Medical Marijuana

What Does Public Data Reveal About the Medical Cannabis Industry?

Medical cannabis programs are expanding as state regulators increase the number and types of conditions that qualify persons for medical cannabis, especially in that states that approve anxiety or general pain management as qualifying conditions. As the number of patients increases, the production and sales capacity required to meet this demand must also expand. Recently, New Jersey announced that it was accepting applications for new dispensaries and cultivators. Missouri will also begin to accept applications on August 3rd.

State regulators utilize various licensing strategies to control the implementation and growth of the medical cannabis industry. The state licensing strategies can be 1) a vertically integrated approach used by Florida (recently deemed unconstitutional), 2) state-level license caps (Illinois, New Jersey, Utah) or 3) city-level license caps (Michigan). License caps are maintained through legislation or by limiting the time period during which the state will accept applications.

State regulators often provide transparency about the overall growth of the medical cannabis market and the competitive landscape. State websites make available information about the total market size (patients and caregivers), the number of competitors (dispensaries and cultivators), retail sales numbers, and tax revenues if applicable.

This information can be used by prospective licensees to assess the viability of the cannabis business and determine future revenues. Medical licenses in states with caps on production and sales can be more valuable given the higher patients per license than those that allow open enrollment and caregivers such as Oklahoma and Michigan.

For example, a review of information from a limited number of states with medical cannabis programs shows that Oklahoma has the highest patients per capita at 3.9% as compared to the state with the lowest patients per capita, Ohio, at 0.30%. Although Oklahoma has a high patient percentage rate, it has no cap on the number of manufacturing or retail operations. As a result, the state has 1,673 licensed dispensaries and 3, 559 licensed cultivators. This means that there are currently 92 patients per dispensary if all licensed dispensaries become operational.

Believers in the free market will approve of Oklahoma’s strategy to let the market decide the appropriate level of inventory and sales outlets in the state. The low fees and reasonable regulations made Oklahoma the wild west of cannabis. However, Oklahoma license holders will need plenty of capital to face off the heavy competition and the steep cost of building out cannabis businesses. Even if Oklahoma adopts adult-use, the total population is almost 4 million people, which is much smaller than Michigan, another state with no cap, which has a population of 10 million people. Michigan may have more upside but it is challenging to find a city that will permit a medical dispensary.

Oklahoma’s record number of cultivators also poses a risk of diversion to other states as a means of recouping the investment. Oregon is facing this issue as the state has 6.5 years of inventory. Cannabis business owners will need appropriate controls to ensure that excess inventory is disposed of in a legal manner. Dispensaries and cultivators will need to assess what impact an inventory glut will have on cannabis pricing and overall profitability as the ability to sell cannabis to a nearby state requires federal legalization.

The transparency provided by state regulators is crucial for the industry, and for the remaining states that will enact medical cannabis programs in 2020. Analyzing the available data can help firms increase returns on capital investment, and provide states with a roadmap for the implementation of a successful industry.

Missouri is Now Accepting Medical Marijuana Applications

The Missouri Department of Health and Senior Services began accepting applications for medical patients, caregivers, and physicians on June 28, 2019. This is the first step in the implementation of Missouri’s medical marijuana program. The state will accept applications for medical marijuana establishments from August 3, 2019, to August 17, 2019.

In January 2019, the DHHS accepted pre-filing application fees for Medical Marijuana Cultivation, Dispensary, or Infused Products Manufacturing Facilities. The state received 534 applications and collected $3.9 million in fees as of June 20, 2019. Of the 534 applications, 301 applicants are seeking a dispensary license, 157 applicants are seeking a cultivation license, and 85 applicants are seeking a manufacturing license. The DHHS published a map indicating the permitted locations within the state for each license type.

The local municipalities in the state are busy adopting medical marijuana ordinances. Unlike other states, Missouri requires municipalities to permit a medical marijuana dispensary to operate in a city upon the request of an interested party. The local ordinances provide business-friendly requirements at fees lower than those in other states.

The state also released an eleven (11) page facility license applications and scoring criteria document in late May. The evaluation criteria place an emphasis on the need for medical marijuana facilities to execute a business plan that protects medical marijuana patients, ensures an adequate supply of medical marijuana, and provides a plan for making medical marijuana available to qualifying low-income patients. Businesses seeking a license in Missouri should review the scoring methodology and structure the application accordingly.

New Jersey is Accepting Applications for Additional Medical Cannabis Businesses

The New Jersey Department of Health (DOH) is accepting applications for 24 new medical cannabis alternative treatment centers that will be dispersed across three (3) regions in the state. New Jersey will issue 15 dispensary permits, 5 cultivation permits and 4 vertically integrated permits that authorize cultivation, manufacturing and dispensary activities. The number of new permits is significantly lower than the 108 permits that the DOH announced would be available in the beginning of June.

The DOH stated that the new ATCs are needed as 30,000 new patients enrolled in the medical cannabis program since the state expanded the eligible medical conditions to include chronic pain, anxiety, migraine, and Tourette syndrome. As of July 1, 2019, there are a total of 49,000 patients enrolled in the medical cannabis program.

New Jersey’s medical cannabis program currently has six (6) alternative treatment centers that are operational in Egg Harbor Township, Montclair, Woodbridge, Cranbury, Secaucus and Bellmawr. The state awarded six (6) additional ATC permits in 2018. The new ATCs will be distributed evenly across the Northern Region, Central Region and Southern Region with one additional vertically integrated permit that will be available based upon patient need and the applicant’s total score.

In recent weeks, New Jersey municipalities have approved conditional use permits for medical cannabis operations in Vineland and Monroe. Other New Jersey cities have recently adopted ordinances to permit medical cannabis businesses including Jersey City, Newark, Hoboken, Rochelle Park, Penns Grove, and Barrington.

A few notable items from the request for application are provided below:

  • The state’s scoring methodology mirrors the state’s recent recreational cannabis legislation by offering significant points for applicants that enter into labor agreements, are women, minority or vet owned businesses, and that intend to create jobs in economically disadvantaged areas. The state will also award significant points to applicants that have experience operating a cannabis operation in compliance with a government regulated cannabis program.

  • New Jersey’s application process requires disclosure of a broad spectrum of entities associated with the applicant including

    • persons or businesses with over 5% direct and indirect ownership including interests in profits or land;

    • persons who are authorized to direct the organization or its policies;

    • employees, principal officers, directors, owners and board members; and

    • contract for intellectual property, land, management and funding.

  • A person or business may only receive one permit, and the number of applications that may be submitted are limited.

  • Applications are required to be submitted by August 22, 2019.

Utah's Cultivation License Scoring Methodology Favors Well Capitalized, Successful Businesses

The Utah Department of Health’s application window for medical cannabis cultivators opened on May 31, 2019, and applications may be submitted through July 1, 2019. Utah’s applications process is unique in that it is scoring methodology favors applicants that can articulate a strong business plan and demonstrate access to capital and the know how to harvest medical cannabis by the first quarter of 2020.

Utah voters approved Ballot Proposition 2 in November 2018 to legalize medical marijuana. The Utah legislation enacted the Utah Medical Cannabis Act in December 2018, which replaced the Ballot Proposition 2. The Medical Cannabis Act mandates the implementation of the medical cannabis industry by March 1, 2020. Opening the application window for medical cannabis cultivators is the first step in this process.

Below are four things to know about the application process in order to obtain one of the ten available licenses.

  • Forty percent (40%) of the score is based on whether the applicant can demonstrate a strong business plan and show that it can harvest medical cannabis by March 2020. Applicants must show how they will become operational and make money given the size of Utah’s medical cannabis market. This includes disclosing pricing models, sales and marketing plans, cultivation analysis, and a project timeline for producing a harvest between January 1, 2020, and March 1, 2020.

  • The timeline for producing the first quarter harvest will require applicants to build an indoor cultivation facility. The state is limiting the facilities to 100,000 square feet. The expense of building, staffing, and implementing operations within the required timeline will limit the potential licensees to those who can demonstrate they have access to the capital, know-how and track record for execution.

  • Utah’s application scoring methodology takes a broader approach to social equity, which accounts for 15% of the overall points. Applicants must describe how they have positively impacted a local community, and if they obtain a license, how they will build a positive connection with the community in which it is based. This open-ended approach may produce creative and positive solutions for local communities.

  • Utah’s emphasis on a business’ long-term viability is further reflected in the fact that the state will allow out of state investors to own and operate the cultivation facilities. In response to questions by bidders, the DOH indicated “[a]lthough the initial rule discussions included language of Utah residency. We are working to have that removed. At this time the State of Utah is not excluding non-residents of Utah.”

Missouri and Oklahoma Cities Adopt Business Friendly Medical Marijuana Rules

Missouri and Oklahoma cities are embracing medical marijuana, and adopting business-friendly ordinances. Oklahoma has quickly expanded its medical marijuana program, and generated over $12 million in sales in March. Missouri is also planning for a big rollout as Governor Parson allocated $3 million to the medical marijuana program. To date, the state received over 481 pre-filed license applications and fees totaling $3,470,000. Licenses will be formally accepted on August 3, 2019.

Our data shows that, since the beginning of March, at least 25 cities in these states discussed allowing medical marijuana or have adopted an ordinance. The growth in the number of cities considering medical marijuana is noticeable and encouraging for the industry overall. Unlike cities on the East and West Coasts, the ordinances are generally simple, offer low fees, no caps on licenses and fewer operating requirements. These business friendly towns offer a license opportunity at a lower cost and regulatory risk.

Groundhog Day: Michigan Did NOT Close Unlicensed Pot Shops on March 31st

Michigan is facing another legal action over the closing of unlicensed medical marijuana facilities on March 31, 2019. For a third time, the Michigan Department of Licensing and Regulatory Affairs has announced that it will hold off on the mass shut down until it receives a court order to do so. The shut down has been a long process as the impacted parties sued Michigan twice before. Michigan originally attempted to shut down the unlicensed entities on September 12, 2018. Effected parties brought an action against the state, and the court agreed to stop the shuttering process. The parties were to return to court on December 15, 2018 to continue the proceedings. Michigan then adopted emergency rules that accelerated the closure date to October 31, 2018 before another lawsuit stopped the state from enforcing this deadline.

Michigan Finally Forces Unlicensed Medical Marijuana Facilities to Close on March 31st

Michigan has issued a statement that forces the shutdown of unlicensed medical marijuana facilities by March 31, 2019. The shut down has been a long process as the impacted parties sued Michigan twice over the past six months. Michigan originally attempted to shut down the unlicensed entities on September 12, 2018. Effected parties brought an action against the state, and the court agreed to stop the shuttering process. The parties were to return to court on December 15, 2018 to continue the proceedings. Michigan then adopted emergency rules that accelerated the closure date to October 31, 2018. The emergency rules require temporary marijuana operations to cease operations on October 31st if a municipality has not authorized it to operate pursuant to an adopted local ordinance, or is in the process of adopting a local ordinance. Another series of lawsuits again stopped Michigan from forcing the closure of unlicensed medical marijuana facilities.

Now, marijuana facilities that receive a state operating license must record the beginning marijuana product inventory in the seed-to-sale tracking system, test the product prior to sending to dispensaries, and for untested inventory, dispensaries must obtain a certification from the patient or primary caregiver that the product has not been tested.

Florida's New Law Let's You Roll Your Own Marijuana Rx

The Florida Legislature has passed a bill that will allow Floridians who qualify for medical marijuana to smoke pot. The bill has been presented to Governor DeSantis for his signature. The bill expands the definition of medical use to allow persons to possess and smoke pot. To obtain pot for smoking, a doctor must provide documentation for Florida state that the benefits the patient receives from smoking marijuana outweigh the risks. The bill also requires the Board of Medicine and the Board of Osteopathic Medicine to adopt rules that outline the standards for doctors who prescribe marijuana for smoking by July 2021. This rulemaking exercise might be superfluous given that the Florida Legislature also introduced a recreational marijuana legalization bill today.

Delaware Bill Broadens Access to Medical Marijuana

A newly introduce Delaware bill broadens access to medical marijuana by adults and persons under the age of 18. Senate Bill No. 24 would allow adult and underage patients to access medical marijuana for any medical condition or treatment that a doctor certifies is likely to provide a palliative or therapeutic benefit. The bill also removes the restriction that a person younger than 18 may only access medical marijuana oil if they suffer from a qualifying debilitating or terminal condition that is certified by a doctor who specializes in pediatric care.

An Act To Clarify the Disqualification from Unemployment Benefits of a Person Who Is Terminated from Employment for Being Under the Influence of Marijuana

The Maine Legislature introduced bill LD 1013 which disqualifies an individual from receiving unemployment benefits if such employment was terminated because the individual was under the influence of marijuana while on duty or when reporting to work, as is already the case for alcohol and illegal drugs.

As written, LD1013 makes no exception for medical use marijuana. LD1013 was referred to the Committee on Labor and Housing on February 26 and a public hearing will be held March 11th.

Renee Cartier, J.D.