Rob Hunt: Massachusetts Dispensary Regulations Will Create Shotgun Marriages, Boost Risk

By Robert E. Hunt

So you want to open a medical marijuana dispensary in Massachusetts? Before you go any further, you may want to examine what you’re up against.

The Massachusetts Department of Public Health (DPH) released its final regulations this week for the state’s medical cannabis industry. In doing so, it has provided prospective licensees with a definitive view of what they’ll face in the application process. While comprehensive, the document contains numerous components that will surely be onerous to all applicants, and several requirements in particular will cause concern for entrepreneurs looking to move forward with their business plans. The three elements that will prove to be the most problematic: the hefty capital needed to apply for and obtain a license, the necessity of getting approval from local municipalities and the cultivation methodology requirements.

First, some background. The new regulations stipulate that there will be two sets of applications. The first one will be short and simple, requiring applicants to prove that:

a) They have registered as a non-profit entity in Massachusetts (they must also include a list of all executives involved)

b) They have the financial means to launch a dispensary, as evidenced by paperwork showing they have at least $500,000 in available, verifiable funds.

c) None of the executives have any felony criminal drug records or pending actions, and they meet several other requirements tied to good moral character.

Applicants must also submit a non-refundable application fee to move forward, though the amount has not yet been determined.

If the applicant is able to meet these requirements, then theoretically they will advance to the next stage of the process. The second application will be a much more dynamic and complex document. The goal is to disqualify those who are not serious contenders, which will ensure that the health department does not waste time and resources vetting applicants who don’t stand a chance anyway.

That’s completely understandable, in theory. But one of the biggest issues with this, as mentioned above, is the requirement that applicants who want to move to the second stage must prove they have half a million dollars in reserves – a seemingly random number picked out of thin air. Most people don’t have that kind of money lying around, and many entrepreneurs with strong applications will therefore find it impossible to make it to stage two. Even if an applicant drafts plans for the best dispensary business model in the state, he or she will be shut out from the process if the capital requirement is not met.

You can guess what will happen as a result: Many entrepreneurs will rush into shotgun marriages to amass the financial reserves needed to apply. Those with cultivation expertise will seek out those with capital, and vice versa. This type of partnership might lead to a much more viable application as far as the state is concerned, but it doesn’t mean it will lead to success – in securing a license or creating a thriving dispensary. Such hasty partnerships have doomed some businesses in other states such as Colorado, where new regulations forced dispensary owners to team up with growers they barely knew.

The second worrisome requirement – that applicants must prove the municipality where they plan to locate has either given approval or offered tacit consent to such an operation – is of far greater consequence. This will be the one rule, more than any other, that could potentially derail the entire organized medical cannabis program in Massachusetts. While applicants do not have to meet this burden in the first round of the application process, they do in the second. This may not appear to be a colossal problem on the surface, but it is when you peel back the layers of the proverbial onion and dig deeper.

Here’s why: On March 13, Attorney General Martha Coakley ruled that towns cannot outright ban dispensaries, as that would violate the purpose of the law and the will of the voters. Unfortunately, she stopped short of saying that towns also cannot enact one-year moratoriums on dispensaries. What this means is that once someone makes it past the first round and then reveals an intended location, local officials could theoretically block the application by enacting a moratorium that lasts longer than the application process. This is, in effect, a de facto ban.

As bad as this may sound, it gets worse.

Applicants who make it to the second round will also have to submit an application fee that will undoubtedly be extremely cost prohibitive – and, more importantly, non-refundable. This means that if an applicant has put together the proper team, effectively married expertise with capital, met the initial financial requirement, secured a location either through purchase or lease, and submitted a large non-refundable application fee, they still might not receive approval and could lose everything due to an eleventh-hour moratorium.

Now take a moment to consider the teams that have the means, expertise and risk tolerance to get this far in the process. Entrepreneurs of this caliber will not take such news lying down. This means we could see lawsuits by applicants against towns – or possibly even against the state, seeking clarification on the difference between a ban and a moratorium.

And that’s not all. Should an applicant meet all these requirements, he or she will still have to grow the medicine. Here is where licensees will perhaps encounter the greatest challenge. The DPH has stipulated that all medicine grown in Massachusetts must adhere to U.S. Department of Agriculture organic requirements. Growing any plant organically is very difficult as it is, but when you also add in a requirement barring the use of non-organic pesticides, it becomes immensely more challenging to do so successfully without encountering problems tied to pests, mildew or fungus.

While there is no doubt that the DPH has the best interests of the patients in mind with this requirement, it will far more likely render most medicine grown unusable once samples have been tested by the required non-associated third-party laboratories. Should these labs find any trace of contaminants that are deemed potentially harmful, the medicine must be destroyed. In order to pass laboratory scrutiny while growing organically without the use of any real pest controls, you’ll have to be a world-class gardener. Even then, there will be a significant likelihood of problems in a commercial cultivation environment.

As you can see, these three requirements could create massive hurdles for applicants, and the risks could very well outweigh the rewards.

The preceding is not meant to frighten any prospective licensees from throwing their hat into the ring. Rather, it is meant to make you aware of the challenges you’ll be facing. At this stage in the legislative process, the best we can hope for is that the DPH and the attorney general will eventually realize the potential pitfalls of what they have proposed and be open to future amendments. If that doesn’t happen, it is unlikely that the state’s medical marijuana industry will get off the ground in an organized and timely fashion.

Robert Hunt is the owner of Rocky Mountain Hydroponics in Colorado and Evergreen Garden Centers in Massachusetts, New Hampshire and Maine. He is also an attorney, the principal of Robert E. Hunt Consulting and chairman of the Coalition for Responsible Patient Care.

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 7 Comments

  1. Curtis Gibson May 10, 2013
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  3. Jeremy Anderson May 10, 2013
  4. Jeremy Anderson May 10, 2013
  5. Fat Daddy G May 10, 2013
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