This is the 10th article in a series looking at the potential cannabis market in states that are rolling out new marijuana programs. The first eight articles examined states that approved recreational or medical marijuana initiatives in the 2016 election. This new round of installments focuses on states that have approved new markets through legislation. Click here for previous articles.
By Bart Schaneman
Pennsylvania’s medical marijuana market is positioned to become a large one, but the business opportunities will be limited with hundreds of applicants from across the nation expected to compete for a finite number of licenses.
Gov. Tom Wolf signed the state’s medical marijuana act into law in April 2016. The law took effect in May 2016, and regulators have begun drafting rules governing the new industry.
Pennsylvania could become one of the nation’s larger medical cannabis markets, thanks to a population of nearly 13 million and an extensive list of medical conditions that are treatable with MMJ. An estimated 100,000-200,000 patients could sign up for MMJ cards once the market matures, depending on how smoothly the program rolls out and how many doctors participate.
According to Marijuana Business Daily estimates, the state’s dispensary sales could exceed $100 million annually – and potentially go far beyond that – a few years after the first outlets open, which is expected to happen in 2018.
Entrepreneurs looking to enter the market could do so through ancillary businesses, especially testing labs. Unlike dispensaries and cultivation centers, prospective lab operators currently don’t face a license cap.
Construction contractors also will be needed to build grow operations. Similarly, heating and cooling businesses will be in demand given that all MMJ must be grown indoors.
But the main question is: Who will get the dispensary and grower licenses? With 50 dispensary and 25 grower/processor licenses open to local and out-of-state applicants, the permitting process is likely to be hotly contested.
“This is such a competitive application process,” said Christine Brann, a cannabis attorney in Hershey, Pennsylvania. “I hope that means Pennsylvania will provide quality products for the patients and long-standing, sustainable businesses.”
Judith Cassel, a cannabis attorney in Harrisburg, Pennsylvania, said the opportunities for testing labs have been overlooked. Regulations require all products to be tested, and no limit has been set yet on the number of licenses for laboratories – though a cap could be established at some point.
In terms of construction firms, Cassel already is seeing success among contractors that design and build expansions and retrofits for existing buildings so they meet compliance and security standards. Contractors, for example, are remodeling old banks with built-in vaults to serve as future dispensaries.
The indoor grow requirement, meanwhile, should be a boon for heating and cooling contractors.
“Everything that’s related to inside growing is going to get a boost,” Cassel said.
While state regulations bar patients from buying or consuming flower, Brann considers that an opportunity for producers to develop new ways to ingest marijuana.
Pennsylvania’s law allows the following forms of consumable MMJ:
- Forms medically appropriate for vaporization
- No flower or edibles, though patients can mix cannabis products into food or drinks
Number, types of licenses
The state is offering the following licenses, spread across six districts:
- 50 dispensary licenses, with each permit holder given the option of opening two additional locations; dispensary licenses will be doled out based on each district’s population
- 25 grower/processor licenses
- Laboratories (no current limit)
The permitting process will be rolled out in phases. Phase 1 will make available 27 dispensary licenses and 12 grower/processor licenses.
No timeline has been released for Phase 2, and some industry experts think it may be a ways off.
The Pennsylvania Department of Health will begin accepting applications for Phase 1 on Feb. 20, with a final deadline set for March 20.
Applicants will face no in-state residency requirement. However, applications are scored on a 1,000-point scale, and community involvement is worth 100 points.
Cassel said it’s possible the health department could receive up to 900 applications, which would take time to process. However, she anticipates many applications will easily be culled for lack of professionalism.
Grower/processors have six months to get up and running from the date they win licenses. Brann said she expects to see dispensaries operating some time in 2018, but probably not before mid-2018.
Conditions list, patient count
The state allows MMJ to be used for 17 conditions:
- Amyotrophic lateral sclerosis
- Parkinson’s disease
- Multiple sclerosis
- Inflammatory bowel disease
- Huntington’s disease
- Crohn’s disease
- Intractable seizures
- Sickle cell anemia
- Spinal cord damage
- Chronic pain
- In cases where conventional or opiate therapy are ineffective
Cassel sees MMJ as possibly helping with Pennsylvanians’ addiction to painkillers.
“Like most states, we have a chronic opiate problem and we think that legalization of marijuana may give people alternatives to opiates,” she said.
She anticipates about 250,000 patients will sign up for the MMJ program in the first year to 18 months.
Pennsylvania’s law doesn’t allow out-of-state cardholders to buy MMJ. Children under 18 can legally possess medical cannabis from another state if they qualify for a “safe harbor” letter and suffer from one of the approved medical conditions.
As noted, the competition for cultivator and dispensary licenses and the lack of residency requirements will mean limited opportunities for many entrepreneurs angling to participate in Pennsylvania’s new MMJ industry.
Industry veterans may have an advantage. Brann pointed out that because so many other states have MMJ programs, the businesses there are savvy at securing licenses.
Doctors appear receptive to the program, Brann said, but may be willing to recommend MMJ only in certain situations.
“The hurdle for them,” she said, “is that unless you’re in a private practice, you’re under the umbrella of a corporate system and they need to get the approval of their employer to be a registered physician.”
Bart Schaneman can be reached at [email protected]