Week in Review: Maine marijuana setback, Arizona MMJ lawsuits & investment avalanche

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By John Schroyer and Omar Sacirbey

Maine recreational legalization hits a major snag, Arizona lawsuits expose problems with the state’s medical cannabis system, and venture capital investments in marijuana companies hit an all-time high.

Here’s a closer look at several notable developments in the marijuana industry over the past week.

A pain in Maine

A bid to legalize recreational marijuana in Maine this year has been knocked to the ground, but it’s not out for the count just yet.

The campaign behind the measure is taking the Maine secretary of state to court to challenge a decision that disqualified thousands of petition signatures needed to place the legalization proposal in front voters this November.

“We intend to appeal this decision,” said David Boyer, director of the Campaign to Regulate Marijuana Like Alcohol. “We feel like we have a strong case given that this was based on a handwriting technicality. The court tends to lean on the side of voter intent when it comes to elections.”

Roughly 17,000 signatures were invalidated due to a discrepancy with the signature of a single notary whose commission is still current with the state. The signature of the notary reportedly did not match the signature the state has on file.

The signature on file is five years old, and a person’s signature is almost never identical – even on the same day, let alone over a period of years, Boyer said.

“What’s important is that the circulators that collected these signatures signed and swore to that notary that they witnessed every signature being collected,” Boyer said.

Maine Gov. Paul LePage has been an outspoken prohibitionist, calling marijuana a “gateway drug.” But Secretary of State Michael Dunlap denied that a decision to disqualify the measure had been made beforehand and that he was simply looking for a reason to sink the proposal.

“Our goal in certifying any initiative is not to disqualify signatures or any other aspect of the petitioning process; quite the opposite,” Dunlap said in an email.

But the flames of suspicion have already been fanned by contradictory stories from Dunlap’s office about what happened. Originally, Dunlap’s office said that it did contact the notary in question about the signatures discrepancy, and then later said that it didn’t because the signatures were so different.

The campaign has 10 days from the rejection date, March 2, to challenge the decision. The Superior Court has 40 days to rule from the rejection date.

Trouble in paradise

Arizona’s medical cannabis industry is riddled with intra-industry legal battles heading into the summer, when the state is scheduled to begin its first round of MMJ business licensing since 2012.

Many of the half-dozen or so lawsuits stem from the fact that a lot of the original license winners weren’t really prepared for how much capital they would need to get a business up and running, said Arizona MMJ attorney Gary Michael Smith.

“So what do you do? You reach out for investors. That’s where a good chunk of the fighting comes from,” Smith said. “These people who came in with money were trying to take over the dispensaries that they were investing in… I’m aware of one lawsuit where there are, and I kid you not, I think 20 board members all fighting over one stupid dispensary. It’s ridiculous.”

Smith and another Arizona-based attorney, Ryan Hurley, both expect that the next licensing round will likely be smoother, with less lawsuits as a result, simply because new applicants will have watched what happened the first time around.

“A lot of (the original applicants) just liked marijuana and thought they could be instant millionaires,” Smith said. These people “didn’t think this through or just didn’t have the business acumen to meet all of the challenges. My optimistic side has to believe that this next round of applicants has to be more sophisticated.”

But the lottery system the state uses to award licenses, as opposed to the merit-based system used in many other states, could lead to further legal battles if more would-be millionaires apply, especially if they’re just as unprepared as some of their 2012 counterparts.

The state has not yet revealed exactly when it will open up the new licensing process, only that it will be sometime this summer. It also hasn’t specified how many more business permits will be awarded, though the two attorneys believe it will be between 20 and 29.

The investors are coming

Venture capitalists, long wary of the legal marijuana industry, are apparently overcoming their concerns about cannabis.

That’s evident from a new report released this week by CB Insights, which found that venture capital investments in the cannabis space shot up to $215 million last year from $97 million in 2014.

Reports like this are notoriously spotty – CB Insights likely missed some deals that weren’t publicized.

Regardless, the trend is clear: marijuana investments are rocketing.

That’s not only good news for established companies looking to expand, it’s particularly great news for new entrants to the industry.

It’s still not necessarily easy to land hundreds of thousands of dollars – or even millions – in investment capital, but the odds in the cannabis industry have improved.

The reason that’s important is twofold.

For one, the cannabis industry is almost certainly not going anywhere. Despite the specter of a possible Republican president who may decide to crack down on marijuana businesses nationwide, the likelihood of several more states legalizing either medical or recreational marijuana this November means that the United States is already past the tipping point when it comes to federal law.

As a result, there will almost certainly be continued growth throughout the sector and across the country.

The second key point is that most states still have a residency requirement when it comes to cannabis businesses. That means it’s more difficult for long-established companies to expand into new markets, and easier for homegrown businesses to spring up.

For those new entrants, a key to success will be access to capital, to help pay for everything from real estate to supplies to employee payroll to marijuana product itself. That’s where venture capitalists come in.

And they’ll almost certainly keep coming, especially with the sales numbers the legal marijuana industry is posting.

John Schroyer can be reached at johns@mjbizdaily.com

Omar Sacirbey can be reached at omars@mjbizdaily.com