By Omar Sacirbey
Vireo Health, a multistate medical marijuana business, has aggressive expansion plans. But the Minnesota company’s goals could be undermined by two former executives whom prosecutors allege moved cannabis across state lines, a violation of federal law.
There has already been fallout, and industry observers say there’s potential for more.
Vireo – which operates vertically integrated grow, processing and dispensary businesses in Minnesota and New York and recently won a grow license in Pennsylvania – declined comment on how the allegations may affect its expansion plans.
But in a statement to Marijuana Business Daily, Vireo emphasized that no current employees were charged with any wrongdoing in the alleged incident and that the company continues to “work closely and productively” with officials in the states where the firm does business.
The two were charged with felonies in Wright County District Court, and Vireo’s former chief operating officer, Robert Shimpa, is listed as a defendant. A lawyer for Bultman has tried to have the charges against her dismissed, citing what he said were ambiguities in the law.
Though Bultman and Owens are no longer with Vireo, the company is still dealing with problems stemming from the alleged incident:
- In Maryland, regulators last month voted against awarding a final marijuana cultivation license to a former Vireo subsidiary, MaryMed, after the firm won a preliminary permit earlier in the year. The regulators cited the alleged December 2015 incident and, in their view, MaryMed’s failure to cooperate with state authorities seeking documentation from the company. Regulators also noted the application included the names of Bultman and Owens.
- In Pennsylvania, state health department officials came under fire for awarding a grow license to a Vireo subsidiary, Pennsylvania Medical Solutions. The Pennsylvania unit’s application included the names of Vireo employees and financial backers. But regulators have no plans to rescind the license and dismissed the criticism by unsuccessful applicants because Bultman and Owens were no longer with Vireo when the paperwork was filed.
Vireo officials didn’t respond to questions from Marijuana Business Daily about the alleged December 2015 incident or if other employees were involved.
Instead, spokesman Andrew Mangini issued the following statement:
“Regarding the allegations against two former employees of our Minnesota affiliate, those individuals have no role in our application or in the management of Pennsylvania Medical Solutions.
“It’s also important to note that our Minnesota affiliate, our parent company Vireo Health or any of their current employees have not been accused of any wrongdoing in connection with those allegations.
“To the contrary, we work closely and productively with our regulators and other governmental agencies in every state where we do business.”
Vireo also wouldn’t speak to how the allegations may affect the company’s plans to expand into other states, such as Florida, Texas and Georgia, or efforts to complete a $31.5 million fund raise. According to its website, Vireo has so far raised $22 million.
But will prospective expansion states decide – as Maryland did – to punish Vireo for the alleged December 2015 incident? Or will they be like Pennsylvania and see past the allegations? Industry analysts are divided.
Denver-based consultant Kayvan Khalatbari – who represented another successful Pennsylvania license applicant – believes Vireo will be damaged by the allegations. He thinks there are enough unknowns about the alleged incident to potentially influence regulators judging Vireo’s future applications.
“I find it hard to believe that there aren’t more (Vireo employees) who were very well aware of what was happening,” Khalatbari said, echoing sentiments of Minnesota state Rep. Nick Zerwas.
Given that most state programs attract a deluge of applications and award a small number of licenses, Khalatbari said it would be easy for state regulators to look past Vireo and pick competitors that don’t have blemishes.
Other cannabis industry observers said Vireo’s expansion plans may hinge on the company’s ability to persuade state regulators that the alleged December 2015 incident was isolated to the accused former executives.
“If a company can demonstrate that these bad actions were done by employees who are no longer with the company – and without the knowledge of the ownership or the management of the company – then they probably can survive (scrutiny),” said Kris Krane, managing partner of 4Front Ventures, a cannabis-focused consulting firm in Boston.
“But if Minnesota or New York (were to decide) to strip (Vireo’s) license because of this, or take some other punitive action against them – like sanctions or a fine – that may be hard for them to get beyond.”
In addition to the Wright County prosecutors pursuing felony charges against the two former Vireo executives, the Minnesota legislature passed a bill signed by the governor this spring mandating fines for medical marijuana businesses that violate laws forbidding transport of cannabis across state lines.
The new law also stipulates that state regulators will be prohibited from renewing the licenses of companies that violate those laws. In Minnesota, medical marijuana companies must renew their licenses every three years.
The new law won’t be retroactively enforced, however, so Vireo won’t face a penalty for the alleged December 2015 incident.
The measure’s chief sponsor, Nick Zerwas, told Marijuana Business Daily his motivation for writing the legislation was to discourage federal authorities from interfering in Minnesota’s MMJ program.
His goal was to show the Trump administration – especially U.S. Attorney General Jeff Sessions, who is seen as hostile to the cannabis industry – that Minnesota is serious about enforcing laws pertaining to cannabis.
“What’s important is that the state of Minnesota makes it clear that medical marijuana companies need to comply with state and federal laws,” Zerwas said.
“I want to show our federal partners that if one of our medical marijuana licensees violates federal commerce laws, we’re not going to tolerate that.”
Omar Sacirbey can be reached at [email protected]