Medical cannabis companies amass political power

Published 8:00 am Thursday, May 12, 2022

Many small cannabis entrepreneurs say large companies are jockeying to lock them out of the industry and have funding that gives them more access to lawmakers.

“Small businesses are the backbone of the country,” said Sarah Grant, general manager of The Dispensary in Richmond.

The shop opened last year and sells Delta-8- THC flower and vape cartridges.

“It’s hard to compete if you’re going against the Walmart of weed,” Grant said.

Grant said the lack of structure in the recreational cannabis market is stressful for smaller businesses and that her store could never compete with lobbyists from national cannabis corporations.

New lobbying clients, special interest groups and investors have entered the arena the past four years as Virginia lawmakers grappled with medical and recreational cannabis legislation. State lawmakers decriminalized simple possession of cannabis in 2021 with initial plans to legalize recreational cannabis by 2024 — though that floundered in this year’s session. Potential sellers were left in limbo and parts of the legislation needed to be reenacted or passed again the next year before becoming law.

The market currently favors the four companies licensed to serve five health districts in Virginia. The Northwest health district does not currently have a licensed company. Only state licensed companies can open medical cannabis dispensaries in their district.

Some of those companies have merged to expand their business and have the cash to inject into Virginia politics.

Stephen Farnsworth is a political science professor at the University of Mary Washington and director of the school’s Center for Leadership and Media Studies.

“The recreational marijuana industry is the wild, wild West right now,” Farnsworth said.

The state’s commercial cannabis market could yield between $30 million to $60 million in tax revenue in the first year, according to a 2020 report by the Joint Legislative Audit and Review Commission, the state’s legislative watchdog agency. JLARC estimated that by the fifth year, commercial cannabis sales could generate between $154 million to $308 million in tax revenue.

Virginia’s illicit recreational cannabis market is estimated to be the No. 4 in the nation, according to the 2020 U.S. Cannabis Report. Virginia’s market generated roughly $1.8 billion of America’s estimated $60 billion in total illegal cannabis sales in 2020.

A burgeoning industry always has numerous wealthy interests competing for the best position in the field, Farnsworth said.

“From the point of view of an elected official, that means there are a lot of people who want to influence you,” Farnsworth said.

HIGH STAKES TO GET INTO THE BUSINESS

Sen. Adam Ebbin, D-Alexandria, sponsored a bill to establish a recreational cannabis market through a handful of medical dispensaries that already operate in the state, and large-scale industrial hemp processors. The measure was an attempt to reenact legislation passed last year and accelerate the creation of the recreational cannabis market.

The currently licensed medical cannabis dispensaries each paid $70,000 total in permit fees for their medical facilities to become operational. The annual renewal fee is $10,000. The dispensaries would have paid $6 million to hold another license to open recreational retail stores and hemp growers would pay half a million dollars each, under Ebbin’s amended bill. Lawmakers were unable to agree on several conditions of the bill, choosing instead to carry it over to the 2023 legislative session.

Jason Amatucci is president of the Virginia Industrial Hemp Coalition, a group that wants to establish robust hemp-centered agricultural and manufacturing industries in the commonwealth. Amatucci pointed to California’s thriving hemp industry. California produced almost 4 million square feet of hemp grown in protected areas in 2021 —about double the production amount of the next largest state, Colorado, according to the U.S. Department of Agriculture. California has a $4 billion annual market, according to Forbes business magazine, though the majority is medical and recreational cannabis sales.

Amatucci said he didn’t want to see pharmaceutical companies gain a foothold in the recreational market before small businesses could.

“The government wants to protect Big Pharma,” Amatucci said, referring to the retail purchasing power of national medical marijuana companies and the donations made to legislators. “Follow the money on this, because it’s all in plain view for everyone to see.”

MEDICAL CANNABIS MONOPOLIES

The only way to legally purchase cannabis with over 0.3% THC is by going to a practitioner licensed by the Virginia Board of Pharmacy. The practitioners issue a written certification that the patient suffers from an ailment and would benefit from the use of medical cannabis. Approved patients then apply to the board to get their official card. The General Assembly recently passed a bill that, starting in July, allows patients to bypass the Board of Pharmacy application and take the referral to the dispensary.

Virginia’s licensed medical cannabis companies can grow cannabis at their processing facility and sell it through their dispensaries. There are currently 11 medical cannabis dispensaries open throughout the state, according to cannabis legalization advocacy group Virginia NORML. Each licensee is allowed to operate one dispensary for growing and processing cannabis, and up to five satellite locations for retail.

The four operators licensed to serve Virginia are:

• Dalitso, which also goes by Beyond / Hello, for the Northern health district.

• Dharma Pharmaceuticals, which also goes by RISE, in the Southwest health district.

• Green Leaf Medical in the Central health district.

• Columbia Care in the Eastern health district.

Green Leaf Medical, headquartered in Richmond, was acquired by Columbia Care in 2021.

Cresco Labs, a Chicago-based medical cannabis giant, announced plans to acquire Columbia Care in late March for $2 billion, but the deal has not closed yet.

Florida-based Jushi Holdings, which operates in five other states, acquired the Virginia-based Dalitso in 2021 for approximately $22 million.

Dharma Pharmaceuticals was acquired in 2021 by Chicago-based Green Thumb Industries, which operates in 13 other markets, according to the Bristol Herald Courier.

The state’s four licensed pharmaceutical processing firms now fall under the ownership of three out-of-state companies valued at hundreds of millions and traded on the stock market.

CANNABIS LOBBYISTS

The merger of Cresco Labs and Columbia Care could make them the second-largest retailer in the country and the largest retailer outside of Florida if the company hits its forecast revenue, according to a joint press release. They would have 130 retail shops in eight states, the company stated. The company estimated it could make over $100 million annually.

Cannabis money has made its way into campaign donations. The licensed operators donated between 2021-2022 a combined amount close to $160,000 to Democrats and just over $100,000 to Republicans, according to the Virginia Public Access Project, a nonprofit that tracks campaign finance reports.

Jushi donated the most with $117,000 total. Dalitso, now owned by Jushi, contributed $30,000. The other operators donated total amounts between approximately $21,000 and $50,000. Then there are other donations from testing labs and individuals involved in the industry.

The amounts don’t rival the hundreds of thousands of dollars, or even millions, that other political special interest groups have spent. But the cannabis industry is new and smaller business owners who thought last year they would have a clearer path to the market are worried.

“At a minimum, a campaign donation is going to buy you an opportunity to be heard,” Farnsworth said.

Donations don’t guarantee a lawmaker will support legislation favorable to a lobbying firm, but money can buy access, Farnsworth said.

Del. Dawn Adams, D-Richmond, is the only nurse practitioner in the House of Delegates, according to VPAP. Adams is registered with the state to refer patients for medical cannabis. Adams owns RVA Telecare, where a consultation for a medical cannabis card costs $155.

Adams has sponsored several pieces of legislation on cannabis reform. She provided testimony in favor of the now-dead bill introduced by Sen. Emmett Hanger, R-Augusta, which many hemp advocates said would limit their products and instead favor the medical cannabis industry. The bill also aimed to eliminate access to synthetic Delta-8 products.

Adams declined interview requests to discuss the revenue she makes from issuing medical cannabis referrals. Adams did not respond to a follow-up phone call and email to comment if she feels there is any conflict of interest between her two roles as a lawmaker and her medical cannabis referral practice.

State code defines conflict of interest for lawmakers. A legislator with a personal interest should disqualify themselves from voting on measures, according to state code. They can participate in discussions if any potential interest is disclosed. Personal interest can exist when a lawmaker has a personal interest in a business or provides a service related to the proposed measure, according to state code.

Adams listed her Integrated Health Consulting business earlier this year as an economic interest with the state’s Ethics Advisory Council. RVA Telecare is listed twice with the State Corporation Commission, once under Integrated Health, and once as its own entity. The company is not listed as a potential conflict of interest with the council.

The lawmaker voted on a bill that allows a patient to bypass obtaining a medical cannabis card from the Board of Pharmacy after getting a referral from a medical provider, which her office could do. She later was recorded as “present but not voting” on an identical Senate bill. The lawmaker did not excuse herself from voting in support of Hanger’s bill.

The delegate spoke before the final House vote on Hanger’s bill, and said that she has no financial interest in her support of the legislation.

“All I can tell you is that I spend a lot of time reading, studying,” Adams said. “I have no financial stake in anything … this is a public safety issue.”

Adams wanted the market to be safer and more regulated, she said in testimony.

Cannabis advocates said Hanger’s bill would push people toward the medical cannabis industry, which Adams is a part of, while eliminating access to certain hemp produced, low-THC CBD products.

“They can position themselves so that the medical monopoly is the only ones that can sell these products,” Amatucci said. “What we have now, with this medical monopoly system is worst product, worst prices.”

SOCIAL EQUITY LICENSES

Luke Greer is the owner of the Northern Virginia Hemp Co. and has operated in Virginia since industrial hemp farming was legalized.

“I don’t mean to villainize large money interests,” Greer said. “But I don’t feel that they should prioritize that over the small businesses that have been operating in the space prior.”

Colorado’s Department of Revenue issues licenses to recreational cannabis retailers for approximately $7,500 per license and application fees. California’s Department of Cannabis Control issues licenses on a ranked revenue system capped at $96,000 for a retailer making more than $7.5 million. Applicants negatively affected by the criminalization of cannabis can apply in California to have the fee waived.

Virginia lawmakers have also disagreed on how and whether to make the recreational market more accessible to people who have been operating in it prior to decriminalization, or what cannabis reform advocates call the legacy market.

Del. Charniele Herring, D-Alexandria, introduced the 2021 House bill that legalized simple possession of cannabis and established the initial outline for a recreational market. The bill included social equity provisions intended to keep already existing processors from squeezing out smaller entrepreneurs. It also confronted decades of disproportionate policing for cannabis crimes.

Lawmakers disagreed on the number of licenses allocated to social equity applicants and how much these sellers should pay for licensing.

Legislators killed a bill proposed by Del. Danny Marshall, R-Danville, which required licensed industrial hemp sellers wanting to have an additional license, for example, to sell recreational cannabis, to pay a $1 million fee to the Board of Pharmacy and be a longtime resident or business owner in an economically disadvantaged area.

Grant said these fees are inaccessible to small business owners, especially if they have already been financially impacted by the legal system.

“People have been in this business their whole life, just in the illicit market,” Grant said. “Those folks should definitely have an opportunity to get into this legally.”