A recent Florida Supreme Court decision plays into the hands of established medical marijuana multistate operators in the state, although it also could spur additional licenses, investment by others and acquisition activity.
What remains to be seen is to what extent the currently concentrated, billion-dollar industry will become more competitive over time.
The state Supreme Court last month left the state’s limited-license, vertically integrated structure intact, saying that a constitutional challenge was unlikely to succeed.
“The Supreme Court decision will provide some sense of security for those seeking to invest in the Florida market either through acquisitions of existing licenses or those offering debt,” Sally Peebles, a partner with Vicente Sederberg’s Florida office, wrote in an email to MJBizDaily.
Florida currently has 22 licensed medical cannabis operators.
But three of those control more than two-thirds of the market, and the top six account for nearly 90% of all sales (see graphic above).
The six market leaders are all owned by multistate operators, half through acquisitions in recent years.
Florida-based Trulieve continues to be dominant, commanding a market share of 40%-45%, down just slightly from two years ago.
The recently released 2021 MJBizFactbook projects that MMJ sales in Florida will reach between $1 billion to $1.3 billion this year and nearly $2 billion annually by 2025. By that measure, Trulieve’s revenues from Florida alone approach a half-billion dollars a year.
Six license holders haven’t sold any MMJ products, and three others have minimal operations. In part, that’s where some of the action could occur.
“Several companies have been courting current license holders for potential acquisitions, but their offer prices were contingent on whether the market remained limited or not,” Peebles wrote.
“This (court) case has certainly secured an additional premium on the cost of these coveted licenses, placing current license holders in the catbird seat.”
Tampa-based Florigrown, which sued the state in 2018 over the licensing process, said the system had resulted in a few entities controlling the market, contrary to the intent of the voters who had passed medical cannabis.
Florigrown and others wanted to break up the vertical scheme and open up more opportunities, such as stand-alone licenses for small businesses and entrepreneurs.
The state Supreme Court disagreed, indicating in a 6-1 decision that the Florida Legislature had met its constitutional obligations in enacting a limited-license, vertical structure.
Lawsuit’s impact on licensing
Florida’s 2017 MMJ law required regulators to issue four more vertically integrated “medical marijuana treatment center” licenses for every additional 100,000 qualified patients.
The number of patients has been growing at a staggering rate and stood at 567,003 as of May 27, according to state data.
Meanwhile, Florigrown’s lawsuit to open up the permitting scheme resulted in a freeze in licensing.
Industry experts noted the Florida Department of Health pointed to the litigation as the reason that it wasn’t moving forward on issuing additional licenses as it was required by the patient-growth triggers.
Jeffrey Sharkey, president of the Medical Marijuana Business Association of Florida, noted that now that there’s clarity in the legal case, he expects state regulators potentially could issue 15 new vertical licenses over the next six months.
The likelihood of additional licenses could put pressure on existing licensees to invest more in the market, Sharkey wrote in an email to MJBizDaily.
“Existing licensees may want to expand their production capacity and retail market penetration with additional dispensaries to stay ahead of future competition,” Sharkey wrote.
“The customer demand for the medical market has room to grow and additional investment in (a vertical operator’s) infrastructure will pay dividends in the future.”
Newcomers might face tough entry
However, it could be difficult for new entrants to make inroads.
Peebles wrote that questions remain on exactly how many licenses will become available – and when.
She noted that regulators issued several licenses through settlement agreements, and “whether or not those settlement licenses will count towards those outstanding licenses is unknown.”
One thing is sure: Any new licenses issued would be required to be vertically integrated, she wrote, unless that requirement is changed by the Legislature next year.
Pro-marijuana Agriculture Commissioner Nikki Fried, who announced recently that she will challenge Ron DeSantis for governor, criticized the state Supreme Court’s decision as perpetuating the existing situation.
“This ruling by our Republican-dominated Supreme Court further entrenches Florida’s unfair, unconstitutional medical marijuana system put in place by our Republican-dominated Legislature,” Fried said in a statement.
“This status quo helps absolutely no one except the 22 medical marijuana companies in Florida at the expense of patients.”
Peebles had a slightly different take about the additional vertical licenses that should become available.
“With Florigrown behind us, the status quo will continue,” she noted, “however, there will be more companies holding a golden ticket soon.”
Jeff Smith can be reached at [email protected].