Medical Marijuana Licensing Rules Favor the Very Big and Very Small

February 5, 2018

Last week, rules in regards to the 2016 citizens initiative and the 2017 legislation, SB 333, were filed with the Secretary of State’s Office. The rules clearly need further development and it is our belief the department will continue to work on them. However, there are also serious issues with the rules which result in a break from what was structured by the laws passed by voters and the state legislature.

In this post, we will discuss the issues with the proposed licensing requirements. In our next post, we will discuss the canopy.

  •  Requiring the same $5000 licensing fee whether one serves 51 or 1000 patients is clearly unbalanced. It is also unnecessary to cover program costs. We have inquired why the fee structure has been adopted as it is and have not received an answer beyond, “it’s what we chose to do.” Those with 10 patients or less pay $1000. The department created a tier for those with 11-49 patients at $2500. Even the fee for this additional tier is costly relative to the fee paid by the largest providers, i.e. a provider with 11 patients pays $227 per patient while a provider with 1000 patients pays $5 per patient.
  • Combined with testing costs (predicted at anywhere from $300-$700 every 5 lbs. or less harvested), we are concerned about the fee structure’s impact on patients who choose local, mid-size providers serving 11-200 patients. About 200
    providers (a third of providers) serve about half (11,000+) of the state’s cardholding patients. The department’s model drives the program to a two-tier system of hundreds of providers with 10 patients or less and thirty or so mega-providers with dispensary chains.
  • Consolidation is a normal process. It should be driven by the consumer, not the government. If the legislature allows patients to go to different providers next session and “shop around” for products that work them, consolidation will occur
    with the input of the patient market. Consolidation under market forces results in higher performing, quality providers surviving and lower performers exiting the program market. The model proposed in the rules “locks in” the largest, whether they have a quality product or have even been operating within the law. If the legislature chooses to “cut the patients loose,” licensing cannot be based on patient numbers as individual providers won’t “have patients,” which is why the legislation aimed at separating licensing from patient numbers when the canopy came on-board. The fact that the department failed to implement licensing from the initiative makes it irrational to do it while implementing the canopy.
  • The tracking system would assure patients didn’t buy beyond their allowance as they sorted the market for quality and service.

Exacerbating the disproportionate burden being placed on the mid-size provider is how the department is currently implementing roll out.

  • One is to get licensed as one’s provider registration expires. Thus, if your registration is up April 30, you must get licensed, pay the fee, be subjected to testing (and testing costs), be on the tracking system while another provider down the street does not have to test, not be tracked, and keep their $5000 until their registration expires at a later date.
  • By Dec 31, all providers must be on the system. But again, the implementation strategy (which is very different than the one outlined by the citizens’ initiative and the legislature) is going to create uneven burdens and pick winners and losers based on bureaucratic needs as opposed to the interests of the patient market.
  • Example: A provider with 50 patients has his or her registration expire in April. At that time, the provider must pay $5000, be on the tracking system and pay for the staff to manage that, pay for the inspection standards, pay $300-$700 every 5 lbs. or less for testing, and pay to meet packaging and labeling requirements. Meanwhile, a provider down the street with 800 patients whose registration doesn’t expire until December doesn’t have to pay the $5000, track, test, meet inspection requirements, or package or label according to standards.

House Tax made amendments to the legislation aimed at protecting the ability of small providers (10 patients or less) to survive, including an exemption to the testing requirement. We don’t think it’s the case that the smallest were protected because the legislature thought mid-size should be eliminated.

But more critical than any of this is that the legislation called for licensing by square footage cultivated, canopy, not patient numbers.

There was an effort in House Tax to set the licensing fee at $100 per patient. That effort failed because the committee decided that separating licensing from patient numbers when the canopy came online set a better course for the future.

So, while the fees present an unbalanced model, the real problem lies in the fact that the licensing from the initiative (based on per patient) was never implemented. It was supposed to shift to square footage when the tracking system came on-board. Now, the department is blending the licensing from the initiative with the licensing from the legislation to the detriment of a fair and function system.

As a result, both licensing and the canopy model are being improperly implemented. More on the canopy in our next post.

Note: We recognize it is not the fault of current program management that the initiative was not implemented.

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