Pennsylvania’s medical cannabis market, praised for its smooth operation, is expected to nearly double to $400 million-$500 million in sales this year and reach $1 billion in sales within three or four years.
Buoyed by the market’s success, current licensees have become acquisition targets even in the current tough economic climate – with deal prices moving north of $25 million in some cases, experts say.
That could occur within the next year via the state’s Legislature, according to industry observers, as lawmakers seek out revenue sources to replenish state coffers depleted by the coronavirus pandemic.
“Pennsylvania is seen as a market that’s not just robust but also well-run,” said Judith Cassel, a cannabis attorney in the state. “There’s been a lot of activity lately and a lot of interest in acquisitions.”
She and other experts and companies attribute the strong market to several factors:
- A strong, nimble state regulatory body – the Pennsylvania Department of Health.
- Good MMJ operators – people who know the business and work well with the regulators.
- A high barrier of entry because of a limited number of MMJ licenses under the state’s licensing cap.
- Strong physician representation – 1,400 doctors have been approved.
- High patient numbers – 330,000 registered as of end of June, exceeding original projections.
- Bipartisan support in the Legislature. Lawmakers passed legislation that legalized medical cannabis by overwhelming margins in 2016.
Pennsylvania’s medical marijuana program launched in February 2018 and has rapidly moved toward becoming a mature market.
The state capped dispensary licenses at 50, while permits for grower/processors were limited to 25 – although 26 have been issued.
The dispensary permits enable holders to open three locations. Of the potential 150 dispensary locations, 87 were operational as of June 25, according to a state news release.
About 15 grower/processors were actively shipping product as of late June, with many expanding at their locations.
Poised to legalize adult-use cannabis?
Recreational legalization isn’t a given. Despite its support of MMJ, the Republican-controlled Senate has resisted previous efforts to legalize adult use.
But Bridget Hill-Zayat, a cannabis attorney for the Hoban Law Group, said during the recent MJBizConNEXT Direct that momentum might be gathering for adult-use legalization because of the state’s massive budget shortfall in the wake of the coronavirus crisis.
“People who weren’t considering adult use previously may be taking another look,” she said.
A Pennsylvania bill introduced in February isn’t given much of a chance to pass intact, but Cassel reckons Republicans could be persuaded by a plan that would give existing MMJ operators the first crack at the adult-use market.
That would result in a smoother transition and regulatory stability and almost immediately contribute to state tax coffers, she noted.
By comparison, adult-use legalization based on the following could draw more skepticism:
- An application and licensing process created from scratch.
- A brand-new regulatory framework.
Such a system could take a couple of years to materialize.
Even before the pandemic, momentum was slowly building to legalized recreational marijuana in Pennsylvania.
Gov. Tom Wolf began to express a change of heart in early 2019 and has increasingly spoken in support of legalizing adult-use marijuana since last fall.
He has been involved in a Northeast governors group to develop a regional framework for adult-use legalization.
A survey in April by Harper Polling found 62% of likely voters in Pennsylvania favored legalization.
Lt. Gov. John Fetterman’s statewide listening tour in 2019 encountered similarly strong support for legalizing recreational cannabis.
In another show of support for marijuana, regulators declared Pennsylvania’s medical cannabis program an “essential” business during the recent coronavirus outbreak and showed flexibility with regulations.
They increased the allowable MMJ supply from 30 to 90 days, Cassel noted, and removed restrictions allowing caregivers to have only five patients.
But regulators also have been tough on companies they perceive as flaunting regulations.
After a protracted battle with the state, Arizona-based Harvest Health & Recreation agreed to surrender two dispensary permits after exceeding the cap by obtaining seven licenses through company affiliates.
Pennsylvania seen as attractive market
Pennsylvania was listed among the favorite markets or ones to watch by several multistate operator CEOs in a recent informal survey by Marijuana Business Daily.
Florida-based Jushi Holdings reflects the keen interest in Pennsylvania.
Jushi recently agreed to purchase Vireo Health’s cultivation and processing facility for $37 million.
In addition, the company recently closed on a previously announced acquisition of 80% interest in Agape Total Health Care, which has been awarded a dispensary permit in Pennsylvania.
Jushi already had a presence in Pennsylvania. But with the acquisitions, the company will be able to operate up to the 15 maximum dispensaries statewide.
The Vireo deal will enable Jushi to increase its cultivation capacity to meet growing MMJ demand in the state and to prepare for eventual adult-use legalization.
Jushi co-president Erich Mauff, in a recent interview with MJBizDaily, characterized Pennsylvania as a “great medical program that functions well and is well thought out.”
“We’d like to try to max out our regulatory footprint, ” he said, adding the company believes scale is an important ingredient to prospering in today’s uncertain environment.
Jushi operates the Beyond/Hello dispensary brand.
Mauff wouldn’t predict how quickly adult-use legalization could occur, but he did say proponents need to put potential benefits into “Republican speak.”
That, in part, means touting the economic benefits that would occur if recreational marijuana were legalized – development and job creation. Both could be critical in the state’s struggling industrial towns.
Cassel views key ingredients as including the promise of tax revenues to the state, plus a regulatory framework that plays on the successes of the MMJ program to date.
Racial justice and social equity also are key issues, and Pennsylvania’s Legislature has a powerful Black caucus expected to lead the way.
“If they’re (Republicans) interested, it’s going to be because we have a giant hole in our budget,” Cassel said.
Jeff Smith can be reached at [email protected]
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