Battle of the Weedwork Stars, Episode 1

For those of you in the dark about Florida’s Medical Marijuana Program, I’ve been attempting to light up the dim corners of Florida: The Nation’s Fastest-Growing Medical Marijuana Market, according to The Miami New Times.

Florida passed constitutional Amendment 2 in November 2016 which allows my Multiple Sclerosis and several other qualifying conditions as eligible for compassionate care, meaning diagnosed patients are allowed by Florida to receive a medical marijuana recommendation from a qualified Florida physician and products from a licensed Florida dispensary; these dispensaries must strictly adhere to Florida’s seed-to-shelf vertical integration business model.

This summer brought daily cannabis-related news and the hits just keep on coming. A timeline of Florida’s battle for solid medical cannabis ground has been outlined in depth throughout my previous articles. 

In December 2018, Jeff Smith predicted that Florida’s $250M medical cannabis market could open up to new businesses in 2019:

 “Florida’s $250 million medical marijuana market is poised to swing its doors open to new companies next year after two judicial rulings in recent months that could reshape the competitive landscape.

More competitors would be a change for the Sunshine State’s large MMJ market, which currently is dominated by about a half-dozen vertically integrated operators. To what extent the market opens up depends on a few factors:

In August, a Florida judge struck down as unconstitutional what he viewed as an arbitrary restriction on the number of MMJ business licenses; the state appealed. A 2017 law implementing the program called for 10 new licenses, then four additional licenses for every 100,000 patients.

The judge also said the requirement that Florida’s MMJ businesses be vertically integrated was flawed – a development that would further open the door to more companies and greater competition.

Despite the current legal confusion, Florida’s MMJ market has been growing at a gallop:

  • The number of active patients has nearly tripled, from 56,537 as of Dec. 1, 2017, to 159,107 as of Dec. 7, 2018.

  • The number of dispensaries has risen from 24 to 78 in the past year.

  • MMJ sales via dispensaries are expected to total $200 million-$300 million in 2018, according to projections in the Marijuana Business Factbook 2018, up considerably from an estimated $20 million-$40 million in 2017.

The licensing cap situation is the most critical issue from a business perspective. Florida has approved only 14 MMJ licenses, making them a hot commodity.

In recent months, licenses have commanded $50 million or more when resold to a new business. Currently, seven businesses dominate the market: Trulieve, Surterra Wellness, Curaleaf, Knox Medical, Liberty Health Sciences, Vidacann and AltMed Florida.

For existing operators, the market has been ‘very lucrative, very enticing,’ said Rolando Vazquez, a Miami cannabis consultant, but the legal wrangling came to a head in early August.

That’s when Leon County Circuit Judge Charles Dodson ruled that Florida’s license cap violated the 2016 voter-approved initiative, which was a constitutional amendment.

The ruling could potentially lift both the cap and the requirement that operators must be vertically integrated.

In addition, state regulators have still not finalized rules allowing sales of cannabis-infused edibles.

Edibles products would give sales an added boost to an industry in tirmoil; but edibles aren’t yet being sold because regulators have yet to finalize regulations. Still, companies already are preparing: Trulieve, which has 22 dispensaries statewide, announced in September it had partnered with chocolate edibles maker Bhang.” 

According to this U.S. News & World Report Overview of Florida, the state stands at #13 in Overall Rankings, up from its standing as #15 out of 50 in 2018.

However, I doubt even Jeff Smith could have predicted in what way the state itself and the legislators who comprise the Rear Battalion lost some footing. On July 11, 2019, a Florida Appellate Court ruled in the highly-publicized Florigrown lawsuit that the state’s vertical integration was unfair and unconstitutional.

Further explanation and clarity was offered by Beau R Whitney, Vice President and Senior Economist at New Frontier Data, with his insightful Florida Court Rules Vertical Integration Unconstitutional: So, What Now?:

“A Florida court of appeals decision last month ruled that the state’s regulatory framework for its medical cannabis program mandating vertical integration was unconstitutional. What does it mean for Florida’s system, or for other states? What are the associated implications? They may prove vast, impacting not only Florida’s system, but other state regulatory structures throughout the country.

Immediately, regulators in other states with newly legalized programs will seek to avoid similar pitfalls while striking an effective regulatory balance: Oregon’s unlimited license policy is an opposite example of what other states yet prefer to avoid. Florida’s blueprint for vertical integration had been an obvious bulwark against unlimited licensure, but the court essentially deemed it to be an overcorrection.”

Florida must consider and adopt good, balanced cannabis frameworks, such as the GCP Responsible Cannabis Framework. Or this Conceptual framework: State efforts to legalize regulate cannabis.

Even November 2018 boasted that Federal Marijuana Action Is An ‘Inevitability,’ Trump FDA Chief Says as reported by Kyle Jaeger: “Federal action on marijuana policy is inevitable and will happen ‘soon,’ according to Food and Drug Administration (FDA) Commissioner Scott Gottlieb.

Exactly what kind of action he’s anticipating is unclear, though. After dismissing the idea that botanical cannabis has therapeutic value, Gottlieb said in a CNBC appearance on Friday that there’s ‘probably going to be a policy reckoning around this at some point in the future,’ before continuing, ‘Obviously it’s happening at the state level, and I think there’s an inevitably that it’s going to happen at the federal level at some point soon,’ he said.

Gottlieb’s comments could be interpreted as a suggestion that legalization is happening at the state level and the end of federal cannabis prohibition is the inevitability. Or the policy reckoning could be some kind of increased enforcement of federal marijuana laws.” 

Of course, there have already been  numerous studies demonstrating that botanical Cannabis has medical value.

Ultimately though, here’s why the most pro-marijuana Congress ever won’t deal with weed, according to Paul Demko and Natalie Fertig on September 9, 2019:

Two-thirds of Americans support legalization, but legislation seems to be going nowhere fast on Capitol Hill. This could be a big moment for marijuana and Congress.

At the same time that Congress is in gridlock, there is growing national support for cannabis, which is illegal at the federal level but at least partially legal in 33 states. In addition, public opinion is shifting rapidly, with nearly two-thirds of Americans supporting legalization according to Gallup — double the level of support two decades ago.

That’s led to a steadily growing number of lawmakers on both sides of the aisle who represent states with legal cannabis markets, making them more sympathetic toward legislation aimed at helping the burgeoning industry — which brought in roughly $10 billion in sales last year.

These conflicts between state and federal law have created a rash of problems for cannabis companies, including lack of access to banking services, sky-high federal tax rates and bewildering questions about exactly what business practices are legal.”

None of this has evolved into cannabis bills getting to the proverbial finish line, as discussed in my previous 10-part series.

In fact, Jaeger continues, The central tension in the House is how much emphasis should be put on full marijuana legalization versus single-issue bills that address industry concerns.

The bill with the best chance of being enacted — the SAFE Banking Act, which would allow banks to do business with cannabis companies without fear of federal punishment — cleared a key House committee in March by an overwhelming bipartisan vote, and received a hearing in the Senate. Supporters of the legislation, which include the influential American Bankers Association, were predicting floor passage before the August break.

That didn’t happen. However, Judiciary Chairman Jerry Nadler (D-N.Y.) introduced much more far-reaching legislation. The MORE Act would end federal prohibition, expunge past marijuana convictions and establish grant programs designed to make sure members of minority communities are able to share in the potential financial benefits of legal markets.”

Regardless of what happens next at the federal level, Florida’s recent court ruling is set to drastically change Florida’s medical marijuana industry, as highlighted by Josh Cascio on July 29, 2019: “A contested ruling from one of Florida’s appellate courts could mean the end of both (1) required vertical integration and (2) caps on the number of registered medical marijuana treatment centers (MMTCs) in Florida.”

But to understand the issue, a quick primer on the nature of Florida’s (exclusively medical) marijuana program is necessary, Cascio insists before explaining further:

First, unlike many states, Florida requires ‘vertical integration,’ meaning that, if registered by the state as a MMTC, the entity must cultivate, process, transport and dispense medical marijuana. Fla Stat. § 381.986(8)(e). Second, Florida also caps the number of registered MMTCs, with the number of allowed MMTCs slated to increase as the number of registered qualified patients grows.

In a lawsuit initiated by a rejected MMTC applicant, the First District Court of Appeal (one of Florida’s five appellate courts) struck a number of significant blows to the existing medical marijuana framework in Florida, delighting prospective applicants and spooking existing license holders.

Initially, the court held that the vertical integration requirement is unconstitutional. As the court explained, the 2016 constitutional amendment requiring the creation of Florida’s medical marijuana program did not require that a MMTC control every element of the supply chain—it defined a MMTC as an entity engaging in one or more of a series of medical marijuana-related activities, not all of them. Yet in Florida, each MMTC is required to do it all—grow the plant, process the plant, transport the medical marijuana product(s), and then sell them to end users (patients).

Next, the court found that its position on vertical integration compelled a finding that the cap on registered MMTCs was likewise unconstitutional. The cap, as the court described, is an ‘unreasonable’ regulation of an industry governed by a constitutional amendment. To put it mildly, Florida experienced a rocky July in the cannabis department.

On July 1, 2019, Florida’s new hemp law became effective, legalizing (and providing for regulation of) CBD products and creating a framework for commercial hemp growth. Yet, as discussed above, the month closes with more cannabis-related questions than answers. Whatever the resolution, the outcome is bound to have a significant effect on the marijuana market in Florida, as well as on policy discussions throughout the country.”

Indeed, Florida’s pot business is a mess, as Mitch Perry reported in the Florida Phoenix on September 10, 2019, enlightening the public that 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.”

Adam Elend, the 42-year-old CEO of a Tampa-based marijuana company involved in the contentious Florigrown lawsuit currently in Florida’s Supreme Court, says These people are in the license sale business, not in the medical marijuana business.”

The Florida Legislature’s decision to limit the number of licenses for the medical marijuana business and to require so-called “vertical integration” has in fact sparked numerous lawsuits, but the entire state system could be upended with the Supreme Court’s forthcoming final ruling in the Florigrown lawsuit. Although 33 states now are involved in the marijuana business, few if any have created a system like Florida’s.

So what happened in July in the state’s medical cannabis arena? Florida’s Cannabis Vertical Integration Rules Found ‘Unconstitutional’ by TG Branfalt was reported for Gangapreneur, highlighting the current state of cannabis affairs: 

“A court in Florida has ruled that the medical cannabis rules put in place by lawmakers created an ‘oligopoly’ inconsistent with the constitutional amendment that a huge majority of voters approved in 2016. The regulations, passed during a special legislative session in 2017, required vertical integration – allowing a limited number of businesses to control all aspects of the medical cannabis supply chain.

In the First Appellate Court’s decision, judges Scott Makar, James Wolf and T. Kent Wetherell wrote in the majority opinion that the legislature-approved rules ‘amend the constitutional definition of [medical marijuana treatment centers]’ and force cannabusinesses to ‘conform to a more restricted definition’ than the amendment approved by citizens.

In Florida, medical cannabis business licenses sell regularly for about $50 million. The decision will likely cause the prices of those licenses to drop as the Health Department complies with the court decision. Generally, states with rules about vertical integration fall into one of three categories: required, permitted or prohibited.

Let’s back all the way up to the Oct 2, 2018 piece by 7 Point Law aptly titled Vertical Integration: What Is It, And Why It Matters To Cannabis to understand why and how any of this integration stuff matters: “Nearly every state that has a legalized cannabis industry has rules relating to vertical integration. So what is “vertical integration,” and what does it mean for the cannabis industry? Vertical integration is a business strategy by which a company controls every stage of the same production path, such as when a manufacturer of a product owns the supplier, distributor, and retailor businesses. In the cannabis industry, this generally takes place where a manufacturer/ producer also owns a processing business, and the retail store front.”

The July Florigrown v. DOH decision: Florida’s Vertical Integration Requirement for Medical Marijuana Licensees Held Unconstitutional was covered in depth by Benjamin Stearns, Jennifer Tschetter, who asked the important question of what happens next:

The Department has a few options.

  • Rehearing – The Department has 15 days to file a motion for rehearing or request a rehearing en banc. If the rehearing en banc is granted, all active judges on the First DCA would be involved in deciding the appeal. This could potentially involve an additional oral argument before the full court, although it is unlikely. Either a motion for rehearing or rehearing en banc would need to be filed by July 24.
  • Appeal – The Department could also appeal the decision to the Florida Supreme Court. Opinions by district courts of appeal that declare statutes unconstitutional are within the Supreme Court’s mandatory, not discretionary, jurisdiction. The Department would also be entitled to a stay during the pendency of the appeal. The Department has 30 days to file an appeal (August 8), unless that deadline is extended by the consideration of a motion for rehearing.
  • Rehearing and Appeal – The Department could file both a motion for rehearing and (depending on whether that motion is denied, or if the court grants rehearing but then issues another unsatisfactory opinion) file a subsequent appeal. This option would also delay the effectiveness of yesterday’s ruling.
  • Accept the Decision – The Department could accept the ruling and attempt to implement the existing statute while disregarding all of the unconstitutional provisions. This option would result in further proceedings in the circuit court.
  • Other Considerations If the unconstitutionality of vertical integration is ultimately accepted by the state, the Department will have to determine how to handle the existing licenses without triggering a regulatory taking. One option would be to issue each current licensee with separate licenses to engage in each phase of the new, horizontal licensing scheme (i.e., a cultivation license, a processing license, a transportation license, a dispensing license, etc.). 

If that were to happen, yesterday’s ruling would actually create more opportunities for existing licensees. Whereas licensees under the current scheme are required to perform all aspects of an operation, a horizontal licensing scheme could allow these licensees to focus on specific aspects of the operation and provide other companies the opportunity to do other aspects. A horizontal structure may also provide opportunities for licensees to structure their operations so as to limit their total tax liability.

For existing licensees, having separate licenses for each aspect of their operations may ultimately prove advantageous. Regardless of the direction the proceedings take from here, one thing seems certain: The process of legalizing medical marijuana in Florida will remain interesting and legally complicated. Watch this space for information on further developments.”

The decision can be accessed in full at Fla. Dep’t of Health v. Florigrown, LLC, No. 1D18-4471 (Fla. Dist. Ct. App. Jul. 9, 2019).

Basically, the Florida 1st Appellate Court Order completely nixed the idea of medical marijuana caps, vertical integration, as reported on July 10, 2019. The cannabis-court hourglass turns again and we all wait. 

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