Week in Review: Sessions’ sleight of hand, scofflaws in CA & risky business in NY

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By John Schroyer, Bart Schaneman and Omar Sacirbey

Attorney general nominee Jeff Sessions plays his cannabis-enforcement views close to the vest, dispensaries sidestep California’s adult-use law, and an L.A. marijuana company attempts a risky rescue in New York.

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

Sessions hints at future enforcement

The likely next attorney general of the United States hinted at what may come for cannabis businesses during his first day of confirmation hearings before the U.S. Senate’s Judiciary Committee, and that has Steph Sherer worried.

As the executive director of Americans for Safe Access, Sherer has spent the past 15 years fighting for cannabis reform nationwide. She was not reassured Tuesday when the topic of state medical marijuana laws was raised by Vermont Sen. Patrick Leahy in a question to Sessions.

“I think that what Sessions said was as little as he had to. I think we’ve learned about that smile, that that smile means he’s speaking in parentheses,” Sherer said. “And what I heard was that he’s not interested in doing anything but enforcing federal law.”

Sherer said Sessions’ comments, including a refusal to “commit to never enforcing federal law” and his assertion there are some “truly valuable” pieces of the 2013 Cole Memo, support what she’s heard through the DC grapevine: The Sessions-run Department of Justice will review state cannabis markets to see how closely they adhere to the Cole Memo’s guidelines.

“I think he’s going to be doing an audit of the state programs and really taking those eight criteria as, not guidelines, but almost as law,” Sherer said. “Every state regulator, every state legislator that has supported MMJ, and every business that is serving our patients needs to go back to the eight criteria in the Cole Memo and look for any weaknesses.”

California dispensaries flaunt law

Numerous California MMJ dispensaries are jumping the gun on adult-use sales by at least a year, underscoring that the state’s transition to a fully regulated cannabis market is fraught with pitfalls.

This week’s report that dispensaries are illegally selling recreational marijuana isn’t inspiring confidence, for example, that the legal industry will supplant the state’s massive black market. The state must first develop a regulatory system. So recreational marijuana can’t be sold or taxed until Jan. 1, 2018, at the earliest.

“It’s of great concern to me that you can now walk into thousands of stores in California and buy legal cannabis,” said Aaron Herzberg, a cannabis attorney and dispensary owner in Santa Ana. “They’re perpetrating a crime.”

Herzberg argued that California’s legalization of adult-use cannabis – via November’s passage of Proposition 64 – made “it easier for the thugs and the bad guys to succeed.”

He added: “It’s going to be a long time until the licensed businesses are granted the type of protection that they need from these folks that just make a mockery of the law.”

Herzberg said he’s visited several dispensaries that are selling marijuana under the guise of Prop 64.

“Why are we creating a licensing scheme when anyone who’s (21) can walk into a store and show their driver’s license to prove how old they are and buy marijuana?” he asked.

When police are asked why they don’t enforce the law, Herzberg noted, they say “it’s difficult” and costly.

“We have an intractable situation in California,” he added. “We have tens of thousands of illegal businesses that are very hard to shut down because the law doesn’t give you the tools to shut them down.”

MedMen’s risky New York play

MedMen, a Los Angeles marijuana management and consulting firm, this week acquired Bloomfield Industries, a financially troubled, New York-licensed MMJ business that has opened only three of its four allotted dispensaries and has failed to pay some of its vendors.

MedMen has its work cut out.

One of the more populous states in the nation, New York could have one of the most lucrative MMJ programs. But it doesn’t allow flower or edibles and suffers from high prices and a lack of health professionals willing to recommend medical marijuana, among other problems.

Through Jan. 9, only 816 doctors and nurse practitioners were certified to recommend MMJ to the 12,247 patients registered in New York. The state has five licensees, including Bloomfield. None are profitable.

“It’s everything that makes for a very poor medical cannabis program,” said Kayvan Khalatbari of Denver Relief Consulting. “There’s a reason those businesses are suffering.”

Another issue, according to Khalatbari: “They picked probably some less-than-capable people to operate these businesses. I don’t believe they were vetted appropriately.”

Even well-run companies would have a hard time given New York’s restrictions, Khalatbari said.

A big issue going forward for New York businesses, including Bloomington under MedMen, will be having enough capital to survive until they become profitable.

MedMen has raised $40 million of a $100 million private equity fund, but that may not be enough.

“That money’s going to burn pretty quick in a state like New York,” Khalatbari said. “Ultimately, they’re paying for their opportunity if that market expands.”

What can MedMen do to make Bloomfield a success?

Not much under the current rules and conditions, Khalatbari said.

MedMen, which declined comment, and the other businesses should be lobbying officials to make more changes to increase patient numbers, Khalatbari said: “They need to work legislatively to fix that program.”

John Schroyer can be reached at johns@mjbizdaily.com

Bart Schaneman can be reached at barts@mjbizdaily.com

Omar Sacirbey can be reached at omars@mjbizdaily.com