Word(s) of the Week: Vertical Integration

Vertical Integration” – Defined as:

  1. The latest Sylvester Stallone movie; or
  2. The psychological impact of being shorter than 5’9″ in height; or
  3. The skill of painting the wall without getting paint on the ceiling; or
  4. When one company owns and controls the cannabis cultivation, processing, and dispensing processes.

The answer, of course is #4.  Besides, everyone knows Vertical Limit starred Chris O’Donnell, while Stallone’s ice mountain climbing movie was Cliffhanger.

In practice, vertical integration represents the ability for a cannabis company to manage every aspect of growing and selling cannabis – from the earliest planting of the seed or clone, through the final sale to the consumer.

A cannabis business often benefits from vertical integration – it allows a company to control quality, create staffing efficiencies, and reduce costs and tax liabilities throughout production.

So why are cannabis businesses not all vertically integrated?  Because the government sometimes stands in the way.

Many medical cannabis states allow (and in fact, require) vertical integration – California, Massachusetts, New York, Florida and others.  Yet others require separate licenses for cultivation, processing, and dispensing – including Illinois, Maryland, and soon-to-be Pennsylvania.  There are some good policy reasons for splitting them up – for example, those that are excellent at cannabis cultivation might be awful at patient education and counseling at a dispensary.  But generally if you find states without vertically integrated cannabis businesses, it is due to regulation as opposed to choice.

This is what advocacy looks like

On Wednesday, March 16, 2016, the Pennsylvania House of Representatives passed a comprehensive medical cannabis bill – SB 3.  It almost didn’t happen.

Pennsylvania’s legislature grappled with many of the same roadblocks seen in Maryland, Illinois, Massachusetts, Connecticut, Nevada, Minnesota, New York, Hawaii, and so many other states.  There were political barriers, bureaucratic challenges, advocacy infighting, anti-marijuana group pressures, and old-fashioned reefer madness.  In the end, SB3 succeeded because of some moms.

Say hello to pure, raw, advocacy:

20160314_162300This is Pennsylvania’s Campaign for Compassion.  I had the pleasure of meeting some of their members last week when I visited the State Capitol in Harrisburg.  In their own words, this is what they do:

We are a Pennsylvania based community resource with the mission to educate the public, as well as our General Assembly, concerning the positive effects of the often misunderstood realm of cannabis treatment. Ultimately, our goal is to work towards comprehensive medical cannabis legislation in the state of Pennsylvania.

But this description fails to capture the unstoppable force they represent when they go office to office, changing the hearts and minds of legislators that may have never met someone whose life was turned around by the use of medical cannabis.

As an example of their significance, the Pennsylvania Senate had passed the medical cannabis legislation almost 10 months ago in May 2015.  Yet in an illustration of the ugly side of politics, the bill was bottled up in a House committee by a hostile representative, Matt Baker.

“I’ve had marijuana bills in my committee for years, and I’ve never moved them,” he said. “This should come as no surprise to anyone.”

What may have come as a surprise to Rep. Baker is that he was no match for the moms – many of whom have children with severe intractable epilepsy.

The bill was moved to a different committee away from Baker’s control, and ushered to passage by several champions including House Majority Leader David Reed with a commanding final vote of 149-43.  Nearly everyone credited the moms with the House passage.  The bill will soon make it back for concurrence by the Senate (with terrific sponsors Sens. Leach and Folmer) and is poised to be proudly signed by Governor Tom Wolf.

This phenomenon has played itself out in numerous states, including Illinois.  Our original legislation excluded epilepsy and seizure disorders from the list of eligible debilitating conditions.  This restrictive bill (sans epilepsy) passed with the slimmest of margins with 61 Yeas and 57 Nays.  Only one year later, after “the moms” organized to add epilepsy, SB2636 passed with 98 Yeas.

The takeaway?  Don’t mess with the moms…

 

Medical Cannabis Advisory Boards

On January 29, 2016, the Illinois Department of Public Health (“IDPH”) announced that Director Nirav Shah had once again rejected adding debilitating medical conditions to the Illinois Medical Cannabis Pilot Program Act (“MCPP”).

Though highly disappointing, this came as no surprise to those of us closely monitoring the words of Illinois Governor Rauner.  See hereHereHere.  And even his January 2015 comments here.

“I’m concerned about the process,” Rauner said today during a signing ceremony in Springfield.  “I don’t think it’s been run well.’

No offense taken.

The new Rauner Administration has been a mixed bag with regards to the medical cannabis program (on the bright side, cannabis businesses received their licenses, were allowed to initiate cultivation, and the program was allowed to start patient sales in November 2015 without any government obfuscation or inexplicable delays).

Yet the Illinois Department of Public Health, guided by the principles of Governor Rauner, has twice rejected the recommendations of the Medical Cannabis Advisory Board (“Advisory Board”) to expand the program.  The truly outstanding and overly qualified Advisory Board, comprised of doctors and patients, nearly unanimously urged IDPH to add new medical cannabis conditions such as PTSD and chronic pain.

advisory-board

The recommendations were rejected.  No explanation was given.  There is no reason to expect a different result in the future – you know that old saying about doing the same thing over and over again but expecting a different result…

While many of us are upset and disappointed about the news, I want to focus on the legal side of the ledger.

The Advisory Board is one of the better aspects of the MCPP – designed for the law to evolve over time.  [Full disclosure: I am also a former general counsel for IDPH, and was involved in the creation and appointment of the Advisory Board.]  As more medical cannabis research provides stronger justification for how it benefits PTSD, for example, IDPH has the authority to add the conditions through administrative rules (specifically through the Administrative Procedure Act and the Joint Committee on Administrative Rules).

Seems a bit boring, but wait… What if the Advisory Board recommends adding a condition to the MCPP and the IDPH says “no” to the recommendation?  Of course, that is exactly the situation we find ourselves in.

Not surprisingly, those who applied to add their medical condition are heartbroken, and some have even sued IDPH:

“An Illinois veteran is asking a judge to reverse a state decision against adding post-traumatic stress disorder to the list of diseases eligible for medical marijuana treatment.

“In the case of PTSD, the advisory board voted unanimously to recommend that it be added to the list after hearing testimony about the existing medical evidence.

“Potential patients ‘are disappointed in the governor for going against the recommendations of his own medical cannabis advisory board,’ [Attorney Michael] Goldberg said.  ‘The governor’s office has reversed the board’s recommendations without giving any reason, and they are seeking relief from the judicial branch.”

Can IDPH continue to refuse adding any conditions in the face of repeated Advisory Board decisions to the contrary?  Does IDPH need to give a reason for the denial?  If so, would any reason be legally sufficient?  What role, if any, does the Office of the Governor have?

Much of this will be addressed in court, so I’ll let those questions linger.  But we have some other states to take cues from.

Arizona’s medical marijuana law is one of the models for our program in Illinois, and also includes a Medical Advisory Committee to consider adding new conditions.  Arizona’s Advisory Committee recommended against adding conditions like PTSD in 2012 and again in 2014.  Based on these recommendations, their Director of the Department of Health Services denied the addition of PTSD citing “a lack of scientific evidence.”  When challenged in administrative review, the Department was ordered to reconsider and the Director ultimately acquiesced to adding PTSD as an eligible condition under their program.

“At the hearing, there was substantial evidence showing that PTSD sufferers receive a palliative benefit from marijuana use.

“The preponderance of the evidence shows that marijuana use provides a palliative benefit to those suffering from PTSD.”

Minnesota’s medical cannabis program closely mirrors Illinois program in many ways, including an advisory panel to consider new conditions.  Despite the panel recommending against intractable pain, the Minnesota Commissioner of Health decided to add the condition.

As disheartening as the gutting of the Advisory Board in Illinois may be, the Board still offers a unique and high-profile opportunity to present the litany of latest research supporting the medicinal benefits of cannabis.  The Advisory Board may not succeed at adding medical conditions any time soon, but it continues to be valuable and we all benefit from the Board’s thoughtful and passionate members.

If there is any takeaway from this, we should acknowledge that reasonable government officials and medical professionals can disagree on substantive decisions like adding eligible conditions to a medical cannabis program.  But when we are considering treatments for our country’s heroes returning from battle and suffering from PTSD, or solutions for millions of Americans battling chronic pain with addictive opioids freely prescribed by their doctors, we should not stand in the way of medicine that can improve their lives.