Should medical marijuana retailers have to grow their own pot?

MASSACHUSETTS MARIJUANA regulators are soliciting public opinion about eliminating one of the costliest rules affecting the medical marijuana market, the requirement that medical retailers grow their own marijuana. But the Cannabis Control Commission does not appear enthusiastic about the idea, which gets into murky legal ground.

Current law requires vertical integration of medical marijuana dispensaries, which means companies must grow, manufacture, and sell their own products. That is unlike the recreational marijuana market, where someone can run just a retail store or just a grow operation.

Since the recreational market opened up, some advocates for medical patients have been asking for the elimination of the vertical integration requirement. They say it makes it expensive and difficult for new medical dispensaries to open, and leads to limited options in stores and products for medical patients. Eliminating the requirement could, for example, let someone start a business manufacturing only high-dose medical marijuana products and selling them to multiple dispensaries.

“Patients for years have complained about high prices, low competition, and low-quality products that aren’t dedicated to medical marijuana patients, and we’re seeing more as adult-use rolls out,” said Michael Latulippe, a patient advisor to the Cannabis Control Commission and development director for the Massachusetts Patient Advocacy Alliance.

The Cannabis Control Commission is in the middle of a regulatory review process. The commission proposed a series of revisions to medical and recreational marijuana rules. It held a public hearing, and written comments are due by Friday. The commission will vote on final regulations in September.

Elimination of vertical integration was not part of the draft rules released by the commission. But on Tuesday, days before the comment deadline, the commission released a memo written by former commissioner Kay Doyle in April outlining a recommendation for eliminating the vertical integration requirement.

Doyle wrote that some medical marijuana treatment centers have discussed abandoning the medical side of their operations and switching entirely to recreational marijuana because the profits from medical marijuana do not justify the high costs associated with the vertically integrated structure. She also noted that the high cost of entering the medical marijuana market has led to a lack of diversity within the industry. She recommended a new licensing scheme that would let businesses operate only as a medical marijuana retailer or only as a grower or manufacturer.

The commission wrote that it is releasing the memo in response to a public records request and “given the public interest in the issue.” While it made clear that the commission “does not explicitly or implicitly endorse the proposal or represent that it complies with (state marijuana law),” the commission will accept public comment and take it under advisement.

Their hesitation is apparently due to a legal issue. State law says no individual can hold more than three marijuana licenses of a particular type (for example, no more than three retail licenses). Turning a single medical marijuana dispensary license into three licenses could make businesses butt up against that cap.

Doyle’s proposal has a technical workaround. A medical marijuana licensee would retain that license with three “endorsements” for cultivation, manufacturing, and retail. Over time, the expectation is that newcomers to the medical marijuana business would move into one segment of the business with the lower barriers to entry.

However, at a meeting in July, the commission’s General Counsel Christine Baily said her opinion is this scheme would create legal problems. Baily said the endorsement system would contradict legislative intent by “trying to get around the licensing system.”

In comments submitted to the commission, several advocates say they hope the commission will adopt Doyle’s recommendation. Medical marijuana patient Frank Shaw said the current system “is keeping competition out” and hurting patient access. He said given concerns about equity in the marijuana industry, changing the system could help smaller businesses by lowering the high barrier to entry. “The time has come to let small business enter the medical marijuana market and serve patients,” Shaw wrote.

Andrea Pearce, CEO of Royalty Group, wrote that her company initially applied to open a medical marijuana dispensary, but switched to the recreational market because it was cheaper. Her company wants to sell to medical patients, but does not want to manufacture its own medical products.

Currently, there are 12 states that require vertical integration in the medical marijuana market, 17 states that allow but to do not require it, and two states that prohibit it.

The memo lists Massachusetts and Colorado as the only two states to require vertical integration in the medical marijuana market but not in the recreational marijuana market. However, Colorado appears to have eliminated that requirement in July 2019, leaving Massachusetts as the only one.