Draft MA Medical Marijuana Rules: High Barriers to Entry, But Opportunities for Out-of-State Players

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Entrepreneurs who want to open a dispensary in Massachusetts would need to have significant financial resources  – including $500,000 in an escrow account – and submit detailed plans covering everything from location, security and testing to storage and cultivation procedures, according to draft MMJ regulations released today.

Perhaps most surprisingly, applicants would not have to be residents of Massachusetts, meaning out-of-state players could potentially launch dispensaries. That would increase competition for local applicants but could create opportunities for dispensaries and individuals in other states to expand into the Massachusetts market.

The proposed rules and requirements offer the first glimpse into how Massachusetts plans to regulate the budding medical cannabis industry. While not the final say in the matter – the state’s Public Health Council will now review the recommendations before adopting final rules – they give entrepreneurs a good idea of what it will take to start a dispensary, grow operation and infused products line. You can read the entire document here.

Under the proposals, only nonprofit dispensaries – officially called Medical Marijuana Treatment Centers – would be able to cultivate marijuana, meaning there would be no wholesale grow operations. That would limit overall business opportunities but make it easier for the state to implement a proposed seed-to-sale system that tracks the entire cannabis production and sales process.

The draft rules will likely disappoint many local dispensary hopefuls, as the bar is set extremely high for entrants in many ways.

The proposed requirement that dispensary applicants funnel half a million dollars into an escrow account will block out many entrepreneurs, narrowing the field to wealthy individuals/groups and those who can raise a significant amount of investment money. But even individuals with the inside track on funding might have a hard time raising money, as it could be difficult to give investors a quick return on their money. Because all dispensaries must be nonprofits, the investing options – and potential returns – are limited.

“It’s clear that the department wants to limit the amount of applications,” said local attorney Steve Cottens, who is also a lobbyist for the Massachusetts Medical Marijuana Dispensers’ Association, an industry trade group. “It appears they are looking for qualified business people to run these dispensaries. At least that’s how I interpret it.”

And $500,000 is only the start: The state must still set application and permit fees, which – based on the escrow requirement – could reach into the tens of thousands of dollars. And that doesn’t even include hundreds of thousands of dollars in startup and operational costs. In total, entrepreneurs will probably need around $1 million – and possibly much more – to launch a dispensary.

Additionally, dispensary applicants would have to prove that they could be completely up and running within 120 days of receiving notice that they qualify for a license. Such a tight timeline could present a host of problems and unplanned financial costs. Dispensaries would essentially have to begin growing immediately given that it takes several months from the time cannabis is planted until it can be harvested. They would also have to test their cannabis and infused products before selling to patients.

“How dispensaries are going to juggle that is going to be interesting,” Cottens said. “They’ll have to start growing and building a facility at the same time.”

The state will now take written comments from the public and interested parties, and public hearings will be held in several cities on April 19. The state’s Public Health Council will then issue final rules by May 8, and regulations could go into effect by May 24. Massachusetts will eventually license up to 35 dispensaries, which could begin operating later this year.

Here are some other proposals from the document :

General requirements

– Dispensaries must cultivate their own marijuana either on-site or at a separate location, but not both.

– Dispensaries must provide discounted cannabis and edibles to low-income patients with “verified financial hardship.”

– At least one executive with the dispensary must register with the Massachusetts Department of Criminal Justice Information Services on behalf of the operation.

– Individuals/groups can own or control no more than three dispensaries.

– All dispensaries must sell vaporizers.

– Dispensaries will have to notify the department – and pay fees – when they plan to change locations or the business name, remodel or expand, or change managers.

– A dispensary can grow cannabis only for its own use and up to two other locations under the same ownership.

Application requirements

– Applicants must show they have at least $500,000 in an escrow account.

– Owners and board members who have been convicted of a felony drug offense in Massachusetts or elsewhere in the US would be barred from operating a dispensary.

– Applicants must submit a proposed location and evidence of “sufficient interest in the subject property,” which could include a lease or other agreement, a legal title for the site or an official option to purchase it.

– Applicants must submit a business plan, a floor plan/blueprint for their facilities, an operations plan for growing marijuana – including related policies and procedures – as well as demand and patient population projections.

– If a dispensary plans to offer infused products, it must provide details on the methods of production and what exactly it plans to make/sell.

– Applicants must submit information on how they will prevent diversion as well as their plans covering other areas such as employee training, storage, security, inventory, labeling, packaging, quality control and testing.

– Registration certificates must be renewed annually.

Advertising requirements

– External signage can be no larger than 16×18 inches and cannot be illuminated at any time. The signage also cannot contain marijuana or paraphernalia images.

– Dispensaries cannot advertise the price of cannabis and infused products publicly but can provide a printed list to registered patients.

– Centers can not produce, sell or give away promotional items, including T-shirts and novelty items, bearing the logo of or references to marijuana, infused products or the dispensary itself.

Patient requirements

– Patients with specific debilitating medical conditions – including cancer, glaucoma, HIV/AIDs and other ailments – can register for MMJ cards. Doctors, however, will have leeway to recommend medical marijuana for other conditions.

– Patients can purchase up to 10 ounces every 60 days. Under certain circumstances, doctors can boost that limit.