Key issues:

  • The Australian Capital Territory (ACT) Legislative Assembly yesterday (25 September 2019) passed legislation purporting to effect the legalisation of possession and cultivation of small quantities of cannabis for personal use within the Territory from January 2020 onwards.
  • Discussion of recreational cannabis often overlooks the distinction between two divergent approaches: the decriminalisation of a drug versus the legalisation of a drug.
  • The Cannabis Bill faces significant challenges before it becomes an established law in the ACT. The amendments effected by the Cannabis Bill to the Territory’s laws directly contradict the current Commonwealth drug regulation regime, which imposes significant criminal penalties for cannabis possession and cultivation at a federal level.
  • Australia’s medicinal cannabis licensing regime will likely remain unaffected by the ACT laws, although investors should consider the possibility that recreational cannabis decriminalisation or legalisation may be on the horizon for other Australian jurisdictions.

The ACT Legislative Assembly yesterday (25 September 2019) passed legislation purporting to effect the legalisation of possession and cultivation of small quantities of cannabis for personal use within the Territory from January 2020 onwards.

An introduction to the existing Australian medicinal cannabis regime can be found here.

But what is meant by the “legalisation” of a previously illegal recreational drug like cannabis?

Discussions of recreational cannabis often overlook the distinction between two divergent approaches: the decriminalisation of a drug versus the legalisation of a drug. Although there is no official or definitive source concerning the distinction between decriminalisation and legalisation, the two words are employed in academic and legal literature to describe very different approaches to allowing the lawful possession, production and sale of a drug, and should not be used interchangeably. An understanding of the difference between decriminalisation and legalisation can better inform the policy debate in other Australian jurisdictions going forward, and provides investors interested in the prospective legalisation of recreational cannabis with an insight as to the approaches that may be adopted.

What is a decriminalisation-based approach?

Decriminalisation of cannabis generally refers to the reduction or removal of criminal sanctions for cannabis possession and (less commonly) cannabis cultivation or distribution. This may be accomplished through different means, including (but not limited to):

  1. the reduction of criminal penalties for cannabis possession or cultivation (specifically the removal of imprisonment as a sentencing option);
  2. the substitution of criminal penalties for civil penalties; and
  3. the authorisation of limited cannabis possession and cultivation in certain well-defined circumstances, generally determined with specific policy goals in mind.

The key characteristics of decriminalisation-oriented approaches are the authorisations for small-scale cannabis possession, and use, in private circumstances. Penalties are generally retained for irresponsible behaviour including allowing children to use cannabis, selling large unregulated quantities of cannabis, or cultivating cannabis in a household with children. Decriminalisation-based approaches also do not usually permit the commercial cultivation, manufacturing, marketing or sale of cannabis. The basis for this approach being considered “decriminalisation” is the assertion that although widespread, normalisation of cannabis as a consumer good is not condoned, criminal sanctions for private use are removed or significantly reduced.

What is a legalisation-based approach?

Legalisation of cannabis generally refers to a legislative approach that effectively characterises cannabis as just another consumable (albeit regulated) good, like sugar or alcohol, which may have negative consequences if irresponsibly consumed. In most American jurisdictions, this has been effected primarily through a licensing and taxation regime whereby:

  1. businesses that cultivate, manufacture, market or sell cannabis products are licensed by a government authority with oversight and disciplinary functions; and
  2. the government subjects cannabis products to taxation, including excise and duty (similar to alcohol or tobacco).

This approach is characterised as “legalisation” because it essentially treats cannabis as a consumer good that should be subject to industry regulation, oversight, and taxation.

Why bother with the distinction?

The distinction between decriminalisation and legalisation is worth maintaining because of the fundamentally distinct political, social, and economic considerations underpinning each approach.

Advocates of decriminalisation argue that the harmful consequences of criminal sanctions and incarceration for cannabis-related offences outweigh the social harms caused by small-scale cannabis cultivation and consumption - while preventing the commercialisation and mass production of a substance that can have harmful consequences if abused.

Advocates for legalisation, on the other hand, suggest that regulation and taxation of commercial cannabis sales allows States to capture revenue that can fund public health responses to the problems associated with cannabis use. Legalisation advocates also assert that licensing can create transparency and oversight in what is presently black market.

Naturally, there is some overlap in arguments advanced for both approaches, including that legalising personal cannabis cultivation and lawful commercial cannabis production diverts funds from organised crime. Both approaches are not mutually exclusive from a legislative perspective. For example, the US State of Colorado allows both personal unlicensed small-scale cannabis cultivation and consumption, which can be considered decriminalisation, and large-scale licensed commercial cannabis cultivation, production and sale, which is more properly classed as legalisation.

A table briefly summarising arguments for each approach is summarised below:

Public health issue Decriminalisation Legalisation
Cannabis supply Supply limited to decriminalised small-scale personal production (generally 10 - 100 grams and/or several flowering cannabis plants); gifting small quantities can be allowed; sales generally prohibited. Licensing and licence terms prescribe oversight and production controls; taxation/excise; general responsible service obligations in addition to licence terms similar to alcohol.
Government revenue Production and consumption untaxed. Captures revenue through taxation including excise and GST; income/corporate tax from commercial profits; licensing fees and charges; fines for non-compliance.
Underage access to cannabis Criminalises; leaves guardians responsible for managing access to their cannabis. Criminalises and regulates in a manner similar to alcohol  (i.e. ID required for purchase, criminal penalties for underage supply).
Organised crime Deflates black market price for cannabis by allowing for personal supply, thereby cutting revenue to organised crime. Deflates black market price through providing lawful access; disincentives unlawful purchases/production; good character requirements and other transparency and oversight obligations to prevent organised crime infiltrating lawful establishments.
Law enforcement and oversight Police generally responsible for enforcing terms of decriminalisation regime. Enforcement can be difficult, given highly decentralised nature of cannabis production. Can be funded by taxation of cannabis; often managed by jurisdiction’s alcohol or tobacco authority instead of police. Limited number of licences allows government to focus resources on enforcing licence-holder compliance.
Addiction treatment De-stigmatises addicts and users from seeking professional medical treatment for cannabis-related disease (risk of criminal sanctions removed). De-stigmatises addicts and users from seeking professional medical treatment for cannabis-related disease; can fund public health through taxation/fees.
Commercialisation Commercialisation illegal; inhibits lobbying by large commercial interests. Laws/responsible government authorities can regulate advertising and sales in manner similar to alcohol and tobacco.

It should be noted that a significant body of scientific research has established that recreational cannabis use has significant physical and mental health risks, and that the arguments above are ordinarily advanced on the basis that both decriminalisation and legalisation are functional means of addressing these risks.

What’s the ACT doing?

The Drugs of Dependence (Personal Cannabis Use) Amendment Bill 2018 (ACT) (Cannabis Bill) is the bill by which the ACT Legislative Assembly seeks to authorise small-scale cannabis possession and cultivation within the Territory through amendments to the Drugs of Dependence Act 1989 and related legislation. The Cannabis Bill can arguably be best characterised as a decriminalisation approach: as of 31 January 2020, ACT citizens will be able to lawfully possess 50 grams of cannabis and/or cultivate two cannabis plants within their home, provided the cannabis cannot be accessed by the public or children. Penalties still apply for smoking cannabis in a public space and to adults who allow children to consume cannabis (amongst other circumstances). Further, commercial production, marketing and sale of cannabis will remain illegal.

Nonetheless, the Cannabis Bill faces significant challenges before it becomes an established law in the ACT. The amendments effected by the Cannabis Bill to the Territory’s laws directly contradict the current Commonwealth drug regulation regime, which imposes significant criminal penalties at a federal level for cannabis possession and cultivation. The Commonwealth will need to clarify its position on the Cannabis Bill as it can conceivably override the ACT’s legislation. Recreational cannabis advocates would do well to wait for both of the parliaments in Canberra to resolve their differences before growing any cannabis of their own in the ACT.

Given the localised and uncertain status of the ACT’s decriminalisation, the Cannabis Bill is unlikely to have significant commercial consequences for Australia’s existing medicinal cannabis industry. Nonetheless, investors looking to capitalise on prospective recreational legalisation of cannabis should familiarise themselves with the distinct concepts of decriminalisation and legalisation. Decriminalisation of medicinal cannabis may undermine the market price for both medicinal cannabis products in Australia. Conversely, recreational legalisation may allow existing licensed medicinal cannabis producers/cultivators to use their existing knowledge and capital to expand into a new legal market for cannabis.