Oklahoma medical marijuana businesses demand steps to combat illicit grows

Image of a marijuana cultivation site

Concerns over expanding illicit cannabis operations in Oklahoma are putting pressure on regulators and law enforcement to take action to stamp out the alleged criminal activity some argue is hiding behind the state’s booming legal medical marijuana industry.

To aid in this, medical cannabis companies in Oklahoma are calling on state regulators to move ahead with:

  • Implementing a seed-to-sale tracking system.
  • Increasing inspections of licensed marijuana businesses.
  • Refining testing rules to ensure product safety.
  • Raising the price of a business license.

The demands come as the state’s Bureau of Narcotics in November declared Oklahoma the No. 1 supplier of illicit cannabis in the country.

The OBN agents said criminal groups from outside the U.S. are responsible for operating 25% of the state’s 8,500 medical marijuana grow licenses.

While that “No. 1” claim might be difficult to verify – cannabis growing regions in Northern California and southern Oregon also produce large amounts of underground product, for example – the statement illuminates how Oklahoma’s loose MMJ regulatory framework and low barriers to entry can produce unintended consequences.

“The state could have and should have made it more difficult to get a business license,” said Denise Mink, who owns the Med Pharm dispensary outside Tulsa with her husband.

As of Nov. 10, the Oklahoma Medical Marijuana Authority (OMMA) had issued 13,281 marijuana business licenses since legalizing MMJ in 2018. That includes cultivation, manufacturing and retail permits.

Oklahoma boasts the highest number of cannabis retail outlets in the nation.

According to the 2021 MJBizFactbook, sales via licensed dispensaries are projected to total $900 million to $1.1 billion this year, up roughly 25% from 2020.

“The unchecked expansion of the cannabis industry is increasing all kinds of illegal activity throughout the state,” said Seth Wiggins, president of Colorado-based Clear Cannabis, a maker of marijuana concentrates that does business in Oklahoma.

“Vague regulation and scarce law enforcement breed opportunities for legally flexible opportunists and flat-out illegal activity.”

Anthony Coniglio, president of Connecticut-based NewLake Capital, a cannabis REIT with properties across the country, agreed.

He noted that “too many licensees create an oversupply in the market, which typically leads to a lack of profitability – driving licensees to cut corners or sell product into the black market to break even or accomplish a profit.” 

Oregon comparison

Another cannabis market with a low barrier to entry for new businesses, Oregon is experiencing a similar problem with illegal cannabis operations.

And it serves as a fitting comparison to Oklahoma’s freewheeling medical cannabis market, where there’s no cap on the number of business licenses.

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For instance, officials in Jackson County, in southern Oregon, recently planned to ask the state for nearly $7.3 million to help fight illicit grows that have been proliferating across the region.

Officials from neighboring counties in the state have expressed similar concerns.

A few years ago, Oregon found itself facing conditions that are similar to those in Oklahoma today – lots of licenses and no limit on the number issued.

In response, Oregon regulators imposed a moratorium on new licenses in 2018 because the state had become backlogged in processing applications.

Overproduction of cannabis also had caused a market glut, regulators contended.

“There was always the fear that what happened in Oregon will happen here, and it looks like those fears were well-placed,” Mink said.

States with stricter regulations and more rigorous license applications than Oklahoma are able to ensure medical marijuana products are staying within state borders, as are associated tax dollars, said Sara Gullickson, CEO of Arizona-based consulting firm The Cannabis Business Advisors.

“In free markets where there is free rein, you are going to have trouble,” she added.

Wiggins said successful cannabis legalization rests on a delicate balance of regulation and free-market economics.

“Oklahoma’s current law incentivizes operators to grab market share and first-mover advantage by any means possible,” he added.

Tracking

As of the end of June, a judge’s order remained in place that prevented the rollout of Florida-based Metrc’s seed-to-sale tracking system in Oklahoma after a group of dispensaries sued the OMMA over the program’s implementation.

Some industry officials see traceability as a key component to helping stop the growth of the illicit cannabis market.

“Once Oklahoma implements its statewide seed-to-sale tracking system, along with stricter enforcement, many of the bad actors will be naturally pushed out of the space,” said Eric Leslie, chief marketing officer and co-owner of Denver-based edibles brand Cheeba Chews, which does business in Oklahoma.

Inspections

OMMA Director Adria Berry started in August and quickly asked for more inspectors to help keep up with the rapidly increasing number of new businesses.

To that end, the agency aims to hire 40 more compliance inspectors.

“It will get way better when inspections finally start happening,” said Chip Paul, chair of Oklahomans for Health, based in Owasso.

“We have folks who have been operating for years and have never been inspected.”

Testing

Regulators and lawmakers are working to refine rules around product testing.

New rules went into effect in November, including forbidding the operation of a marijuana testing lab by an entity that has an ownership stake or a financial interest in a cultivation operation or a dispensary.

“The OMMA’s priority must be to eradicate activity within the illicit market situation and ensure proper testing and regulations that give consumers access to top-quality and safe products,” said Arshad Lasi, CEO of the Nirvana Group, a vertically integrated medical marijuana company in Tulsa.

He added the licensed industry needs to call for regulations that “create better opportunities for new and existing businesses to operate legally and offer safe, properly tested products for consumers.

“With opportunity, fair prices and safety standards in place, ideally that would help to curb unlicensed market competition.”

Raise the bar?

Several industry officials interviewed for this story suggested one solution to the problem of too many companies would be for regulators to increase the price for new business licenses.

Right now, it costs Oklahomans only $2,500 for an MMJ business license. That covers the application fee and the license fee for the first year.

Neighboring Arkansas, by comparison, charges $7,500 for a dispensary application. Once a license is awarded, licensees must pay a $15,000 fee and post a $100,000 performance bond.

For cultivation permits, Arkansans must pony up $15,000 to apply and then pay a $100,000 fee for the awarded license.

“Considering Oklahoma has more business licenses than the entire West Coast combined, with just a handful of the population, it looks like the free market backfired to me,” Med Pharm’s Mink said.

“This has led to a flooded market that is not sustainable.”

Bart Schaneman can be reached at bart.schaneman@mjbizdaily.com.