Amendment to Hazardous Drugs Ordinance Promotes Regulation in Cannabis Market
The extensive scientific evidence of the beneficial effects deriving from the use of cannabis, particularly in the medical and cosmetics industries, has led to regulatory changes in countries around the world, including Israel, the United States, Canada, and some European countries. These regulatory changes are likely to have far-reaching implications on Israel’s economy and agricultural sector.
Israel is considered a global leader in the field of medicinal cannabis, and is perceived as having a significant advantage with regard to crop cultivation costs due to its unique weather conditions. Already today, companies are operating in Israel in the various links in the medicinal cannabis production chain, and have invested in advanced research and development. As a result, there is growing interest around the world in importing medicinal cannabis from Israel.
Most countries still prohibit the cultivation of cannabis for medicinal purposes and import cannabis from countries where production is legal. For example, foreign companies purchase services from Israeli universities related to the research and development of both special cannabis strains customized for specific needs and unique cultivation technologies.
Until today, the regulatory landscape in Israel posed three major challenges to Israeli medicinal cannabis growers, which together caused a bottleneck: (a) a prohibition on exports of medicinal cannabis, (b) regulations that impose high production costs on growers, and (c) law enforcement agencies not having the means to authorize foreign investors interested in investing in Israeli medicinal cannabis companies to hold more than 5% of the companies’ issued share capital.
On December 25, 2018, the Israeli parliament approved the second and third readings of an amendment to the Hazardous Drugs Ordinance (Delegation of Supervisory and Enforcement Authorities Relating to Cannabis for Medicinal and Research Purposes).
This amendment constitutes an important step in regulating and developing the Israeli medicinal cannabis export market, by delegating supervisory and enforcement authorities for issuing various licenses to engage in medicinal cannabis, including exports.
The amendment to the law prescribes a mechanism for the director-general of the Ministry of Health to issue licenses to engage in medicinal cannabis through the ministry’s Medical Cannabis Unit, and regulates the division of responsibilities and the relations between the Ministry of Health and the Ministry of Internal Security in this context.
Inter alia, the amendment prescribes that a license to engage in medicinal cannabis will be issued at the recommendation of the head of the investigations and intelligence department of the Israel Police within four months, and if a foreign investor, within six months. Alternatively, there may be instances in which the head of the investigations and intelligence department issues a notice within 30 days of the request for his recommendation that the particular circumstances do not require the department’s recommendation.
A recommendation to issue a license will be given when there is no obstacle to granting the applicant’s license on the grounds of public safety and wellbeing, for instance if a license applicant has a criminal record, or if there are questions with regard to the applicant’s reliability. If the license applicant is a corporation, a recommendation will be given, inter alia, after investigating the stakeholders in the corporation.
If the head of the Israel Police’s investigations and intelligence department determines that he cannot verify the information regarding the license applicant, the matter will be relayed to the medicinal cannabis licensing committee for further investigation.
One of the amendment’s innovations is that it establishes a committee that is required to issue recommendations to the director-general of the Ministry of Health regarding the granting of a license to engage in medicinal cannabis. The committee will be comprised of the minister of internal security, who will chair the committee, the general commissioner of the Israel Police, the minister of finance, the minister of economy, and the minister of health.
These mechanisms should contribute to opening the bottleneck created in the medicinal cannabis market in Israel and resolve the de facto ban on foreign investors holding Israeli medicinal cannabis companies, due to the requirement that any shareholder holding more than 5% of the shares of an Israeli company licensed to engage in medicinal cannabis must obtain approval from the Ministry of Health’s Medical Cannabis Unit.
The amendment also seeks to promote the start of medicinal cannabis exports from Israel by prescribing an export license mechanism.
In addition, the amendment prescribes sanctions in respect of a breach of the license conditions, including on a company’s officers. Breaches of license will be deemed offenses subject to strict liability, i.e. the offender will be held legally responsible without the need to prove mens rea or negligence.
The amendment will come into effect on May 1, 2019. The hope is that the amendment’s definition of time frames and mechanisms for examining and settling disputes between the various authorities will accelerate the issuing of licenses and shareholding and control permits, and will contribute to the certainty needed for businesses and investors in this market.
Hopefully, the necessary decisions regarding the granting of export licenses will be reached in 2019, thereby opening the Israeli medicinal cannabis market to the world.