Considerations for Legalisation (Pt 2)
As more European countries legalise recreational cannabis, decisions about how the market should operate, which products to permit, where supply will come from, and how to balance international legal obligations become ever-more pressing.
In collaboration with the international law and business services firm Ince we explore the major considerations operators are contending with on this side of the Atlantic - highlighting legal, political, financial, and public safety perspectives.
This is the second instalment of a two-part blog series.
9. The Status of Medical Access
Many are concerned with how the existing medical cannabis sector
and patients will be impacted by recreational reform. From blurring lines between patients and consumers, to the extent that medical cannabis companies will shift into recreational operations, there are very valid considerations and transitions which need to be handled with nuance.With the introduction of new access channels, the split between ‘patients’ and ‘consumers’ and between medical and lifestyle brands may change. Allowing both medical and recreational access enables a broader ‘spectrum’ of legal use, from purely-pleasure seeking to prescribed medicines, with quasi-medical use falling in between - such as for milder pain or to aid sleep.
One observation to play out is the degree to which medical cannabis producers and infrastructure will pivot into recreational markets or away from medical completely. While this has proved commonplace in US and Canadian markets, European medical cannabis has a much more tightly-regulated framework than North America, with production within the EU-GMP pharmaceutical framework, and doctor prescription and oversight. As such, there’s less of a natural ‘pivot’ for specialised, pharmaceutical operators into the recreational sector than in North America, where medical cannabis is accessed through the dispensary model.
Wider cannabis reform may also be a welcome boost to medical cannabis access in Europe, by raising further awareness and destigmatising consumption, and attracting investment to areas that o er major benefits for both medical and non-medical sectors - such as genetics, product innovations and IP.
10. Home Grow
Often seen as more of a discretionary ‘bolt-on’ to commercial sales in North American markets, home grow may yet prove to be a defining feature of European cannabis reform.
Several factors influence this trend: Firstly, personal cultivation is significantly less problematic than commercial production from an UN treaty and EU perspective - which in part explains Spain’s longstanding decriminalisation policy and the new regulatory models of Malta and Luxembourg.
Home grow is also typically supported by left-leaning parties who are generally more suspicious of ‘corporate cannabis’ - and are traditionally the political parties most supportive of cannabis reform in general. European cannabis activists, too, tend to promote personal cultivation
and consumption as an issue of individual liberty, the right to privacy and freedom of expression, rather than as a springboard for commercial opportunity.While home grow provides opportunities for people who may otherwise be shut out of legal markets on the basis of cost or potency restrictions, as a sole source of legal supply it is not without problems. Home grow fails to fully address questions of equity (not everyone is able to cultivate or has access to a space where they’re permitted to grow) or product safety (with few enforceable rules on quality, testing for THC content or contaminants, as well as fire risks from DIY extraction techniques). It also cannot easily accommodate more processed product formats such as THC or CBD vapes, and may provide a front for larger-scale production linked to organised crime.
Home grow may also prove politically contentious amongst certain groups of voters who are concerned with the intrusion of cannabis on their everyday life, such as having to endure the sight and smell of plants cultivated by neighbours - a negative identified by 27% of the public in our polling.
11. Fundraising and the Proceeds of Crime Act
Raising capital to finance recreational ventures is a challenging endeavour in Europe. Recreational companies are currently unable to list on Europe’s public markets, most investment firms have internal restrictions on the sector, and the Proceeds of Crime Act 2002 (POCA) is an ongoing risk for UK investors.
Legislation to combat money laundering and criminal financing is in place across most of Europe, but unlike the majority of national laws, the UK’s has extra- territorial effect and covers operations carried out overseas.
Despite its far-reaching impacts, POCA hasn’t completely stifled investment in companies with recreational assets. Investors can avoid legal repercussions through the National Crime Agency (NCA)’s Consent Regime by filing Suspicious Activity Reports (SAR). If the investor submits a SAR before undertaking the act and receives direct or deemed consent from the NCA, no offence is committed under POCA.
A dichotomy exists between the Financial Conduct Authority which maintains that recreational revenues are criminal property, and the National Crime Agency’s Consent Regime which has not objected in any known cases. The NCA’s core purpose is to pursue terrorists and organised crime rather than lawful licenced overseas businesses.
Some degree of clariifcation or reform is likely to take place as recreational markets unfold across the continent. Early signs of this shift are evident as legislation has passed in Jersey and Guernsey to provide an exemption to POCA.
12. Domestic Production or International Trade?
Imports and exports of medical cannabis are commonplace in Europe, raising the prospect of cross-border trade in recreational products as well. The concept is controversial - violating current UN and EU rules - but to many has economic and political appeal.
To date, national and US-state recreational markets have operated in a ‘closed-loop’ model with no legal product leaving or entering their borders. This entails the costly and ineficient replication of land, labour and capital, and prevents specialisation by regions with a comparative advantage in cannabis production or pre-existing infrastructure.
Countries looking to legalise cannabis without the costs & timelines of licensing and building production facilities could look to nations already active in recreational production such as Uruguay and Canada, or set up an intra- EU market of tightly-controlled supply.
Tom Blickman, drug policy reform expert at the Transnational Institute (TNI) explains: “If Germany does allow a recreational cannabis market in the next few years, where do they get their cannabis from? The Netherlands is due to have a whole system of regulated growing that could also supply Germany, and form the beginning of an export market. But so far, what we’ve seen is that no country dares to touch this issue, and says ‘let’s keep it all domestic so that we don’t get in trouble with the UN and other countries’.”
Legalisation with an equity-focused lens could also give priority and market protection for the producer countries responsible for Europe’s current cannabis supply, such as Morocco & Lebanon. While many international producers have struggled to meet the EU’s stringent standards required for medical cannabis, recreational product standards (such as food rather than pharma-grade GMP) would be easier to attain.
On the other hand, countries may see the jobs, local investment and tax base created by domestic production and wish to keep these benefits in-country. Consumers, too, may prefer a locally-grown and potentially more environmentally-friendly cannabis supply.
The key question for European countries legalising now is whether they are prepared to breach current EU and UN restrictions for the sake of international supply. Breaching obligations on an international level may be seen as too great a political provocation, and would undermine the already fragile integrity of international law. In this case, the prospect of recreational cannabis trade rests on the appetite for wider international regulatory reform.
EXAMPLE COSTS AND MARGINS FOR CANNABIS PRODUCTION IN BRITISH COLUMBIA
13. THC Impairment - Driving and Work
In legal markets, new boundaries need to be set for when cannabis consumption overlaps with activities like driving and working with heavy machinery. Public health offcials need to confront the question of what level of THC constitutes impaired driving, given that there is no established cut-off as with alcohol. This problem also extends to those with a medical cannabis prescription.
Tests can monitor blood levels of THC, but there remains a lack of understanding around the correlation between levels of THC in the blood and the level of intoxication. Other methods are even less accurate - ranging from examining a persons’ pupils to their ability to walk in a straight line.
A new technique being trialled could provide a solution to the shortfalls of existing tests. Functional near-infrared spectroscopy can identify changes In the brain’s prefrontal cortex that signal intoxication, but are not directly correlated to the body’s THC levels.
• The current lack of reliable tests for intoxication is a hurdle to national legalisation, and was one of the safety considerations Canada received the strongest pushback for when legalising. Developments in the testing sphere will give regulators and conservative groups more reassurance about legalisation, if they know that enforcement to ensure that people aren't driving under the influence is possible.
• An increase in impaired driving is the most common fear about cannabis reform across all the markets polled by First Wednesdays, with 42% of people identifying it as a risk of cannabis legalisation.
14. UN Treaty Reform (Or Not?)
Confronted with the conflict between cannabis legalisation and UN constraints, several avenues are available to the international community. While there is currently little consensus on the most effective or expedient route forward, the issue is likely to increase in prevalence and relevance over the coming years.
Some scholars also reject the notion of treaty conflict outright - arguing that mainstream interpretations of the treaties are overly-restrictive and over- look possibilities for a wider range of approaches to non-medical cannabis regulation.
Kenzi Riboulet-Zemouli, an independent cannabis policy researcher, argues: “I believe reforms that concern adult-use are possible under UN treaties - but unfortunately, we currently have a very limited range of treaty interpretations that have been heavily influenced by four decades of the war on drugs. We need to take back the treaties without this prohibitionist perception, supported by national laws that match a specific treaty interpretation”.
Options available to countries considering legalisation include:
Continued technical non-compliance
Domestic legalisation of cannabis despite tension with UN treaties
Can be done while supporting overarching aims of the treaties & advocating for reform
Avoids di cult discussions on treaty reform for the time being, but becomes less tenable as more countries legalise
Undermines broader international cooperation and upholding of agreements - e.g. on human rights and nuclear non-proliferation
Maybe more difficult for countries also constrained by EU law
WITHDRAWAL FROM TREATIES AND RE-ENTRY WITH RESERVATIONS
Comprehensive treaty amendments to allow for adult-use cannabis regulation Can be proposed by any treaty member
Can be proposed by any treaty member
Would require revisions to all 3 treaties and a high degree of consensus amongst nations to pass
Not a political likelihood for the foreseeable future
WITHDRAWAL FROM TREATIES AND RE-ACCESSION WITH RESERVATIONS
Allows states to withdraw from and re-enter treaties to establish national reservations (‘exemptions’)
Used by Bolivia to reject controls on coca leaves • Re-entry blocked if 1/3rd countries raise objections (around 60+ countries)
Bolivian re-entry objected to by 15 countries including the USA, Canada, UK, France, Germany & the Netherlands - ironically many states that could apply the same process for cannabis.
Risk of political escalation if applied for by an influential state such as Germany or the USA - e.g. a mass objection by a bloc of prohibitionist or non-ally states
INTER-SE TREATY MODIFICATION
Enables consenting countries to revise treaty details amongst themselves - such as to allow for domestic regulated cannabis markets and exports
Does not require consensus or permission from opposed nations - the revised elements would not apply to them
A relatively obscure option not currently widely considered or endorsed, but likely to gain increasing attention in coming years. First proposed as a solution for cannabis by the Transnational Institute (TNI) in 2018
Canada on inter-se modification: ‘officials are aware of the option, and open to solutions that accommodate different approaches to cannabis’ degree of consensus amongst nations to pass