One of the more insidious aspects of government involvement in commercial markets is the practice of supplier licensing.

As entrepreneurs and business people are forced into a bureaucratic world, they have to deal with politics and power plays, rather than focus on what their customers need.

Licensing forces our risk-takers and go-getters into a weird dependency on bureaucrats, many of whom display qualities that are the exact opposite of the entrepreneurs.

What this means in practice is that inefficiencies and poor practices can become entrenched while the normal mechanisms of best practice remain hidden from view.

Rather than giving licensing inefficiencies the sunlight they require to improve the market, the risk of losing a production licence may mean that business people are cowed into silent suffering, fearing that if they ‘go public’ with problems they will pay a price, perhaps through decision inertia, excess conditions, or even a loss of licence altogether.

I was reminded of this issue after a long discussion in a city gymnasium the other day.

One of my familiar workout colleagues was looking a bit stressed. I asked him if something was up, and he then took me on a fascinating 30-minute verbal tour of an Australian agri-business that grows cannabis for medicinal use.

Doctors in Australia, like most countries, can prescribe marijuana to help manage chronic pain such as that experienced by bone cancer sufferers.

My friend told me that Australian medicinal cannabis growers were having to contend with what some describe as a ‘dumping’ of Canadian-grown marijuana into the Australian medicine market. As with all instances of commodity dumping, my friend claims it is putting price pressure on local growers.

The trouble began when in October 2018 when the Trudeau Canadian government legalised marijuana for recreational use, allowing Canadian adults to possess up to 30 grams of legally produced weed and even to grow up to four plants per household.

Before the legalisation of marijuana in Canada, Canadian growers of medicinal cannabis had somewhat similar regulatory requirements to Australia.

However, when the substance was legalised for recreational use, industry production exploded, and it had the effect of essentially scuttling standards around medicinal production.

You can see how this happened. If cannabis is legal, then why would a bone cancer patient purchase higher-cost medicinal cannabis if they can get the weed from anywhere? There’s no need for a doctor’s authorisation.

A portion of the medicinal cannabis being produced in Canada was no longer required for their domestic market, so the Canadian industry looked to other markets for export. Israel is also major importer from Canada and is currently considering an anti-dumping case against Canadian growers.

The complaint circles around the differing requirements between Canadian cannabis and domestic regulations which has created an uneven market. As always tends to be the case, Australian growers get the rough end of the stick when it comes to cost and regulation even though they are selling to the same customers.

Some Australian growers have given up production and instead reshaped their businesses as importers of the Canadian product.

Because Australia classifies marijuana as a prohibited class one drug, the rules and regulations surrounding production here are intensive.

There are four broad types of government licences needed to participate in the supply side of medicinal cannabis in Australia. A licence is required to grow marijuana; manufacture marijuana; export it; and import it.

Growing and manufacturing are the most involved, costly, and time-consuming licences. Manufacturing also requires licenses from the Therapeutics Goods Administration (TGA)

My friend told me that getting a license in the first place took two years of full-time work, and hundreds of thousands of dollars. Before investors would stump money into the investment, they wanted to see his government authorisation.

The company faces regular and unannounced audit inspections of the plantations. The costs associated with those audits are borne by the company. Written independent compliance reports are requested all the time, costing thousands of dollars for each one.

The company’s plantations must have sturdy, high metal fences and gates. There must be 24-hour video surveillance. There are prescriptive rules around growing conditions, such as no pesticides. Quality and Laboratory sampling of the product is a constant cost which is great for Australian patients, but the same standards and systems do not apply to imported product.

Moving the cannabis around, say to a manufacturing plant, cannot be done in a normal farm vehicle, it must travel by armguard trucks, in the same way that ATM cash is distributed.

Expanding production requires a licence change which can take up to six months for approval, and authorisation will only be granted if it can be shown that the extra production does not exceed demand (no such requirement exists on imports).

In the early days, the Office of Drug Control (ODC) was swamped with people applying to cultivate medicinal cannabis, but the process of getting a licence was so costly and then the double whammy of Canadian imports has now eliminated the majority of local producers.

I asked my gym colleague if there were export opportunities for Australian growers. Apparently, even this is plagued by licensing issues, as the time it takes to get an export licence can be long and uncertain – which makes business deals difficult.

When I asked whether there was a chance of getting some changes, perhaps through political leadership, he seemed pretty downcast.

‘Nobody in the relevant agencies seem interested in fighting for a better deal for Australian growers. Politically, I think, it’s viewed as too hard basket or there are no political points available.’

There probably does need to be licensing for medicinal cannabis, but does it really need to be this costly and hopeless? And also, does it make sense to strangle local growers with bureaucracy and standards but enforce precious little similar hurdles on foreign businesses?

It’s a small but compelling anecdote about how government licensing conditions can limit dreams, curb or even kill entrepreneurship and strangle a growing industry.

Nick Hossack is a public policy consultant. He is former policy director at the Australian Bankers’ Association and former adviser to Prime Minister John Howard.

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