The Office of Drug Control has published a series of guideline documents addressing the fit and proper person requirements and the necessary security and record-keeping arrangements for prospective medicinal cannabis licensees under the Narcotic Drugs Act 2016 (Cth), as well as additional guidance on fees and charges. Partner, Dr Teresa Nicoletti, Lawyer, Sebastian Tonkin and Law Clerk, Helaena Short discuss.

The Narcotic Drugs Act 2016 (Cth) (Act) establishes a licensing and permit scheme for the cultivation and production of cannabis and cannabis resin for medicinal and scientific purposes in Australia and amends the licensing scheme with regard to the manufacture of cannabis products for therapeutic end use. The release of the Narcotic Drugs Regulation 2016 (Regulation) last week represented another important step toward developing a functional legal framework for medicinal cannabis activities in Australia. For more information regarding the Regulation, see our previous article here.

Now, most recently, the Office of Drug Control (ODC) has published following series of additional guidance documents which further elaborate on the Act and Regulation which comprise:

  1. The Fit and Proper Persons and Suitable Staff Guidelines (Fit and Proper Guideline);
  2. The Record Keeping and Reporting Guideline (Records and Reporting Guideline);
  3. Security of Medicinal Cannabis Guideline (Security Guideline); and
  4. Guidance: Fees and Charges.

In addition, the ODC has promised that it will publish the application forms for prospective applicants on the ODC website on or before 28 October 2016.

The requirements contained in each of the Guidelines are numerous and the application process is likely to be an onerous task for most prospective applicants. However, to assist stakeholders in their navigation of this complex area, we have set out a brief summary of the most pertinent points in each of the recently published guidance documents.

The Fit and Proper Guideline

The Fit and Proper Guideline assists licence applicants (and licensees) to assess whether they are fit and proper to conduct authorised medicinal cannabis activities in Australia and provide guidance on designing and marinating arrangements for employing suitable staff.

The Fit and Proper Guideline indicates that the ODC’s assessment of applications involves a deep level of inquiry which goes far beyond a simple police check. A licence application requires disclosure of a wide range of past conduct, and details of associates connected (even tangentially) with the applicant and their business.

The ODC places considerable emphasis on full disclosure by applicants. If information is later discovered by the ODC which has a bearing on a licence and was not originally disclosed, it is likely to be viewed particularly unfavourably and may result in revocation of the licence. Provision of false or misleading information on a licence application may constitute an offence under the Commonwealth Criminal Code. Licensees must also advise ODC of any change in their (or their associates’) circumstances which would call their status as a fit and proper person into question.

In the case of corporate applicants, most of the obligations imposed on individual applicants are levelled on all directors and officers of the company. A corporate licensee must also advise ODC of any changes in the shareholding or directorship of the company. Particular matters which will be considered by the ODC are summarised below.

1. Disclosures. An applicant must disclose to the ODC any past convictions, civil penalties, revoked or suspended drug-related licences or permits, or professional disciplinary action taken against them. The ODC will assess any matters disclosed when determining whether the applicant is a fit and proper person, and may liaise with other bodies (e.g. law enforcement) to confirm the applicant’s answers.

The ODC must refuse to grant a licence where a person has engaged in conduct that would be considered to be a serious offence, whether or not they have actually been charged or convicted. There are very limited exceptions to this, where the relevant conduct involved the cultivation or supply of cannabis for compassionate medicinal purposes.

2. Connections and associations. An applicant must provide details of any connections or associations the applicant has with other persons (including close relatives) that may affect the applicant’s reputation, character, honesty or professional or personal integrity, or have an improper influence on the conduct of the licensed business – the ODC notes that this is likely to be a “reasonably broad” set of associates.

Further, the names and dates of birth must be provided of:

  • anyone holding a financial interest in, or entitled to exercise power over, the applicant’s cannabis business;
  • anyone holding a financial interest in, or entitled to exercise power over, any other business of the applicant from which the applicant derives substantial income; and
  • senior staff in the applicant’s cannabis business.

3. Financial circumstances and bankruptcy. An applicant must provide details of their current financial circumstances, including any circumstances that may limit the applicant’s capacity to comply with the obligations under the licence sought. Applicants must also confirm whether they are currently affected by bankruptcy.

4. Business experience. The applicant must provide details of their previous business experience. The ODC will use this information to determine the risk of business failure leading to inappropriate disposal or diversion of cannabis.

5. Compliance with the Act. The applicant must make a statement about any licence currently or previously held under the Act, and their history of compliance with the Act. The ODC will take into account the applicant’s previous dealings with the ODC in their decision-making.

6. Good repute. The applicant must, finally, provide details of any other matters that may affect whether the applicant is of good repute – being matters going to the applicant’s character, honesty and professional integrity. This assessment relates both to the applicant’s character and the public perception of the applicant.

Finally, it is a condition of all licences under the Act that the licence holder employs or engages only “suitable staff”. Under the Act and Regulation, a person is unsuitable to carry out activities authorised by a licence if they:

  • are under 18 years of age;
  • have, in the last five years, been convicted of a serious or drug or theft-related offence;
  • have, in the last five years, used illicit drugs;
  • currently have a drug addiction, or have in the past undertaken treatment for drug addiction; or
  • are an undischarged bankrupt.

It is expected that, as part of any recruitment process, licence holders will conduct referee and national police checks, seek undertakings relating to current and previous drug use and addiction, and provide training on employees’ obligations to maintain suitability.

Records and Reporting Guideline

The Records and Reporting Guideline assists licence applicants to design record keeping and reporting arrangements in accordance with the Act and Regulations and to support the ODC in monitoring medicinal cannabis activities generally. The Guideline categorises the broad requirements which applicants must satisfy as follows:1

1. Record Keeping Requirement.
An applicant must show evidence of record-keeping arrangements to record the amounts of cannabis that the applicant obtains, cultivates, uses for production, supplies, destroys and disposes of (as applicable), throughout the term of their licence2. It is expected that records will be created routinely by a qualified person and will be managed in a user-friendly system which will be accessible by authorised employees only, and the ODC during inspection. For example, records could be stored on the premises in a restricted-access database that is updated as close as possible to real time. Accordingly, applicants must be prepared to dedicate substantial resources to record keeping arrangements in order to satisfy and maintain compliance.

2. Reporting (stock and forecasts) Requirement.
Where applicable to their application, an applicant must provide information relating to the size of a cannabis crop, the number of plants, and the amount of cannabis or cannabis resin produced. This includes separate records for plant components and the wet and dry weight of crops. Furthermore, records must document all transactions involving cannabis and forecasts of anticipated production to be provided to the ODC.

3. Reporting (incidents) Requirement.
Finally, an applicant must show evidence of arrangements to ensure that the ODC (and relevant emergency services) will be notified of actual and suspected events involving a security breach, or unauthorised access at a cannabis site, or theft, loss, or other serious events affecting the quantity of cannabis.3 Notably, the Guideline provides that any notification should be written, preferably by email and must include extensive details regarding the occurrence, cause and nature of any incident.

Security Guideline

The Security Guideline assists licence applicants to design security infrastructure and systems to prevent diversion of cannabis which may result from unauthorised access by an external person, employee or visitor or even authorised access by an employee or visitor.4 This Guideline is underpinned by a series of principles which intend to deter intruders, delay unauthorised access, deny access to certain persons or groups to the cannabis site, cannabis records or cannabis and finally to detect and defend against any security breach.

The Security Guideline requirements which applicants must satisfy include:5

  1. Access Controls which will prevent unauthorised access to cannabis, including to the site, and during transportation. It is expected that access should be limited both internally and externally by, for example, a visitor policy, staff-selective access controls, day and time selective access controls and audits of access records.
  2. Intruder Resistance. It is expected that the physical design of a site should deter intruders and that cannabis (and any cannabis equipment) will be protected by two or more physical barriers which cannot be breached by a single movement or act (e.g. climb-proof fence, and a second fence appropriately distanced apart).
  3. Detection and Response systems (e.g. CCTV and alarms) which will be tested regularly. Notably, it is expected that a cannabis site will be physically attended daily.
  4. Procedural Security Measures which support physical security and prevent theft or loss of cannabis. It is expected that staff policies will minimise the risk of unauthorised access or theft by an internal source (e.g. staff rotation policy, regular stocktakes).
  5. Disposal and Destruction procedures which ensure that all surplus cannabis (including cannabis attached to equipment) is disposed of or destroyed in a safe and secure manner.
  6. Transportation arrangements which ensure the transportation of cannabis is discreet, and that security of cannabis is maintained during transportation and at receipt at the final destination. Notably, it is expected that cannabis will be contained within two intruder resistant physical barriers with tamper resistant packaging during transport.

Importantly, all arrangements, policies and procedures proposed by an applicant which are accepted will become conditions of the granted licence. Compliance with the conditions is therefore necessary to avoid a civil and/or criminal penalty and licence revocation or suspension.

Fees and Charges

Finally, as we previously discussed, the fees which will apply to licence and permit applications under the Act were published in the Regulations. Importantly, the ODC has confirmed that the asserted fees will apply with regard to cultivation and production licences (for commercial or research purposes) but not manufacturing licence applications. Accordingly, prospective manufacturers will require a State and Commonwealth licence; however they will only be required to pay for the licence issued at the State level.

With regard to inspections, the ODC have estimated a total of cost approximately $7050, on the basis that every inspection will require at least two inspectors and a full day to complete. Furthermore, a Narcotic Drugs (Licence Charges) Bill 2016 is currently before the Australian Parliament. Accordingly, applicants can expect additional costs to be incurred after a licence is granted by way of mandatory charges.