Regulation with stringent product control

There is an instructive contrast between the alcohol and tobacco markets. Regulation is much tighter for tobacco: all advertising is illegal, smoking is banned in most public places, the product itself is subject to direct controls, and there is a very active programme of health education aiming at demand reduction. The third vision of a legal regulated market for cannabis would have much in common with the market for tobacco and seems to us the most plausible type of reform in the British context.11 _{There is likely to be public demand for stringent controls (see}

Branson et al. 2012 for recent survey evidence on the public support for regulation of markets for potentially harmful consumption goods) and, to achieve public acceptance in Britain, we would expect regulations on a licensed cannabis market to be at least as strict as those on the tobacco market, despite the evidence of rather less social harm for cannabis than either alcohol or tobacco.

Consider the existing tobacco market: unlike cannabis, there is no significant agricultural production of tobacco in the UK, but it is produced as a farm crop elsewhere in the EU, with no specific controls or licensing requirements relating to the location or form of cultivation.12 _The

manufacture of products from imported tobacco leaf in the UK is subject to registration, which involves an assessment of the control of the manufacturing process, adequacy of record-keeping and security of the premises.

However, there are health-motivated controls on product constituents which go far beyond the regulation required by the revenue protection principle. Regulations for the UK tobacco market are specified in a 2002 statutory instrument (Department of Health 2002), which implements European Community Directive 2001/37/EC. There are four main provisions: (i) the prohibition

11 _{A still more radical form of supply control is for a state monopoly, as currently proposed by the Uruguay}

government.

12 _{Tobacco output was long subsidised under the Common Agricultural Policy, with those subsidies only now being}

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of certain forms of tobacco;13 _{(ii) controls on the physical constituents of tobacco products;}14 _(iii)

a system of government testing of tobacco products;15 _{and (iv) mandatory health warnings.}16 _A

significant omission from the regulations is any control on tar, nicotine and carbon monoxide yields of loose hand-rolling tobacco. However, there remains a concern about the ability to update regulations in response to the continuous development of additives by producers and to develop forms of regulation sufficiently flexible to cover new forms of consumption that may become important in the future.

Product controls like those applied to tobacco require a degree of process consistency and internal quality control that are difficult for small producers to achieve, and economies of scale in production and distribution also produce a tendency towards domination by large producers, each offering a relatively uniform product in mostly prepared form. We do not make any specific assumptions about the producers who would be involved in a licensed market for cannabis, but we would expect some existing tobacco companies to be major participants, unless specifically excluded. This makes product controls particularly important, since tobacco companies would have a strong incentive to produce a cannabis product with high nicotine content to create nicotine dependency among cannabis users and thus promote long-term demand for conventional tobacco products. There is anecdotal evidence of a causal effect of cannabis use on tobacco smoking, which is consistent with the complementarity in demand between cannabis and tobacco found by some researchers (Van Ours 2007a). Table 3.1.1 summarises the way we would expect to see production controls applied in a tightly-regulated cannabis market.

13 _{Certain oral tobacco preparations} (“_snus”) _{are banned in all EU countries except Sweden.}

14 _{There are maximum yields of tar (10mg), nicotine (1mg) and carbon monoxide (10mg) per cigarette; yields must be}

declared on packaging and there is a mandatory system of reporting and justification of chemical additives.

15 _{Traceable production batch identifiers must be printed on the packaging. Government testing criteria are based on}

international standards ISO 4387, 8243, 8454 and 10315.

16 _{Health warnings drawn from a specified list are required on the packaging, occupying at least 30% of the front and}

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Table 3.1.1 Possible regulatory provisions under a system of tight control

Regulation Provisions

Licensing Mandatory licensing would be required for all commercial production,

with controls to restrict participation to “fit and proper” persons.

Possible exclusion of suppliers involved in the tobacco trade, to prevent exploitation of cannabis as a route into tobacco addiction.

Domestic production Individuals are likely to be permitted some small-scale domestic production for personal use, in a private residence, inaccessible to the public. The appropriate limit on the scale of this type of production is not clear. The typical scale of production among “social” growers interviewed by Hough et al (2003) in Britain was around 10-12 plants. In the US, Colorado has adopted a 3-plant allowance for private individuals, while the Washington State reform has maintained the illegality of domestic production. Proposition 19 in California would have allowed domestic cultivation on a plot of up to 25 ft2_{. South}

Australia’s Cannabis Expiation Notice scheme and Western Australia’s

Cannabis Infringement Notice scheme imposed cultivation limits of 10 and 2 plants respectively to avoid prosecution on a charge of cannabis production. We envisage a relatively tight allowance, certainly under 5 plants in cultivation at any one time. Proposals for a license fee levied on domestic production pose significant problems of policing and we envisage no such licensing system.

Security Minimum security standards on commercial production facilities, similar to those imposed on tobacco producers. These would include a ban on cultivation in open fields.

Financial procedures As is the case for alcohol and tobacco at present, financial guarantees and adequate record-keeping procedures would be required by the tax authorities to ensure that projected indirect tax liabilities can be met by licensed suppliers.

Product controls Limits on THC content, THC:CBD ratio, and yields of carbon monoxide, tar and nicotine

In our view, product control is a potential advantage of a regulated market. The primary psychoactive constituent of cannabis is 9_{-tetrahydrocannabinol (THC) but there are many other}

chemical components, whose physical and psychological impacts are not well understood. However, there is evidence to suggest that a particular component, cannabidiol (CBD), has significant psychological effects such as reducing anxiety, and may attenuate the psychosis-like and memory-impairing effects of THC (Morgan et al 2010a, Morgan and Curran 2008). Some studies have suggested that the negative mental health consequences of cannabis use may only occur if there is a sufficiently high THC-CBD ratio in the product used. Cannabidiol may also suppress the self-reinforcing tendency of THC to build appetite for cannabis (Morgan et al 2010b). Further evidence from fMRI brain scans also suggests that CBD pre-treatment tends to counteract the effects of THC on brain functions in regions that may mediate psychotic illness (Bhattacharyya et al 2010).

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There is worrying evidence of a recent change in the typical THC/CBD content of illicit cannabis in the UK and elsewhere. The chemical composition of police seizures of ‘street’ cannabis has been tested using gas chromatography analysis, with results reported by the ACMD (2008), Hardwick and King (2008) and Potter et al (2008). Although these seized samples are unlikely to be fully representative of the whole cannabis market, they do suggest a recent large increase in the market share of sinsemilla with high levels of THC and virtually no CBD content. Estimation of trends is problematic because of comparability problems over time, but Hardwick and King (2008) suggest a rise in the market share of sinsemilla from around 15% (by weight) in 2002 to over 80% in 2008, while the low CBD content of sinsemilla appears to be common to samples seized at different times. Results from an extensive analysis of 1,756 samples collected in 2008 are summarised in Table 3.2.1 and Figure 3.2.1. The contrast between the characteristics of sinsemilla and imported herb or resin is very striking indeed and shows clearly the strong tendency for high potency to be accompanied by low CBD content in the current illicit market.

Table 3.1.2 Market shares and median THC/CBD content of seized cannabis

Substance Market share (%) THC content (%) CBD content (%) Imported resin (min, max) 14.6 5.9 3.5 [1.3 – 27.8] [0.1 _– 7.3] Imported herbal (min, max) 2.1 8.3 < 0.1 [0.3 – 22] Sinsemilla (min, max) 80.8 16.1 < 0.1 [4.1 – 46]

Source: Hardwick and King (2008) and ACMD (2008)

Recent research findings on the action of THC and CBD on brain function, together with evidence on the increasing prevalence of high-THC low-CBD sinsemilla, make a powerful case that regulation of cannabis products should focus on optimising the THC:CBD ratio, alongside controls on tar, nicotine and carbon monoxide yields. One of the potential advantages of a system of licensed supply is that it would give the authorities the opportunity to exert much greater control over the properties of cannabis available to users and, consequently, reduce the risk to users of exposure to unexpectedly potent samples. Seen in this way, the setting of permissible ranges for THC and CBD content would be as important a policy parameter for the authorities as is the excise tax rate to be applied to retail sales. There is some precedent for controls on THC, since the Dutch authorities are in the process of imposing a 15% THC limit on cannabis sales through coffee shops.

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Figure 3.1.1 THC and CBD content in seized cannabis samples

(adapted from data reported in Hardwick and King 2008: with thanks to David Potter)

It is not possible to predict the effects on demand or on production costs of alternative choices for the limits on THC and CBD content, so there is no need for us to make a specific assumption about the limits that would be set in practice. However, we anticipate that the choice of tax rate and product controls would be set in attempt to drive out of the market imported herb and resin and to make large inroads into the market for illicit sinsemilla. For this to be achieved, we envisage that the THC limit would need to be significantly above the median level observed in imported herb and resin. For example, using the data on sinsemilla THC content underlying the Hardwick and King (2008) study, the bottom quartile point for THC content is around 10%, which might be a good candidate for the permissible limit on potency, being below the median level of 15% in seized samples but significantly above the median value for imported herb and resin which are around 5-9%. An upper limit of, say, 2.0 for the THC:CBD ratio might be realistic, although in the absence of detailed research on dose-response characteristics of THC and CBD effects, this is quite speculative.

In addition to controls on THC and CBD content, it is highly likely that the controls on nicotine, tar and carbon monoxide yields of tobacco products for smoking would be applied also to cannabis products for smoking, but we anticipate that they would be extended to loose material as well as prepared ‘reefers’. In order to reduce nicotine dependence, it is important to

0 1 2 3 4 5 6 7 8 0 10 20 30 40 50 %C BD %THC Resin Herbal Sinsemilla

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encourage smoke-free cannabis products or the smoking of cannabis without the addition of tobacco. Provisions for declaration of additives, government responsibility for testing and monitoring, and health warnings on retail packaging would be likely to apply to cannabis products in much the same way as they do to tobacco at present.