Challenges Facing Australia’s Cannabis Industry

Patients currently facing cannabis access difficulties

Medical cannabis in Australia is under the purview of the Therapeutic Goods Administration (TGA), a regulatory authority that ensures the quality of products such as cannabis.

Save for two cannabis-based products — Epidiolex and Sativex, both used to treat multiple sclerosis — medical cannabis products aren’t registered as medicine in the country, so patients must use special pathways to access the drug, which can be a lengthy process.

One state, Victoria, developed aspirations to become the country’s “medical cannabis capital” after Cronos Australia, part of Cronos Group (NASDAQ:CRON,TSX:CRON), picked the state to establish its Asia-Pacific headquarters and medical cannabis research and development centre in January.

The state is also home to the medical cannabis operations of Cann Group (ASX:CAN,OTC Pink:CNGGF) as well as Spectrum Cannabis Australia, a subsidiary of Canadian cannabis heavyweight Canopy Growth (NYSE:CGC,TSX:WEED).

“Victoria is well and truly the home of medicinal cannabis cultivation in Australia and we’re thrilled yet another global medicinal cannabis company will call Victoria home,” Jaclyn Symes, former Minister for Agriculture and the current Attorney-General of Victoria, said in a statement issued in February.

Victoria was Australia’s first state to legalize medical cannabis back in 2016, and in 2018 released a medical cannabis industry plan to establish itself as a medical marijuana giant in the country.

“Victoria’s industry will aim to supply half of Australia’s market for medicinal cannabis,” the plan reads. “This is an ambitious goal, but would mean that by 2028, Victoria could provide medicinal cannabis products to 83,000 of the 166,000 potential patients across Australia.”

Some experts have noted, though, that a lack of market access for local patients could get in the way of Victoria’s ambitions.

“The crux of the problem is, we can’t produce medical cannabis products for our market unless we enable the market (patients) to access those products,” Victoria Legislative Council member Fiona Patten told Marijuana Business Daily. “Without broader patient approval, we won’t get a production industry off the ground."

With that said, the industry is growing. Victoria has since released an interim report from Deloitte that states that the medical cannabis industry in Australia has experienced rapid growth. It also shows that the 2017 projected estimate of patients needing medical marijuana in 2028 —166,000 — has risen to over 241,000. It also states that Victoria’s medicinal cannabis industry is expected to shoulder 30 to 50 percent of the Australian demand.

If the aims in the 2018 cannabis industry plan were to service 83,000 of 166,000 patients (50 percent) and they are now projecting roughly 40 percent of 241,000, that comes to 96,400 patients — exceeding prior expectations.

Taxation could also create issues. In Canada, a tax conflict unfolded in February of 2019 when Canadians for Fair Access to Medical Marijuana called on the country’s federal government to remove the roughly 10 percent tax on medical cannabis before the 2019 federal budget was finalized.

At the time, medical marijuana users in Canada said they had seen their costs jump significantly, forcing them to look to the black market for product. The group said that the 10 percent tax would add hundreds of dollars a year to their medical costs.

There is also a degree of apprehension around prescribing the drug due to a lack of research, according to some members of parliament.

In 2017, the Australian health authority conducted a review of medical cannabis in order to get a better sense of how the drug could be used to help patients; it found that evidence that marijuana is effective in relieving pain for chronic neuropathic pain conditions is “limited.”

As such, the TGA suggested that medical cannabis should only be considered when registered medicine has proven to be ineffective in managing patient symptoms.

Drug still subject to strict governmental legislation

More broadly, Australia’s cannabis industry is still tightly regulated across the country, and regulations vary between states and territories.

Some regions, like the Australian Capital Territory (ACT) and New South Wales (NSW), have moved forward to take steps and loosen restrictions on medical cannabis access.

In the ACT, a bill that would allow the recreational use and possession of cannabis was put forth and subsequently passed in 2020. It allows for small amounts of marijuana for an individual’s personal use. There are limitations on amount (50 grams) and number of plants (no more than four), as well as, of course, age.

In NSW in 2018, Hunt said that the state government had “taken a machete” to red tape to allow more prompt access to medical cannabis.

These only account for a small part of Australia, however, and cannabis reform throughout the country has been a slow process. Support of legalising cannabis for recreational use is growing within Australia, but still has not reached a tipping point, and laws prohibiting the substance for all but medicinal use are still common and enforced.

Loosening cannabis laws could benefit medical cannabis patients in the country. As it is, almost all of the cannabis in Australia is imported, making it an expensive commodity.

Investor takeaway

Despite these and other challenges, Australia’s cannabis market is projected to grow quickly.

Australia is also well positioned geographically to access the nascent cannabis market in Asian countries such as South Korea and Thailand, which have both made medical cannabis legal in recent years.

The Australian cannabis market will continue to be an interesting investing space as it grows to maturity.