CNGGF - Challenges Facing Australia's Cannabis Industry

The growth of the international cannabis industry has seen investment from countries across the world all contending to get a piece of the market, and Australia is no exception.

The country has expressed its intention to become a world leader in marijuana since medical use of the drug was legalized in 2016. Additionally, in 2018, the export of medical cannabis was legalized as well.

“We’d like to be potentially the world’s number one supplier,” said Health Minister Greg Hunt on a local radio station. Considering the country’s robust agricultural sector — it’s valued at AU$58 billion — and its proximity to Asia, a burgeoning market in itself, Australia could become a powerhouse for the global marijuana industry.

There are some hurdles the country is facing, however, that could hinder the growth of its cannabis industry.

Here, the Investing News Network (INN) looks at some of the challenges the Australian marijuana market is up against.

Access difficulties patients currently face

Medical cannabis in Australia is under the purview of the Therapeutic Goods Administration (TGA), a regulatory authority that ensures the quality of medical devices and goods, including cannabis.

Save for one cannabis-based product, medical cannabis products aren’t registered as medicine in the country, so patients have to go through special pathways to access the drug, which can be a lengthy process.

One state, Victoria, had aspirations to become the country’s “medical cannabis capital” after Cronos Australia, a part of Cronos Group (NASDAQ:CRON,TSX:CRON), picked Victoria 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 for 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,” Agriculture Minister Jaclyn Symes said in a statement issued in February.

Victoria was the first state in Australia to legalize medical cannabis back in 2016, and last year it released a medical cannabis industry development plan to establish Victoria as a giant in medical marijuana 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 note, 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,” Patten added.

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

Dr. Sarah Wollaston, chair of the health and social care committee, told the Guardian, “Although the recent changes to government policy were welcomed, there was a failure to communicate what this would mean in practice for the availability of medicinal cannabis.”

Australia’s Royal College of Physicians told the committee, “There is a perception that (cannabis-based medicinal products) work in areas where there is little or no evidence and some patients feel they are being denied access to an efficacious drug.”

A similar conflict unfolded in Canada as Canadians for Fair Access to Medical Marijuana called on the federal government to remove the roughly 10 percent tax on medical cannabis before the budget was finalized.

Medical marijuana users in Canada have said they’ve seen their costs jump significantly, forcing them to look to the black market for product. The group said that the tax will add hundreds of dollars a year to their medical costs.

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, which found that the evidence marijuana’s efficacy in relieving pain for chronic neuropathic pain conditions was “limited.”

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

Drug still sees 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 law that would allow the recreational use and possession of cannabis is currently being debated; in NSW, Hunt said that the state government has “taken a machete” to red tape to allow more prompt access to medical cannabis.

But the measure for legalizing cannabis may have a difficult time being enacted, specifically in the ACT.

One concern is the interaction between the proposed laws and existing Commonwealth laws that would supersede territory legislation.

Currently, cannabis is categorized as a schedule 4 drug by the government, which means it can only be legally used as a prescription medication or a prescription animal remedy.

The law being considered would allow people to carry, use and grow a small amount of cannabis, but it would still ban selling the drug. Other worries for the policy include clarifying the definition of ownership as well as deciding where plants can be stored and how to keep it out of the hands of children under the age of 18.

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.

Currently, there’s only one approved medical cannabis product in Australia: Sativex, generically known as Nabiximols, which is used to treat patients with multiple sclerosis.

Investor takeaway

Despite the challenges, Australia’s cannabis market has been projected to grow quickly.

A 2018 report from cannabis research firm Prohibition Partners said by 2028 the country’s medical cannabis market could be valued at AU$3.1 billion, while its adult-use sector could reach a value of AU$8.2 billion.

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

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

Don’t forget to follow us @INN_Australia for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.