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.

 

A Cannabis Program Without Lawyers. What Could Possibly Go Wrong?

This blog has documented many of the unusual and challenging aspects of the cannabis industry.  Aside from lack of banking, inequitable taxation, and constant pressure from the federal government, we are increasingly seeing state cannabis laws implemented with lawyers forced to the sidelines.

How can this be?  In an area where state regulation is what keeps the feds at bay, and the legal risks and nuances are endless, who would want attorneys to be barred from assisting?

Yet, that’s exactly where we are headed in some states.

It has become common for new cannabis states to briefly grapple with how, and when, lawyers can assist cannabis clients.  For a thorough review of the problem, see our earlier guest blog here.  Typically a professionalism board will freak everyone out and suggest that a lawyer can’t help a cannabis client on a license application, or the lawyer can’t invest in a cannabis business – only for the state Supreme Court or comparable authority find a way to let lawyers do their job.

Until they don’t.

It was a close call in Hawaii as the application date approached, and Illinois had some lawyers sweating as we awaited a change to our Rule 1.2(d).  But some states are still on the fence.

New Mexico is giving lawyers indigestion with their latest advisory opinion which seems to allow limited attorney representation of cannabis businesses nine (9) years into their program.  And Ohio has (at least temporarily) frozen out lawyers from assisting businesses applying for medical marijuana licenses.  What does that mean, exactly?  Read for yourself:

Under Prof.Cond.R. 1.2(d), a lawyer cannot deliver legal services to assist a client in the establishment and operation of a state regulated marijuana enterprise that is illegal under federal law.  The types of legal services that cannot be provided under the rule include, but are not limited to, the completion and filing of marijuana license applications, negotiations with regulated individuals and businesses, representation of clients before state regulatory boards responsible for the regulation of medical marijuana, the drafting and negotiating of contracts with vendors for resources or supplies, the drafting of lease agreements for property to be used in the cultivation, processing, or sale of medical marijuana, commercial paper, tax, zoning, corporate entity formation, and statutory agent services. See also, Colo. Op. 125 (2013).  Similarly, a lawyer cannot represent a property owner, lessor, supplier or business in transactions with a marijuana regulated entity, if the lawyer knows the transferred property, facilities, goods or supplies will be used to engage in conduct that is illegal under federal law.  Even though the completion of any of these services or transactions may be permissible under Ohio law, and a lawyer’s assistance can facilitate their completion, the lawyer ultimately would be assisting the client in engaging in conduct that the lawyer knows to be illegal under federal law.

That is the equivalent of going into surgery to have a gall bladder removed, but your physician got tied up and couldn’t make it, so you’ll just use your cousin Earl who has watched a bunch of Grey’s Anatomy.

Alas, maybe our blood pressure is needlessly rising – looks like the Ohio Supreme Court may step up to fix the problem.

Perhaps the lesson here is that we may not appreciate the value of attorneys until we’re told we can’t use them – especially in an industry as risky as cannabis.

What if Illinois were more like Colorado?

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Colorado had $117 million dollars in cannabis sales in the month of April.  In one month.  $117 million.

Illinois was a little less than that.  $2.57 million in medical cannabis sales in June 2016.

Of course the comparison is not fair – looking back to Colorado’s medical cannabis sales in 2013 (before recreational sales began in 2014), medical sales were still nearly $27 million per month.  Ten times that of Illinois, and Colorado has less than half the population.

As you probably already know, all of this is by design.

Illinois purposefully designed a new medical cannabis law that was heavily regulated, and limited to a small number of medical conditions (excluding chronic pain).  Colorado’s medical cannabis law developed over many years, and was designed to be liberal and inclusive.  The results are clear.

But what if Illinois had been more like Colorado or California?  What if physician recommendations were more like a suggestion than a strictly-enforced, physician license-risking requirement? What if we had added severe pain, or had unlimited business licenses to grow or sell, or if Illinois patients could grow their own cannabis at home?  As a former regulator, I am instinctively partial to strong regulations and government oversight – but this comes at a price.

For starters, we know Illinois would have hundreds of thousands of medical cannabis patients if the law had reflected California or Colorado.  In turn, there would have been more revenue and taxes, more patients with less pain and better health, more diversity in products and more of a free market.

But maybe the biggest difference would be less tangible, and more of a policy shift – I think it would change the way we think about cannabis – and it would have a profound impact on social justice and criminal justice.

If home cultivation were permitted, would cannabis be so stigmatizing?  No, of course not.

If medical cannabis were more easily accessible to those in daily pain, would we have such opioid addiction and drug incarceration problems?  No, of course not.

If Illinois had a medical cannabis program that reflected those last seen in Colorado and Washington, would we have more jobs, more local tax revenue, and a smaller black market for marijuana?  Yes, of course we would.

Luckily, Illinois is on the verge of fixing one of these problems: decriminalizing possession of small amounts of cannabis.  In the next few days SB 2228 is set to be enacted into law – if you want to let Governor Rauner know why cannabis decriminalization is a step in the right direction, you can contact him about SB2228 here.

A good day…

Today the Illinois Senate passed House Amendment 3 to Senate Bill 10 – sending to Illinois Governor Rauner a significant package of reforms and changes to the Illinois medical cannabis program – and believe it or not, he is going to sign the Bill.

We owe thanks to Representatives Lou Lang, Jim Durkin, and Governor Rauner.

                                                               

Anyone interested in reading the specifics can go here, and press coverage here and here.  The short version:

  • Extends the program several years to mid-2020 (instead of expiring Dec. 31, 2017);
  • Adds PTSD and terminal illnesses (terminal illnesses will have an expedited Dept. of Public Health approval);
  • Changes patient registration to 3-years before renewal, and the horrid patient fingerprinting need only be done once;
  • Clarifies that a doctor only certify a patient has a qualifying medical condition (not necessarily condoning the therapeutic benefit);
  • Dissolves the existing Medical Cannabis Advisory Board of patients, doctors and other health professionals, to be reconstituted under Gov. Rauner; and
  • Fixes a conflict in the law that threatened the lawful gun ownership of medical cannabis patients, plus more.

This Bill does not have everything for advocates (it does not add chronic pain, it does not add home-grow, etc), but with all the positive things SB 10 does, perhaps the most critical is that it gives hope and positive momentum to the Illinois program.

There is one notable (albeit minor) downside.

Having been involved in the creation of the Medical Cannabis Advisory Board, the dissolution of this Board gave me a moment of pause – the leadership of Dr. Leslie Mendoza Temple, Dr. Eric Christoff, Dr. Allison Weathers, patients Jim Champion and Michael Fine, and all the others has been outstanding, and frankly exactly what I had hoped for when we initially designed this team of volunteers and medical experts to consider the ever-changing research behind medical cannabis.

I will need to look past the downside of losing these wonderful volunteers, and focus on the huge benefit to the medical cannabis program.

One of the heroes of the Pilot Program, Leader Lou Lang, said it best:

“I have followed the work of the [Advisory] Board and they have done a stellar job.  They have listened to a lot of testimony, they read a lot of documents.  Before I made my final agreement to move this bill in this way, I called each of them to tell them what was in this bill.  Each of them said to me, ‘we think this board does good work… but if what we have to do to lengthen and strengthen this program, and make it better for patients and licensees and doctors and everyone in the pipeline, is to agree to reconstitute this board, then count us in.'”

Amen.

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…

Illinois Marijuana Decriminalization – a path forward for medical cannabis? (4/20 Edition)

Happy 4/20 (to those who celebrate – do so responsibly!)…

Just a short note that yesterday the Illinois Senate passed a marijuana decriminalization bill and it heads to the Illinois House of Representatives.  The Tribune has the story:

“The idea is that people caught with small amounts of marijuana would be fined instead of receiving jail time. The first-term Republican governor contended the old version would have let people carry too much marijuana and set fines too low.

The new edition drops the number of grams allowed from 15 to 10 and raises the range of fines from $55 to $125 to between $100 and $200.”

As noted by the Marijuana Policy Project, this bill closely mirrors a similar bill that passed the House and Senate last year:

“Illinois spends way too much money imposing costly criminal penalties on people who are found in possession of a personal amount of marijuana,” said Chris Lindsey, a senior legislative analyst for the Marijuana Policy Project. “Serious penalties should be reserved for people who commit serious crimes, not used to punish marijuana consumers. Nobody should face a lifelong criminal record simply for possessing a substance that is less harmful than alcohol.”Photograph of Senator Heather A. Steans (D)

Congratulations to the terrific Sen. Heather Steans and the rest of the co-sponsors of SB2228.

The bill passed 40-14 with both Democrats and Republicans supporting the measure.  Expect this bill to also fly through the Illinois House, ushered by the outstanding Rep. Kelly Cassidy, and even signed into law by Governor Bruce Rauner.

So this is my question – could this bipartisan effort be replicated for the extension and expansion of the Illinois Medical Cannabis Program?

Attend a cannabis conference…but not more than 2 of them!

Odds are, most of you have attended a few conferences in your life.  It could have been a gaming/casino industry convention in Las Vegas, 414 Milwaukee Day, LebowskiFest, or a jewelry fashion show in Rosemont, Illinois (Yes, I’ve been to the jewelry fashion show.  No, it was not my idea.  No, I did not enjoy myself.).  You see my point – there are conferences for everything in our lives.CannaTech

Given my professional career, I get to attend a number of conferences.  Pot Conferences.

My guess is that half of you are already smiling at the thought of a McCormick Place-level throng of attendees getting high and eating munchies. Nope, it is not that kind of party.  But if you are curious, let me describe to you what it is like attending a cannabis industry conference.

Let’s start with commonalities with almost any other conference:

  1. Headliners/keynote speakers, endless expert panel discussions with 2-4 panelists, expo’s with businesses promoting their products and services, and lanyards that share your name and workplace.
  2. Convention centers and conference ballrooms, stale hotel rooms, and hundreds or thousands of people you don’t know.
  3. Several days of meetings offering you the best chance to discard a bulk of your 500+business cards, and before you can blink you are longing to return home to your family and personal life.

Here is where cannabis conferences diverge from the norm:

  1. Yes, there is a fairly-constant scent of marijuana throughout the conference from those vaping in their hotel rooms, outside, and perhaps in the stairwell.  Sometimes there are cannabis-friendly gatherings depending on what state the event is in (Colorado=yes; Illinois=no).
  2. The vendors are unmistakably focused on the cannabis industry – promoting their vaporizers and extraction machines, insurance and consulting services, and everything in between.
  3. There is an electricity in the air.  Everyone seems to embrace the presumption that this industry is booming, that it is morally and scientifically beneficial, and will be trending upwards for many years to come.  Attendees also seem to appreciate, and thrive on, the ever-present risk in the cannabis industry that it all could be shut down at any moment by the federal government.  It sometimes feels like a capitalistic version of civil disobedience.
  4. It is not boring.  We are talking about cannabis, after all.

Conference - MJBizSummit2

There are many, many conferences/social gatherings/industry conventions to choose from.  They could cost as little as $20 for a meet-up at a bar, or as much as $750 per person and thousands of dollars per company to stage a booth.  Some of the best are hosted by groups like the National Cannabis Industry Association, Marijuana Business Daily, and Marijuana Investor Summit.  I’ll even shamelessly promote a smaller Illinois conference I helped organize discussing cannabis legal issues.

But as fun and educational as cannabis conferences can be, I would strongly discourage you from making a habit out of attending them.  For starters, they quickly become redundant – betraying how recycled the session information can be.  It can be difficult to see through those peddling B.S. versus those that are true industry experts.  The events are expensive – paying $750 a pop, plus hotel and airfare, can quickly become much too expensive for the likely return.

Finally, the proliferation of conferences diminish the overall value.  Marijuana Business Daily showed how quickly they have expanded by identifying 6 conferences in 2014, but 31 conferences in 2015!

Forbes joined in by interviewing industry leaders on the impact of so many pot conferences:

“You can literally attend, speak or exhibit at an event every weekend,” said Chris Drissen, Chief Business Development Officer at O.penVAPE. “It has really had a negative impact on the attendance and viability of the few shows that are worth going to.”

For those of you considering attending your first cannabis conference – choose wisely and sparingly.  It is absolutely worth going to one, but if you start attending so many that you reuse your lanyard from conference to conference, consider finding other things to do with you hard-earned cash.

 

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.

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!

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