This is the 11th 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
Ohio’s medical cannabis program is expected to be large, generating up to $400 million in annual dispensary sales several years down the road.
But possibly stringent regulations governing the number of dispensary licenses could limit patient access and curb the industry’s growth potential, industry officials said.
Ohio Gov. John Kasich signed legislation legalizing medical cannabis last June, making the state the 26th to join the MMJ fold.
The new law, which took effect last September, also put the country past the halfway mark for states that have approved viable medical cannabis programs.
Ohio has more than 11 million people and ranks seventh in population. An extensive conditions list should be a boon for the market. And out-of-state entrepreneurs will have a crack at securing a license because there is no residency requirement.
But uncertainties remain given that state regulators are still writing the rules. Dispensaries aren’t likely to open before late 2018 – provided all goes as planned.
According to Marijuana Business Daily estimates, Ohio should generate between $200 million and $400 million in annual retail sales via dispensaries once the market matures. The patient pool is expected to reach 100,000 several years after the first dispensaries open – and could reach 200,000 down the road.
Business opportunities are emerging for cultivators, dispensary owners, software companies, packaging and testing services and consultants.
“I think there’s a real opportunity to have a very, very large marketplace here,” said Patrick McManamon, CEO of Cleveland-based marijuana insurance firm Cannasure.
On the flip side, however, an initial proposed cap of 60 dispensary licenses could mean storefronts can’t meet patient demand. Also, regulators have proposed steep license fees for large grows, which could limit that sector to the most well-heeled businesses.
The core business opportunities lie in cultivation, said Brian Wright, executive director of the Ohio Cannabis Association. The state also recently announced it needs a contractor to implement a seed-to-sale tracking system.
He added that security offers an untapped market, given that firms have been slow to emerge in this field.
“People are just starting to pull their heads out of the sand and see what’s going on,” he said.
Number, types of licenses
According to industry and government officials, regulators have proposed the following license caps:
- 12 large cultivator licenses, or so-called Level 1 growers with 25,000-75,000 square feet of canopy
- 12 boutique cultivator licenses, or Level 2 growers with 3,000-6,000 square feet of canopy
- 60 dispensary licenses, a number that can be expanded
- 40 processor licenses
Cultivation licenses would be divided into four geographic regions, with three Level 1 and three Level 2 licenses in each section. All cultivation must be done indoors. Smaller grows could be dedicated to cultivating custom hybrids for specialized treatments.
License caps for testing labs haven’t been determined.
The Ohio Department of Commerce must finalize fees for cultivation, processing and testing licenses. It has proposed a $180,000 license fee for large grows on top of a $20,000 application fee. The Board of Pharmacy must finalize fees for dispensary permits.
License holders can own one cultivation facility. But that doesn’t preclude them from owning dispensary or processing licenses.
Wright contended the number of dispensaries will need to expand quickly beyond the initial 60.
“Unfortunately the state is using very conservative numbers (for the patient pool,)” he said.
He sees the patient pool as potentially 2% of the population, or roughly 230,000 people. The state is estimating around 120,000. In a state with 88 counties, he estimates that about 200 dispensaries will be needed.
“We don’t need to see lines wrapping around the corner or people driving long distances to get the medicine they need,” Wright added.
While there is no residency requirement, any Ohio ties are expected to help applicants.
McManamon anticipates a provision in the application benefiting minority applicants.
Application details haven’t been ironed out. Rules must be in place by May for cultivator applications. Applications should come out at that time. Prospective cultivators will have a 60-90 day window before the state accepts applications.
Cultivation license winners will be announced in September. Rules governing the application process for dispensaries and processors are due out that same month.
Applicants will likely be scored based on merit, “which bodes well for those who know what they’re doing,” McManamon said.
He predicted the best-case scenario for dispensaries opening is the third quarter of 2018.
Conditions list, patient count
Wright and McManamon characterized the conditions list as broad:
- AIDS/Positive status for HIV
- Amyotrophic lateral sclerosis
- Alzheimer’s disease
- Chronic traumatic encephalopathy
- Crohn’s disease
- Epilepsy or another seizure disorder
- Hepatitis C
- Inflammatory bowel disease
- Multiple sclerosis
- Pain that is either chronic and severe or intractable
- Parkinson’s disease
- Sickle cell anemia
- Spinal cord disease or injury
- Tourette syndrome
- Traumatic brain injury
- Ulcerative colitis
Both Wright and McManamon expect reciprocity for out-of-state cardholders, but that’s not set in stone. Wright anticipates reciprocity will be rolled out on a state-by-state basis, with Michigan the first state.
A survey issued at the end of 2016 questioned the likelihood of Ohio’s doctors to recommend MMJ. However, McManamon said he doesn’t “think it’s going to be as big of a problem as most people think” – provided the rules don’t make it difficult for physicians to recommend MMJ.
Ohio does have a serious problem with opiate addiction, including heroin overdoses, McManamon said.
“(The opiate problem is) only getting worse,” he added. “It’s never going to change unless you offer them something else. And something that’s way less harmful to their body and their community. Medical marijuana does that.”
Potential business owners could face financial barriers to entry. If large grow licenses end up costing a total of $200,000, that could price some people out. Net worth or liquidity requirements also have been discussed.
“That’s probably going to keep some people away,” McManamon said.
Overcoming the stigma of medical cannabis is a large hurdle in Ohio. Certain municipalities have already enacted temporary moratoriums.
However, communities that have been struggling from loss of manufacturing jobs are more agreeable to it.
“The world’s not going to end here,” McManamon said. “What’s going to happen here is that the community is going to have more jobs.”
Bart Schaneman can be reached at [email protected]