcotic Drugs Act. His report was tabled in Parliament almost 12 months ago, with 26 recommendations designed to ease the regulatory process and “promote and allow greater flexibility in the administration of the legislation to support industry innovation and development”.
All recommendations were accepted by health minister Greg Hunt.
In addition to simple regulatory amendments, such as altering specific wording and clarifying definitions, the recommendations included the adoption of a single licensing model that would remove the need for separate cultivation, manufacturing and research licences.
But much like the internal mechanics of the ODC itself, progress has been frustratingly slow. In fairness, Covid rather than Government inaction, can take the lion’s share of responsibility for that.
According to Elisabetta Faenza, co-founder of South Australia-based Leafcann, blame for the inefficiencies should not be directed at the ODC, but at the financial cards with which it was dealt. So chronically underfunded has the ODC been that the manufacture and distribution of Australian-manufactured product has moved at a glacial pace.
“One of the things we have always put forward is the ODC needed a better funding model,” she told Cannabiz. “The ODC was staffed based on the Deloitte study and the Deloitte study was completely wrong. Additionally, the funding model didn’t allow the fees that were coming in from the applications to be used by the ODC on hiring more staff.
“So I don’t want to bash the ODC. They are stuck with the regulatory framework that the politicians decided was going to be adequate. And it clearly isn’t adequate.”
One of the biggest frustrations for Faenza is the lengthy process of making amendments to already-approved plans. What should be a simple procedure is anything but.
“It can take one or two years for a licence to come through by which time all sorts of things have changed, including technology, and you want to reflect that in what you develop,” she explained. “You don’t want to build technology that’s two years out of date. But you need to get an amendment if you want to make changes and that could take another 12 months. So you are constantly chasing your tail because you have to go back through the whole process.”
Convincing the Government to divert more funds to the ODC, and to streamline its painstaking process, remains a major objective of the Medicinal Cannabis Industry Association (MCIA). Dialogue with regulators is on-going, chairman Peter Crock said.
“MCIA has continued to advocate that there is an urgent need to ensure licence holders have an efficient and timely pathway through the ODC which is not hindered by unnecessary regulatory process or restrictions,” he said. “Slow turnaround times, delays, inconsistencies and lack of transparency are all causing frustrations within the sector and MCIA continues to highlight issues with the ODC and the Government. While we recognise that under-resourcing of the ODC has contributed to this, their processes and interpretations are also key factors hindering innovation and development.”
Crock added that while the McMillan proposals were welcome and, once implemented, may address inefficiencies with the ODC, it was clear they are not the panacea. Further improvements are necessary, he said.
“In particular, there is an urgent need for a risk-based approach to exercising regulatory functions. Significant delays have been experienced across licence, permit and variation applications. A number of operational factors are impacting this including the process for managing applications, lack of transparency, inadequate pathways for resolving queries and unnecessary delays.”
In short, it’s a bureaucratic horror show.
The frustrations have been widely felt. And regardless of the McMillan Review and the efficiencies that may emerge once the Government is no longer preoccupied with the pandemic, those frustrations continue.
According to the recently-formed Australian Medicinal Cannabis Association (AMCA), so slow has progress been that businesses will run out of cash before they have a chance to generate revenue. Additionally, far from the regulatory burdens easing, AMCA suggested progress was slowing even further as the ODC grapples with more applications but with no requisite increase in funding.
“Our industry members are very critical of the ODC’s performance to date,” AMCA secretary Teresa Nicoletti observed. “Its role is to regulate the medicinal cannabis industry to ensure that high-quality, safe and effective medicinal cannabis can be cultivated, produced and manufactured in Australia. Its role should not be to stifle the industry, which its under-resourcing has significantly affected.
“A business that is waiting for its licences and permits to be approved still has to operate its business and cover overheads such as power, water, employee costs, rent and rates so the burn rate of cash in the absence of revenue being generated is very high. Many businesses will not survive if the present situation continues.”
Adding to frustrations have been increases to the ODC fee structure, which came into effect last month, and the contractual employment of ODC staff which, according to Peter Crock, has led to continuity issues.
While the MCIA supported the cost recovery framework, it came on condition the ODC would be better resourced and deliver improved level of service. Neither condition has been met.
Particularly galling is that fees raised through licence applications still disappear into the black hole of consolidated revenue, leaving the ODC to fight for financial scraps through the budgetary process.
“MCIA has been advocating with the Government that any revenue raised through the ODC fees should be available for the ODC to resource their operations directly,” Crock said. “The Government needs to allow those resources to be appointed now.
“Another issue is that contractors, as opposed to permanent staff, are being used to service the workload, and are turning over at quite a high rate. Understandably, contract staff are looking for job security so when a permanent role appears elsewhere they move.”
AMCA’s Nicoletti also voiced concern that additional money raised through an increase in fees and charges would not be channelled back into the ODC to address the backlog of applications.
“The director of the ODC admitted that any additional revenue… would still go into the consolidated revenue fund and the Treasurer would decide how it was to be allocated,” she said.
The industry is currently pinning its hopes on more funds being allocated to the regulator in the delayed budget on October 6.
The reliance on unreliable imported medicine
But it’s not just licence and permit applications that have disappeared into the Bermuda Triangle of the ODC. The Lambert Initiative for Cannabinoid Therapeutics says the lack of resources is even hampering the ability to conduct timely trials.
In the absence of a choice of local product, researches, much like patients, have become reliant on imported materials from Canada, Netherlands, Germany and Switzerland.
In its submission to the Senate Inquiry, the Lambert Initiative described the mechanics of obtaining a research import license and individual import permits as “routine and perfunctory”.
Yet nothing is routine.
As outlined by the research body, under-resourcing of the ODC has led to increased delays in permit processing from 20 working days to around seven to eight weeks.
“These timeframes, when combined with lengthy lead times for the manufacturing of cannabinoid compounds, makes it difficult for us to set firm research commencement dates and other milestones and impose unconscionable and avoidable delays in our research productivity,” the submission said.
These delays, infuriating as they have been for individual companies and researches, have also had a clear knock-on effect for patients.
With few local medicines rolling off production lines, the Australian industry, and Australian patients, have been almost solely reliant on imported product. Even with local production slowly beginning to move, overseas medicine is still estimated to account for more than 90% of medicinal cannabis prescribed by doctors in Australia.
Aside from the cost implications for patients – more local production is expected to bring prices down – questions are often raised over the quality of imported product. While Australian manufacturers must comply with Good Manufacturing Practice (GMP) standards, imported medicinal cannabis is only required to meet the standards set down in the country of origin, in addition to complying with the TGA’s own TGO 93 requirements.
Leafcann CEO Elisabetta Faenza said as more local product emerges and competition intensifies, prices will fall. Not only that, it will also ensure a reliable and consistent supply of medicine that is absent from imported product.
“We know that product coming from overseas, some of it is fantastic but some of it is poorly made from very low-grade cannabis,” she said. “What we are missing is stability testing. We’ve seen from imported product that it has a terrible shelf life… the product stops working half way through the bottle. Of course importers want the highest possible standard, but finding it and maintaining it is the hard thing. You could have three batches that are fantastic and the fourth is a dud.”
The clear worry from some within the Australian industry is that patients are potentially taking medicinal cannabis that is simply unreliable.
Teresa Nicolleti, from AMCA, warned it is even putting the health of Australians at risk.
“The industry in Australia needs to be enabled, not only to increase the supply of medicinal cannabis to Australian patients, but also because the quality standards required of Australian-manufactured products are higher than the standards required for overseas-sourced product, which only need to comply with the standards of the country of origin, whatever that may be,” she said.
“This is of great concern, because the quality of overseas-sourced product is not necessarily assured, and has the potential to put the health and safety of the public at risk.
The uneven playing field where Australian firms are being held to higher standards than their overseas counterparts is a troubling issue for local firms. Little Green Pharma, AusCann and Cannatrek all raised the issue at the Senate Inquiry, as did the MCIA which said it was “critical” the TGA address it.
“A strong domestic supply will remove the impact of a lack of commitment from, and changing priorities of, international suppliers who supply into Australia,” the MCIA said.
‘We must build a wall’
Cannatrek even reluctantly borrowed a line from Donald Trump’s provocative playbook by suggesting Australia should “build a wall” around the local industry.
Having previously declared that Australia should not be a “dumping ground for significantly cheaper and/or inferior products”, chief executive Tommy Huppert said: “I don’t want to say ‘we need to build a wall’, but we actually do,” he said. “We need an Australian supply chain [and] we need protection. This industry will create a lot of jobs and that is the most important thing in the world today.
“If we didn’t have to wait 12 months for a licence, if there weren’t delays with the ODC, there would be far fewer imports today. But that’s not the case.”
However, Huppert optimistically looked forward to a sustainable Australian-made future in just a matter of months.
“There’s plenty of licences out there, plenty of projects to sustain the industry,” he said. “You’ll see more local companies coming online, more exports and organic growth. It’s going to be an exciting 12 months.”
The implications on cost
Huppert is not alone in believing local product will soon play a more central role in the medical cannabis landscape.
As competition intensifies, and as companies build scale, prices have been tipped to fall. Simplistic as that sounds, it’s an argument that holds true, according to the Cannatrek CEO.
“It’s economics 101,” Huppert said. “You have a bigger project and it brings down your average costs. It’s all down to economies of scale.”
Competition among imported product is already seeing prices head south, according to Rhys Cohen from FreshLeaf Analytics.
In its Q1 analysis, FreshLeaf said 100 products were now available in Australia, with average prices to pharmacies declining 17.4%. The growing number of imported products, coupled with Australian development, would see “fierce” competition throughout 2020, the report said.
Yet without the brakes being released by Australian regulators, some believe products will remain out of reach.
Nicoletti, from AMCA, said: “Although the feedback we have received suggests prices have come down, the costs are still prohibitive, particularly for patients who will need to take medicinal cannabis in the long term.
“We are not confident that medicinal cannabis will become affordable unless the Government does considerably more to enable the domestic cannabis scheme.
“There are also no regulatory controls on the pricing of medicinal cannabis and unfortunately, there are no limitations on the mark-up that can be imposed by the middle-men in the supply chain, the wholesalers, access clinics and pharmacists.”
“What we need is for the Government to procure the resources needed to enable the Australian medicinal cannabis industry to operate and thrive so that supply channels for high-quality product can increase, thereby continuing to drive the price down as supply and demand equilibrate.”
Quite where prices will head during the remainder of 2020 and beyond will, ultimately, depend on a range of factors. But it’s clear that if Australian firms can step up production and service rising local demand, patients will be better off.
Just how much of a difference it will make is hard to predict with any accuracy. And as Rand Corporation and Deloitte can testify, forecasting can trip up the most accomplished of experts.