Regulatory Impact Statement

Development of a Regulatory Framework for the Cultivation of Industrial Hemp in New Zealand

Date of publication: March 2004

Background

Industrial hemp refers to varieties of Cannabis sativa that are low in tetrahydrocannabinol (THC), the psycho-active substance in illicit cannabis. Hemp uses include fibres for clothing, rope, paper and fabric production, and hemp seed and hemp seed oil which is used in cosmetics, foods and health remedies. The term hemp growers refers to those engaged in the import and distribution (on-selling) of hemp seed, and those involved in the cultivation, on-selling, harvest and processing and export of hemp plants and products.

Industrial hemp was legally grown in New Zealand until 1948, at which time all cannabis cultivation was made illegal, regardless of THC content. The import, cultivation, possession and sale of any cannabis plants, seeds or products are currently prohibited by the Misuse of Drugs Act 1975, unless an exempting licence has been granted.

In 2000, the Minister of Health agreed to lift a moratorium on the granting of licences, to allow the growing of industrial hemp for the purposes of conducting a two year hemp cultivation trial to test the viability of industrial hemp as a commercial crop, and to determine what level of control would be appropriate, if long term cultivation were to be permitted. Thirty-two licences to grow hemp were granted during the trials, although not all licence holders cultivated hemp. Approximately 19 hectares were cultivated in year one and 18 hectares in year two.

The growing trials have been successful, suggesting that industrial hemp is a viable crop in New Zealand. Controls imposed on cultivation (for example, police clearance of trialists, security conditions, reporting requirements, and disposal of cultivars with too high THC) have ensured that security concerns have not arisen.

Statement of the Nature and Magnitude of the Problem and the Need for Government Action

While these trials were able to take place as a result of provisions in the Misuse of Drugs Act 1975 that allow the Minister of Health to issue licences for the cultivation of prohibited plants, there are risks in continuing to allow cultivation through this mechanism in the long term. These include:

• Confusion among the public over the legal status of hemp and implications of continued hemp cultivation: this could undermine long-term support for hemp cultivation and/or result in increased (and potential unnecessary) controls being imposed on cultivation – thus resulting in lost economic opportunities and/or increased costs

• An inability to set fees for licences at cost-recovery levels (with consequent resourcing difficulties for monitoring agencies)

• A potential for inconsistent and inadequate application of conditions on licences, such conditions not meeting the needs of enforcement agencies (the ability to monitor and take enforcement action where necessary), cultivators (clarity of long term obligations), or the government generally (to meet its domestic and international obligations to discourage the cultivation of psychoactive plants).

• Regulations under the Food Act 1981 permit the addition of hemp seed oil to food in New Zealand but there is only a temporary mechanism to permit the growing of hemp used to make hemp seed oil.

• There is also the potential for hemp seed oil to enter the New Zealand food supply and then to enter the Australian market under the provisions of Trans-Tasman Mutual Recognition Arrangement (TTMRA), even though Australia is opposed to hemp in the food supply.

The annual value of imports of hemp-based products is estimated at approximately NZ$1 million, however the true value is not known. The likely future market for such products domestically, and opportunities internationally, cannot be reliably gauged, although one industry commentator has suggested the international market could be worth NZ$40 to 50 million per annum in export earnings in the medium-term. If such market opportunities did arise, this is likely to encourage further cultivation in New Zealand.


Statement of the Public Policy Objectve(s)

The objective is to enable industrial hemp production, commercialisation and research in New Zealand, while balancing the need for practical and reasonable requirements on growers, to ensure an internationally competitive industry, while making sure that hemp seed, plants and products are adequately controlled so as not to contribute to the supply of high-THC cannabis.


Statement of feasible options (regulatory and/or non-regulatory) that may constitute viable means for achieving the desired objectives



Non-regulatory option

Option 1: Development of new legislation for industrial hemp production

This option would require a Bill to amend the Misuse of Drugs Act 1975 to redefine hemp in the Act and to remove industrial hemp from the definition of a prohibited plant, on the grounds that hemp is not an illicit drug and should not be subject to the level of control required by the Act. This is a non-regulatory option in the sense that once industrial hemp was removed from the definition of a prohibited plant, there would be no regulatory controls on hemp cultivation or hemp products.

The Misuse of Drugs (Industrial Hemp) Amendment Bill, recently considered by the Primary Production Committee was designed to achieve this. However, the Committee has recommended against further consideration by the House of this Bill and its feasibility as a vehicle for this legislative change is therefore in doubt. Option 1 has significant disadvantages. Removal of hemp from the list of prohibited plants poses some risks concerning the ability to control unsuitable hemp cultivars, for example those which produce a higher than desirable THC content, security concerns, and the ability to sanction any growers engaging in unlicensed activities. A Bill would either need to contain specific controls over the cultivation of hemp to ensure these concerns are addressed, or supporting regulations would ultimately need to be considered.

Regulatory options

Option 2: Status quo – issuing of licences under the Misuse of Drugs Act 1975 and Regulations 1977

The Misuse of Drugs Act and Regulations allow the Minister of Health to grant licences for the cultivation of banned plants. The grower must describe the land or the address, and must give the area or number of plants. The Director-General of Health is able to apply other conditions as deemed appropriate. Licences can be granted for a specified period of time, or for an indefinite period. The Regulations also allow for licences for import, export, possession and dealing, all activities that are relevant to hemp cultivation.

Hemp seed oil is regulated by the New Zealand Food (Safety) Regulations 2002 under the Food Act 1981. The regulations are temporary to the extent that they would be replaced if there was ever a joint food standard with Australia covering such products.

An Interagency Working Group (comprising relevant government agencies along with, the Institute of Environmental Science and Research, the Hemp Industries Association of New Zealand, and Federated Farmers) has overseen the hemp cultivation trials that have seen the licensing of growers for a three year period. The Ministry of Health was responsible for the receipt, assessment and issuing of licences, and monitoring of compliance, with assistance from MAF. Police were involved in checking applicants’ suitability.

The risks associated with this option relate to the lack of fee-setting powers under current regulations, potentially increasing costs to Vote: Health for licensing and compliance activities. Licence conditions are not specified in regulation, therefore consistency of application of criteria and conditions between growers may be an issue long-term. This option does not provide for clear regulatory differentiation between industrial hemp and other prohibited plants (including high THC cannabis). This could cause confusion with regard to the legal status (and risks) of hemp versus cannabis, resulting in public concern of increased harms to society from hemp cultivation. Therefore, it is not appropriate to maintain the status quo arrangement.

Option 3: (Preferred option) Expansion of the Misuse of Drugs Regulations to provide specifically for control of industrial hemp cultivation

Note: some of the features of the preferred option may change as this is a work-in-progress RIS due to the need to consult with the hemp industry.

A regulatory regime would be built on existing legislation and regulations by developing specific stand-alone regulations for the control of hemp cultivation. This would provide for a very clear differentiation in law between industrial hemp and illicit (high-THC) cannabis. Such regulations would provide for:

• Defining what industrial hemp comprises (with specific reference to permitted THC content – 0.35% THC, dry weight)

• Licensing of activities (including provisions, which establish criteria to be satisfied before licences can be issued; and provide for conditions to be applied when licences are granted (for example, record keeping, security, character checks, etc)).

• The ability to issue specific licences related to the end use of the crop

• Setting out the testing methodology to be followed when measuring THC content (NB: the cost of testing will be approximately $300 per annum – see cost section below))

• Formalising powers for the destruction on non-compliant (high THC) hemp

• The setting of fees on a cost-recovery basis to allow the Ministry of Health to recover all costs associated with the review of applications to cultivate industrial hemp, issuing of annual licences, and monitoring of licence conditions. (NB: licence fees will be approximately $500-$600 per licence per annum - see cost section below)

The production and importation of hemp seeds would be permitted. Hemp seed oil would continue to be regulated under New Zealand food law. There is no intention at this time to extend the regulations to cover other hemp food products.


Statement of the net benefits of the proposal, including the total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options.

Note: as this RIS is a ‘work in progress’, there may be further additions to this section.

Government
Allowing for an industrial hemp industry has the potential to deliver on the twin policy objectives of facilitating industry development while preserving appropriate controls to ensure minimisation of drug-related harm.

Regulation would be retained under the existing Misuse of Drugs legislation, which is a common and effective approach in other jurisdictions around the world. The ability to recover costs associated with applications for licences would also be a benefit to government.

Permitting the production or importation of hemp seed would remove the current inconsistency whereby hemp seed oil is able to be included in food production in New Zealand but the seed is not able to be produced or imported into New Zealand.

The potential exists under all of the options identified for New Zealand hemp seed oil (and food products containing it) to enter the Australian market under the provisions of TTMRA, when Australia is opposed to hemp in the food supply. This risk is currently being managed by officials and will continue to be so. In some cases, State drug related laws may prevent its entry.

Issues may arise if New Zealand producers attempt to export hemp seed oil food products. An option considered by Australia in that circumstance would be an import prohibition.

Hemp growers
The preferred option would provide clear guidance to growers on what controls apply to hemp. Growers would, however, incur a substantial increase in licence fees from $11.25 per licence to between $500 and $600 per licence, per annum, to ensure that costs are recovered by the government. Where parties require more than one licence, for example, for importing, cultivating and on-selling, it is possible that fees could be discounted if information required is relevant to more than one application, and if audit of multiple activities at a single site can be done simultaneously.

Growers will also need to pay approximately $300 per annum to test THC levels in their crops. If a crop tests at higher than permitted THC, then that crop must be destroyed, which poses a potential significant loss to the farmer.

There is unlikely to be a difference in costs between large and small hectare sized sites, although the impact of the licence fees is likely to be greater on a smaller site. Costs will be further identified through consultation with industry on the proposed regulations.

The economy
Regulating hemp production has the potential to add value to New Zealand’s primary production sector and economic benefits through the production and sale of value-added hemp goods. Hemp has the potential to create employment opportunities in rural areas suited to hemp growth, although these economic benefits are difficult to quantify as they depend on creating both domestic and international marketing opportunities: markets in which New Zealand has to date not competed.


Statement of consultation undertaken

The Treasury, Ministry of Economic Development, Ministry for the Environment, New Zealand Customs Service, New Zealand Police, Department of Justice, the New Zealand Food Safety Authority, Ministry of Agriculture and Forestry, and Te Puni Kokiri have been consulted.

The Institute of Environmental Science and Research Ltd and Federated Farmers of New Zealand are members of the interagency working group and have been made aware of the outcomes of the trials and the intention to develop a long-term regulatory framework for hemp cultivation.

Consultation with growers and other stakeholders on the proposed regulatory controls has not taken place. Consultation will be undertaken shortly and input from these groups will inform a future report-back to Cabinet and the development of the final RIS, including identification of compliance costs for industry and means of minimising those costs.


Business Compliance Cost Statement

Compliance costs are likely to result from reviewing, understanding and implementing the requirements. Further compliance costs may be identified as a result of consultation with growers and other interested parties on the scope of the regulatory controls.

Importers, growers and sellers of hemp products are likely to be affected by the proposal. In the 2003/04 year there will be an estimated 15 licensed growers, four licensed importers / suppliers of seed and up to five agencies or individuals licensed to use hemp in manufacturing. A more permanent regulatory framework may encourage further entry into the market. It is not possible to estimate the likely future size or shape of the industry.

It is unlikely that compliance costs would increase for those already involved in hemp growing if regulations are based on the current licensing framework used for the hemp cultivation trials. Compliance costs will be minimised by ensuring that requirements are appropriately communicated to potential and existing growers. This can be achieved through the licensing process (information for applicants and licence holders), through the Industrial Hemp Association’s website and newsletter, and by direct advice to queries coming from growers and other interested parties.

---

Related information:

Regulatory Impact Statements page