Company Seeking MMJ License Wins Over Town by Offering Equity Stake in Cultivation Site

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By Omar Sacirbey

When Harvest Inc. announced that it offered the tiny town of Hancock, Maryland, a 5% stake in a cultivation facility it hopes to open there, a few eyebrows went up.

Some observers called it innovative, saying the move could serve as a blueprint for companies trying to win medical cannabis licenses. Others equated it to a bribe, saying the company is looking to gain an unfair advantage in the licensing process.

In any event, town officials accepted the deal in early October after having lawyers sign off on the legality of the offer.

As a result, Harvest – a cannabis dispensary and cultivation company based in Arizona – was able to include the arrangement in the company’s application for one of 15 grower licenses that the Maryland Medical Cannabis Commission will eventually award.

“If it works, we hope to replicate it” when applying for licenses in other states, said Steve White, the CEO and founding partner of Harvest.

He rejected the assertion that offering the town an equity stake is a bribe, as local officials have no say in who wins MMJ business licenses.

“If it’s a bribe, then it’s to the wrong people, because it’s the state that will decide who gets the licenses,” White said. “If we offered a stake to the commission, then it would be a bribe.”

White went on to say that there are “no strings attached.”

“We don’t expect any preferential treatment,” he said. “We want to be treated just like any other company.”

White said the minority stake offering is simply a way to show commitment to Hancock, which sits in the narrowest part of the state and is close to both Pennsylvania and West Virginia borders.

“If we are really dedicated to this town, let’s show them,” White said.

James Peck, director of research at the Maryland Municipal League, said there is nothing illegal or unethical about the Harvest-Hancock equity arrangement. The town has a non-voting share and will not be involved in business decisions should Harvest win a license from the state.

“To the extent that the company does that of its own volition, I see nothing illegal about this,” Peck said. “It’s a gesture of goodwill on the part of the company.”

Industry consultant Matt Cook said the equity offer would not help Harvest’s application, but it was still a good move.

“This has no merit on them getting a license,” Cook said. “We can appreciate that they’re trying to do something good for the town.”

And the fact that a town would have an equity stake in a cannabis business also has implications. “What’s significant about an equity stake, is that they’re flying in the face of the federal government,” Cook said.

White said he doesn’t know of any other cannabis companies seeking local approvals that have offered equity stakes to a town, though there seem to be few similar examples from other industries.

In states with regulated gambling, towns with casinos and gambling establishments get a percentage of the profits. There are also “municipal enterprises” in which a town owns businesses, such as convention center hotels or even cable TV services.

“We may be blazing a new trail here,” said Hancock Mayor Dan Murphy, who arranged for White to present his company to local citizens at a town forum earlier this year.

Murphy said White brought along a physician and the mother of an epilepsy patient to talk about marijuana’s medical benefits.

“People had questions, but I got no pushback,” Murphy said. “It’s about the jobs.”

He noted that it was also important for Harvest to partner with the town because Maryland’s medical marijuana law requires that at least one owner in a cannabis company have state residency. For Harvest, that became the town of Hancock.

License applications in Maryland were due earlier this month, and hundreds of businesses threw their hats in the ring for dispensary, cultivation and other MMJ business licenses.

The Towson University Regional Economic Studies Institute will evaluate the applications and pass on its findings to the state cannabis commission for a final decision by mid-January.

Whoever gets a “stage one license” will have one year to acquire real estate, raise capital, hire employees and take other steps to request a final commission inspection and obtain a formal license.

Harvest has already identified the real estate where it hopes to locate its cannabis cultivation process: a Fleetwood RV factory that employed 400 people.

“It’s a building that can be quickly transformed into a cannabis facility,” White said. “We believe cheap land and a cheap building process are important to controlling costs.”

Hancock was also attractive because of the many skilled available workers looking for jobs, thanks to the closure of the town’s three factories, which collectively employed about 1,000 people just 20 years ago.

Harvest expects to employ about 125 people at the facility if it wins a license.

“People are pulling for this town to recover,” White said.

Omar Sacirbey can be reached at [email protected]

7 comments on “Company Seeking MMJ License Wins Over Town by Offering Equity Stake in Cultivation Site
  1. Arsenic on

    I think this is great. Companies have always offered economic compensation to communities in addition to jobs and taxation. There will be extra demands on infrastructure. Why not compensate a community in a transparent manner? The only downside I see is that it may set a standard for communities to require equity, but even that’s not so bad as long as you build it into your margin.

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  2. Lori Glauser on

    This is an interesting means of “community giveback”. Many applicants we’ve worked with propose that a percentage of earnings or revenue is donated to private charities, local law enforcement and/or a scholarship/grant program offered directly by the company. I agree with Arsenic that giving equity to the municipality could lead to an expectation by other communities. Having the community participate in a share of the success of the establishment could give incentive to ease any future local/land use regulatory/compliance hurdles. Which itself poses an interesting dilemma of the regulator having a stake in the regulated.

    On the plus side for the movement, this elevates the perception of cannabis facility ownership. If a whole town can be an owner in a dispensary (presuming the DEA doesn’t take exception) why couldn’t others who are still on the fence about investing in deals that “touch the plant”.

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  3. Todd on

    I think its a slippery slope, where municipalities are going to expect a equity share in order to allow cannabis businesses to operate in their towns. Most new companies where I’m from get tax incentives and other perks to locate their company in a particular area, why should MJ business be any different.

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  4. Keith on

    I feel this will open the door to “pay to play”, but I am also against established MJ companies moving into newly legalized states. It takes opportunities out of the hands of the state residents. There should be a 2 to 3 years time limit before they do this.

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  5. Brett Roper on

    This alignment is interesting in that it clearly offers up an ‘ownership’ interest in a federally illegal enterprise that may have repercussions to the towns access to federal funding or other support mechanisms. Additionally, I strongly suspect this alignment will have little if any impact on the final scoring of any application submitted as in reviewing the scoring protocols, there is little to no weight assigned to alignment with any political or geopolitical interest such as a city, county, etc. I suspect this ‘partnership’ offering, should a license be awarded to create ancillary challenges not yet understood or anticipated.

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    • Arsenic on

      You definitely brought up a couple of downsides that I didn’t see on first blush. I do think there is a business model for this that can be found in the extraction industries (mining, oil and gas). By no means do I suggest that all extraction industry projects do this well, but we can look to Canada for public/private projects that compensate First Nations and residents, and build long term partnerships for the community. So I think we can understand and anticipate much of the problems to be encountered, if one sets out to do so. Of course, your ‘no Federal program money’ issue is a showstopper.

      Reply

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