What Maryland Tells Us About the Future Of Competitive Cannabis Licenses

Several weeks ago the Maryland Medical Cannabis Commission finally announced the top scoring applicants for the state cannabis grow and processor licenses.  These coveted licenses were awarded after an unusually long selection period that left many wondering if the wait would ever end.  For a great breakdown by the Washington Post of the companies selected for licenses, check out more information here.

Maryland’s decisions reflect one of the last competitive application processes as we have come to know them.  Both Ohio and Pennsylvania are on the horizon for a competitive medical cannabis application, and Arizona is shuffling through the 750 lottery applications they received for 31 licenses, but we most certainly are at the beginning of the end.

On the heels of similar decisions in Hawaii, Florida, New York, Minnesota, and others before them, what commonalities can we see in the results?

  1.  $$$.  For starters, there is no doubt these hyper-competitive processes require significant cash.  Non-refundable application fees of $25,000 and annual licensing fees of up to $200,000 set the stage for the kinds of resources that are required.  But these fees pale in comparison to the costs of establishing large-scale cannabis growing operations that can exceed $10,000,000 per facility.  If your team scrounges up the bare minimum financial backing required by regulators, chances are you will not be awarded a license.
  2. White Males.  There is no disputing that the competitive medical cannabis states have been sorely lacking in racial and gender diversity among their leadership.  As someone that helped create scoring systems to incentivize minority ownership among applicants in Illinois, it is an issue that I care deeply about.  There is no arguing that, so far, we have collectively failed to create industry ownership that recognizes and empowers those communities most harmed by the decades-old War on Drugs, let alone reflect the populations these medical cannabis businesses serve.  Kudos to Pennsylvania for including a mandatory diversity plan in their medical cannabis law and draft regulations.  For more context about minority leadership in the cannabis industry, check this out.  Hopefully this will not reflect a long-term trend (no disrespect intended for my fellow white guys out there).
  3. Local Ownership and Local Support – Regardless of whether your core team is born and raised locally, a recurring theme across these competitive states is that local investors and local community support are mandatory.  Some states have delegated a virtual veto-power to local towns that do not want cannabis businesses in their backyard (see Massachusetts).  Hawaii was an unusually residency-centric application process, and Florida set the eligibility bar by requiring floral nurseries with 30+ years experience growing plants.  As Ohio and Pennsylvania develop their regulations, expect explicit and implicit requirements for local support.  Any applicant struggling with local zoning needs to find a new town to hang a shingle.
  4. Selection Processes Work, But Are Messy – A fundamental question government regulators face when there is a limited number of licenses to award: “how do we pick winners and losers?”  If there is a better way than a merit-based, competitively-scored selection process, I’ve never seen it.  I take issue with the lottery system used in Arizona (trust me, watch this video), which means someone, somehow has to pick something approaching 1 winner for every 10 applicants.  Others have suggested an auction to the highest bidder (see #1 and #2 for why that’s problematic).  The odds vary depending on the state, region, type of license, etc., but ultimately a process must be created for licensees to be chosen.  The best selection processes have transparency (the public is informed about the process, clear articulation of the point system, criteria are plainly identified) and do absolutely everything imaginable to protect against actual or appearances of impropriety at a time when the public automatically distrusts government and assumes shady dealings.  Each selection process going back to Massachusetts and Connecticut have drawn criticism and lawsuits, but they have also generally identified the better (if not best) applicants in the pool.
  5. Building the Most Experienced Team – One trend that has received less attention is the increasing premium placed on an exceptional team of experts.  Consider, if you will, an applicant with $5 billion in assets and billions in debt (let’s call him Blonald Lump).  Mr. Lump has a decent grower from a recreational cannabis state who has been growing cannabis “for 30 years” (you do the math) and several former Wall Street bankers.  If Mr. Lump is facing a team with $7.5 million cash on hand, deep and longstanding ties to the local community, a cultivation and processing team that has years of experience in legal markets and an unblemished record, a nationally-recognized former law enforcement officer, and business executives from multiple industries, Mr. Lump loses even though he is used to “winning.”  Applicants are increasingly becoming more sophisticated in writing a great application narrative that appeals to regulators – and it is starting to all blend together.  The narrative itself is not a great way to choose licensees – it is the substance behind the applicant, and the experience of the team members that states are increasingly using to pick the best of the best.
  6. There Is No Guarantee, No Silver Bullet – If anyone ever guarantees you a license prior to a competitive merit-based selection, run in the other direction.  Applicants that were very successful in previous medical states often fail to get a license in future states.  Consultants that work with 10 teams in a state that issues 5 licenses is not likely to win any licenses for their clients.  Each state has been unique, and you need to take the time to understand the culture of the state, the intentions behind the regulations, and the goals behind the selection criteria.  Each new state looks to those that came before them for best practices, and traps to avoid.  I spent time speaking with every single medical cannabis program that came before Illinois, and I guarantee you new regulators in developing states will do the same.  Each state puts its own stamp on their program, and what worked in one state 6 months ago very well could hurt you in the next application.

If you are looking to apply in Ohio or Pennsylvania, or any future competitive state – study the regulations, focus on your real estate, and build the strongest team that you can.  It is an exhilarating process competing for a medical cannabis license in an industry that is truly helping people, and I wish you all the best.

 

Maryland Med Cann is Delayed Again – Where is the Outrage?

I want to share something with all of you: I don’t like waiting.

I don’t like to wait for service at a restaurant, I loathe waiting in lines for roller coasters (but love getting to the front seat of Great America’s American Eagle), and I have a visceral reaction whenever government takes longer to make decisions than it reasonably should.

Whether it is my local city hall staff taking weeks to decide whether I can cut down a tree on my own property, or a state government waiting to announce who has been selected for limited medical cannabis licenses – my blood pressure spikes and I want to take action to push the decision along using any (legal) means possible.Backyard

The tree on the right was saved by local government staff…but I will find a way to get you, tree.  I will find a way…

So you can imagine how I reacted today when the Maryland Medical Cannabis Commission (“MMCC”) again punted on announcing who will be selected for growing, processing, and dispensing medical cannabis in The Old Line State.  The MMCC met and announced that, although applications were received on November 6, 2015, they do not expect to announce selected businesses until at least August 2016.  A total of 10 months waiting – or more.  On top of the fact that Maryland has been tweaking its medical cannabis law since 2013, this is an unacceptable delay.  This is perhaps more striking because my interactions with the MMCC commissioners and Maryland Department of Health and Metal Hygiene staff have been very good – they are capable and compassionate.

Maryland’s program implementation has been relatively slow and below the radar.  The state’s Republican Governor waited three months to appoint a new director of the MMCC when the previous director had stepped down:

“Gov. Larry Hogan (R) has tapped a former state trooper and Republican political candidate as Maryland’s top medical marijuana regulator.

Patrick Jameson started Monday as executive director of the Maryland Medical Cannabis Commission, a spokesman for Hogan said.”

Okay – how does 10 months compare to other medical cannabis states that have a competitive, merit-based selection process?  Maryland is at the bottom of the pack.

Hawaii, Minnesota and New York announced licenses within 3 months of receiving applications, Illinois took approximately 3 months (discounting for a 3 month political delay), and Florida and Massachusetts needed roughly 6 months.

Why the delay?  No one knows.  It could be due to the large number of applications, but Maryland instituted a strict page limit reducing the size of the applications compared to the other preceding states.  You could chalk it up to the transition to a new Executive Director, but by his own admission, he doesn’t have a vote in the license selection.  I presume the delay is due to Maryland’s contracted application scorers: Towson University’s Economic Studies Institute, and its subject matter expert sub-contractors.  Could the sub-contractors have over-promised their skill-sets?  Could unknown conflicts have arisen?  It does not particularly matter – the delay has been too long. 

What is perhaps most surprising is the lack of vocal anger by potential Maryland patients.  To date I have only seen a solitary Baltimore Sun letter to the editor on the topic from parents of potential patients:

“The Natalie LaPrade Medical Cannabis Commission has made strides to move forward the process to bring safe medical cannabis as a treatment option in the state of Maryland. But now that a new executive director has been appointed, the time to finish the job started in 2014 is long past. Families in Maryland are pleading with our elected officials and the commission to implement the medical marijuana program.

The electrical firestorms in our kid’s brain, and in those of every other epileptic child in Maryland, loom every day. Thus, every day, we must have available all the tools to do anything — including medical cannabis — to stop the seizures.”

The fact that bureaucratic delays are keeping these patients at bay from the medicine they need is unacceptable.  Hopefully MMCC will find a way to surprise everyone and expedite the timeline for license announcements.  Until then, it’s time for all of us to be outraged…

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.

Me, Obama, and Marijuana

To be clear, I have never simultaneously been in a room with Barack Obama, and marijuana.  I have been in a room with Barack Obama on a number of occasions.  I have been in a room with state-legal marijuana on a number of occasions.  Never at the same time.  Ever.

But POTUS and cannabis loom large in my life.  More importantly, the President’s two terms have directly led to the current state of affairs with marijuana legalization.

I first met Barack Obama in 2003 after being invited to a fundraiser by one of his University of Chicago law students.  Tickets were $20 each.  Seriously.

Obama was running for U.S. Senate in Illinois, and the fundraiser was at a beautiful home in Chicago’s Gold Coast.  We met.  We talked.  I passed out.  Not from being so impressed with him that I fainted (though I was so impressed I seriously considered dropping out of law school to go volunteer for his campaign), but from drinking wine on a hot and humid day while wearing a suit.  It was a great first impression to make on the future President of the United States of America.

Fast-forward to 2007 and Obama announces a run for the Presidency.  I was all-in.  Fired Up, Ready to Go.  Bob & Obama Announcement1

I started by raising money for him with young professionals in Chicago, moved into healthcare policy committees, and decided to bite the bullet by taking a leave of absence from my job to help manage Jewish community outreach in Florida (see “The Great Schlep“).

Yada yada yada, Obama wins Florida in ’08 (you’re welcome, Barack).

Eight years later I am proud of many of his accomplishments, and have strongly disagreed with some of his policy decisions and actions.

Still, my biggest disappointment in President Obama has been his inaction on pot.  He has nibbled around the edges with criminal justice reform, and it is well documented (admitted in his own biography) that he used marijuana and cocaine in his youth.  But after seven years, thirty-four days, nine hours, eighteen minutes and counting, the President has made it clear that he will not be stepping into to the fray and using his Executive Power to reschedule or deschedule marijuana from the U.S. Controlled Substances Act.  For background, marijuana is defined as a “Schedule 1” drug.  This means it “has no currently accepted medical use and a high potential for abuse.”  Marijuana, Heroin, Quaaludes.  All Schedule 1.

Is it within the power of the Presidency to fix our backwards marijuana laws?  And if yes, should he?

The answer to first question is clearly a “yes.”  The U.S. Attorney General (who reports to the President, of course), “may by rule remove any drug or other substance from the schedules if he finds that the drug or other substance does not meet the requirements for inclusion in any schedule.” 21 U.S.C. 811(a)(2).  The U.S. Congress also has the ability to change the Schedule 1 status of marijuana through legislation – and it actually could happen in the coming years despite our dysfunctional legislative branch.

The question of whether POTUS should reschedule marijuana to a less-restrictive Schedule or remove it altogether is a much more difficult question – one that is more political science than Neil deGrasse Tyson science.

Government executives make decisions based on prioritizing issues while considering available political capital.  Obama can’t do everything he wants on every issue he cares about: he has to choose.  He chose to fight for the expansion of healthcare coverage, he chose to invest in passing the most sweeping financial banking reform since the Great Depression, and he chose to shift our international focus away from military intervention and towards peacekeeping multilateralism.  He decided not to push for single-payer healthcare, he didn’t break up the largest banks, and he didn’t solve the Israeli-Palestinian conflict.

He did not try to reschedule marijuana.

His overall record has been mixed – and to me that is not good enough.  On the bright side, his administration has generally allowed Colorado and Washington to play out the recreational marijuana experiment (with Oregon and Alaska right behind).  That said, his U.S. Treasury guidance has been halfhearted for banks considering whether to maintain cannabis business accounts, and his DEA enforcement has been overly aggressive against some using and growing medical cannabis.  Research projects continue to face unnecessary bureaucratic delays, Obama has done little to change federal mandatory minimum sentences that disproportionately imprison minorities with petty marijuana convictions.  On the whole, marijuana policy reform has progressed in spite of, not because of, Barack Obama.

Bob & Obama & BidenI’m not saying I want my $20 back from the 2003 fundraiser, but I am saying the President will hear my objections the next time I get to talk to him.  If I don’t faint, of course.

Word(s) of the Week – “Bona Fide” (Patient-Physician Relationship)

Bona FideAdjective.  Genuine, real.

Used in a sentence: Dr. Morgan certified 50,000 patients for the Illinois medical cannabis program, but may lose his medical license because he did not have a Bona Fide Patient-Physician Relationship with all of those individuals.

“Bona Fide Patient-Physician Relationship” is a phrase used often in the medical cannabis world.  Generally it refers to a legal requirement that someone must have a true relationship with their physician before they can participate in a medical cannabis program (along with other requirements).  Simply put – lax enforcement leads to a state like California (over 500,000 patients), and strict enforcement looks something like Illinois (4,400 and counting).

If there is true enforcement, how many visits are enough to make it a “bona fide” relationship?  1 visit?  5 visits?  How much time must pass after the first doctor’s visit?

Arguably, it is one of the biggest reasons the number of registered patients in Illinois is so low – but Illinois is not alone and is not the most restrictive.  States like New York require doctors to take special training, Florida requires physicians to specifically register with the state, and even California’s new law requires a prior good faith examination by a physician (that’s right, California).

This issue is complex, and affects the lives of many suffering from serious medical conditions.  How do you prove a bona fide relationship if you are newly diagnosed with cancer?  What if your longstanding physician is not open to certifying you as a patient and you need to find a new specialist?  What if one doctor certifies a large number of patients?  What medical training or specialization must a doctor have to treat a patient’s specific medical conditions?

There is much more to discuss about bona fide relationships – but we’ll revisit this in a future post!