Florida’s pot business is a mess

marijuana plant
Marijuana plant

Last month, there was some skepticism when the California behemoth marijuana firm MedMen announced it would use its considerable financial resources to try to get a Florida constitutional amendment to legalize recreational weed on the 2020 ballot.

Make It Legal Florida is MedMen’s political committee. The group has less than six months left to collect the more than 766,000 signatures to qualify for access to the 2020 ballot. It also faces new state rules that make it harder for citizen-led constitutional amendment efforts to succeed.

But then again, MedMen – known as the “Apple store of weed” –  has plenty of reasons to push for legal recreational weed in the Sunshine State as soon as possible – $53 million of them, actually.

That’s the price Los Angeles-based MedMen paid last year to acquire a key marijuana growing license in Florida.

The high-dollar purchase reflects how Florida’s system to provide pain relief for patients has become a high-stakes battle between big-bucks companies looking to profit by selling off the medical marijuana business licenses they get from the state.

“These people are in the license sale business, not in the medical marijuana business,” says Adam Elend, the 42-year-old CEO of a Tampa-based marijuana company called Florigrown. “There are a bunch of people now sitting on $60 million licenses looking to sell it to someone else or roll it into a bunch of other assets and go public on the Canadian exchange. There’s all sorts of financial scheming, but not medical marijuana being produced and sold to patients.”

The Florida Legislature’s decision to limit the number of licenses for the medical marijuana business and to require so-called “vertical integration” – meaning that licensed firms handle all aspects of the business, from growing plants to running dispensaries – has sparked numerous lawsuits.

Key court case looms

The entire system could be upended if the Florida Supreme Court takes up one key case filed by Florigrown.

Two weeks ago, the First District Court of Appeals court asked the state Supreme Court to decide whether the state’s requirement that medical marijuana firms handle all aspects of the pot trade – “from seeds to stores” –  violates the medical marijuana  constitutional amendment that more than 70 percent of Floridians approved in 2016.

Thirty-three states now are involved in the marijuana business, but few if any have created a system like Florida’s.

Complaints about the state choosing winners and losers started piling up after the Department of Health awarded the first five medical marijuana treatment center licenses to companies who fit a very narrow and specific criteria.

For example, the state required them to have the cash to immediately put up a $60,000 non-refundable applications fee; prove that they can grow at least 400,000 plants and demonstrate that they’ve been in continuous operations for at least 30 years.

The tough criteria was established in 2014, back when lawmakers approved a  low-THC form of cannabis called Charlotte’s Web to treat conditions like epilepsy, Lou Gehrig’s disease and cancer.

The 2016 constitutional amendment defines a medical marijuana treatment center as a company that grows, processes or dispenses marijuana. Instead, the Legislature said that, to get in the business, companies must do all three.

In his legal opinion, Judge Scott Makar of the First District Court of Appeal targeted the state’s seed-to-store requirement. Makar wrote :

“No evidence exists that the people via the elemental language of the medical marijuana amendment clearly intended a market limited to only a few full vertically-integrated medical marijuana companies.”

“Indeed,” Makar continued, “one looks in vain for any modern American commodities industry in which all sellers are fully-vertically integrated; partial vertical integration is common, but not the type of seed-to-store structure that section 381.986(8)(e) requires…”

The judge coined a term for the state’s system: “oligopoly.”

“What you get with an oligopoly is high prices, poor selection, and limited availability,” says Elend of Florigrown.

A “state-sanctioned drug cartel”

Florigrown is also challenging the way that the state is limiting the number of Florida medical marijuana licenses.

“Of course, they can (limit licenses),” Elend says, but his company’s lawsuit contends that limits need to be rationally related to a legitimate government interest. “What we said is that these are completely unreasonable caps…not related to anything at all.”

Once Florida selected the elite five medical marijuana companies, critics howled.

“Does this set up a state-sanctioned drug cartel, which is what it is?” Republican state Sen. Jeff Brandes from St. Petersburg said during the 2016 session. “Yes it does. You’re basically mandating that five families get wealthy.”

A number of nurseries which applied for, but didn’t make, the final cut in 2015 filed a lawsuit that was resolved earlier this year. Under the legal settlement, eight different nurseries were granted new medical marijuana licenses.

Less than three months later, two of those nurseries hit the jackpot when they jettisoned the concept of providing medicine for patients and sold off their licenses for tens of millions of dollars.

Umatilla-based Spring Oaks Greenhouse sold its prized license to Green Growth Brands for $54.6 million, while Tree King Tree Farm out of New Port Richey sold its cannabis license to Green Peak Innovations for $48 million.

Gary Stein, the head of Clarity PAC, a political committee that supports pro marijuana candidates and legislation, says he believes a lot of products sold by medical marijuana treatment centers are not fully medical products, but are geared more towards recreational use

“Truly medical products need to have the full ‘entourage effect,’” he says, referring to therapeutic compounds known as cannabinoids and terpenoids.

“The lack of full competition doesn’t give the incentive for people to produce the highest quality and the best price. That’s not going to happen until this market is open,” Stein says. “It’s not working for Florida patients right now.”

How many licenses?

If the consensus is that 22 licenses are too few in a state of 21 million people, the question for the Legislature moving forward is: What is the appropriate number? States which have authorized thousands of licenses (like California, Colorado, Washington and Oregon) have been suffering from a glut of marijuana operators in recent years.

The Oregon Liquor Control Commission said in January that there was enough supply on dispensary shelves, processing plants and warehouses to meet demand for the next six years, and the commission was, for the first time,  placing a pause on issuing any new licenses.

That’s not the case in Florida, however. “The rate of expansion and current growth trajectory can be somewhat chaotic to manage at times,” Trulieve CEO Kim Rivers told Marijuana Business Daily last month.

Jeff Sharkey with the Florida Medical Marijuana Business Association says there are pros and cons with what are known as multi-state operators entering the Sunshine State market.

“On the one hand, you’ve got pretty experienced companies coming with capital who can scale up with retail dispensaries, but at the same time, they’re shareholder publicly owned companies. Do they cut corners? Do they really care about patients in Florida? Or, is it really (about) the bottom line?”

Under the law, the Department of Health is required to issue four new business licenses for every 100,000 patients. As of September 6, there are 261,617 qualified patients with an active ID card.

Black farmers still waiting

And while many of the original companies awarded licenses have sold them off, one group that has been promised a license – black farmers – is still waiting.

The Florida Legislature in 2017 voted that that a license must go to a grower who was part of the lawsuit settlement Pigford v. Glickman, which found that the federal government discriminated against black farmers.

“That was supposed to take place by October 3, 2017, and here we are running up against October 3, 2019, and that license has not been issued,” says attorney Scheril Murray Powell, the executive director of the Black Farmers and Agriculturists of Florida.

Murray Powell says that the fact that Florida has issued out only 22 licenses to those who applied in the first round in 2015 is just one of the “many broken aspects of the system.”

“How does that make sense to anybody?” Murray Powell asks. “Black farmers. White farmers. Asian farmers. Hispanic farmers. It’s unfair to all participants. Why are they being locked out without an additional opportunity to participate?”

“It’s just a darned shame that the black farmers are continuing to be disrespected and unappreciated in the state,” adds Latresia Wilson, the vice president and co-founder of the Black Farmers and Agriculturists of Florida. “The black farmers were involved with this because our original goals and objectives were that we would be doing things in minority communities and getting more minorities involved in the industry, but…that is secondary to those getting rich, or richer.”

A 2017 survey in Marijuana Business Daily found that 81 percent of those in the cannabis business nationally are white.

Make it Legal Florida is not the only political committee that has been formed to try to get recreational pot for adult use on the 2020 ballot (the group reported raising $1.1 million in August) . A group called Regulate Florida is also working on a similar effort, with one key difference: Regulate Florida’s amendment would allow people to grow their own plants.

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