Pennsylvania Medical Marijuana Program

Four Lessons Learned From PA's Marijuana Program's First Phase

With the dust settling and "fuzzy math" shrieks abating, Pennsylvania's Medical Marijuana Program's ("Program") First Phase has drawn to a close. Or has it?

Denying 408 applications and demanding its 12 grower/processor and 27 dispensary licensees construct statutorily compliant facilities within 182 days, the Program's overseeing agency, Pennsylvania's Department of Health ("DOH") faces Herculean obstacles in overcoming the missteps which crippled New York, Maryland, and New Jersey's programs.  

But the smart marijuana money is betting on Pennsylvania to go all the way and here's why.

PA's Medical Marijuana Program

Defined by the Medical Marijuana Act, 35 P.S. §§ 10231.101-10231.2110, regulations promulgated thereunder, and Medical Marijuana Organization ("MMO") Permit Application (hereafter, collectively referred to as "PA Marijuana Law"), the Program encompasses 17 "serious medical conditions" eligible for marijuana prescription including "post traumatic stress disorder".

Authorizing 25 grow/processing licenses and 50 dispensary licenses, each empowering the licensee to open 3 locations for up to 150 dispensaries, leading trade publication Marijuana Business Daily estimated that if even less than 1% of the Commonwealth's 12.8 million residents participate, the Program would be populated by over 100,000 card holders generating $100 to $150 million in annual sales revenue.

Dividing Pennsylvania into 6 delineated geographic regions, the DOH launching a competitive, 1000 point scoring system based on factors including respective region's population, number of "serious medical condition" suffering patients, serious medical conditions types, public transportation access, and rural and urban areas health needs.  Because applicants competed inter-Regionally, a winning Region 6 score may fall short of that which prevailed in Region 1.

Requiring that each MMO's applicant provide a "Diversity Plan" defined as a strategy promoting or ensuring diverse groups participation in an MMO's ownership, management and operation through contracting and employment opportunities, the Program's scoring rubric apprised that 100 potential points would be awarded for "Diversity" and "Community Impact", respectively.  Further, unlike Alaska, Colorado and Washington State's program's launch, the Program imposed no "residency requirement" removing any "barriers to entry" for out-of-state-interests.

Electing to award licenses in "phases", on June 20, 2017, the DOH awarded 12 grower/processor - - and on June 26, 2017,  27 dispensary - - licenses.

Which is when the screams of "bloody murder" began.   

Four Lessons Learned From Program's First Phase

Seduced by their own power-point deck's glitter, the Program's First Phase provided a rude awakening to both the "high and mighty" and hardscrabble applicants.  Stunned by their lack of sway and convinced that shenanigans prevented fair consideration, lawsuits ranging from "striking PA Marijuana Law as unConstitutional" to "disqualifying  successful applicants for alleged wrongdoing in other jurisdictions" are being loudly threatened across all 67 counties.

Although the Program allows each applicant to receive a "de-briefing" on how its respective applications were scored and for unsuccessful applicants to appeal their scoring, the writing is already on the wall.

1.  Life Ain't Fair.  Mirroring Arizona's 2016 dispensary results (in which 750 applicants sought 31 licenses), each Program application had less than 1 in 10 chance of winning.  Further, because the Program omits any "residency requirement", Pennsylvanians had even less of a chance.

2.  "Big Marijuana" Carried The Day.  Approximately 70% of the winning applicants were affiliated with growers, processors and dispensaries already operating in multiple legalized marijuana jurisdictions.  Beyond being able to demonstrate a history of being a transparent, compliant and profitable marijuana related business, winning applications were crafted by experts at submitting winning applications, which is distinct from growing, processing and selling marijuana.

3.  Follow The Rules Closely.   Does your "diversity" definition encompass "armed forces veterans" or involve "certification"?  Regardless, because PA Marijuana Law defines a "diverse group" as "a certified disadvantaged, minority-owned, women-owned, service-disabled veteran-owned or veteran-owned small business", the Program's unique criteria disqualified many seemingly qualified applicants.

4. Pennsylvania's Program Is Built To Last.   Perceived inequities aside, the DOH and Program got it right.  Beyond meeting every self-set deadline and blitzing through @500 applications in 90 days, licenses were generally awarded to the best funded applicants with a proven track records of success. In an exceedingly volatile industry hinging upon timing, adequacy of funding, and fullness of regulatory compliance, in the First Phase the DOH has positioned the Program for greatest likelihood of swift success.   

Though many were unhappy with Pennsylvania’s first phase of medical marijuana licensing results, the bright spot is that Pennsylvania is moving forward with a process to get medical marijuana into the hands of patients who can benefit from using it.

Steve Schain is Counsel to Hoban Law Group and admitted to practice in Pennsylvania and New Jersey. Steve represents entities, governments and individuals in choosing a structure, preparing and submitting license application, regulation, compliance and litigation, and drafting legislation. A nationally recognized consumer finance litigation, banking law and cannabis law expert, Steve is a The Legal Intelligencer and Cannabis Business Executive columnist, frequent Pennsylvania Bar Institute and National Bar Institute author and lecturer and serves as a court appointed judge pro tempore and arbitrator. He can be reached at steve@hoban.law.