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.

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!

How many medical cannabis patients will there be?  

How many medical cannabis patients will there be?  This question has been asked since the dawn of the Illinois program.  In fact, all medical cannabis programs around the country have played the numbers expectations game.  As with any high-profile program, one strategy is to set expectations that you can meet and hopefully exceed.  This can mean the difference between a headline of “Wave of patients exceed state’s expectations,” versus “Desperation as state fails to explain lagging patient enrollments.”

Every new medical cannabis program is framed by discussions of patient participation numbers.  Colorado had over 110,000 at its peak before recreational cannabis was introduced (roughly 2% of its population), while New York’s kickoff was abysmal at 71 patients (out of nearly 20 million residents).

Bob photo - press interviews

I was asked for my projections the very first time I was interviewed about cannabis, and it has been raised regularly ever since.  In that first interview I guessed that there would be “tens of thousands of patients over time.”

“State officials expect a flood of applications, perhaps “tens of thousands of patients over time,” Morgan said. The state’s medical marijuana program website has received more than 12,000 unique visitors and more than 2,000 people have signed up for email notifications about the program.”

It was my first of many future interviews with the Associated Press in my role as coordinator for the medical cannabis program.  I vividly remember the interview because I was quite nervous, and because it took place over a weekend while I happened to be on vacation in Utah, attending the Sundance Film Festival for the first time.

The interview started well, with anticipated questions and corresponding straightforward answers.  I was walking down Main Street in Park City, the home base of activity for the Festival, and it was fairly chilly outside.  Holding my cell phone with gloves on, I was feeling good about the interview until it happened.

I turned to see three adult men walking down the street in their underwear…and nothing else.  It was at this exact time that the AP reported asked me how many patients I expected for the 4-year pilot program.  I was frozen both literally and figuratively.  I asked the reporter to repeat the question to buy myself some time to get a grip.  I blurted out – “thousands of patients in the first year, and hopefully tens of thousands of patients over time.”

And there it was.

The projection stuck as a basis for many future press stories, and what many applicants used on their financial estimates when applying for state licenses later that year.

The numbers game played out in other instances too.  There was the time Illinois sought a contract to print I.D. for patients.  In the procurement documents we needed to indicate the maximum number of patients that we expected in the next few years – and we projected up to 100,000.  This, too, became a headline and added to the folklore of the pilot program.

As of this blog there are about 4,000 people registered with the Illinois medical cannabis program.  There are undoubtedly hundreds of thousands that are eligible with conditions like cancer, multiple sclerosis, and severe fibromyalgia (there is no exact count of eligible patients since there is no accurate statewide tracking of all relevant medical conditions).  So my answer several years ago is still my answer today – I expect tens of thousands of participants in the medical cannabis program over time.  There are variables that will impact the numbers – whether the Illinois Department of Public Health adds new medical conditions, whether physicians become more comfortable with the program and start recommending participation in greater numbers, etc.

But I believe the best answer to the numbers game would be – total numbers don’t matter if even one person is denied access who would benefit from medical cannabis.  If even one person is denied, then our job isn’t done.  The Pilot Program will only be a legitimate success when we are no longer arbitrarily blocking Illinois residents from relief.