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Out-of-State Cannabis Companies Look to Grow in Newly Legal States

January 11, 2021 12:18 pm ET Estimated Read Time: 4 Minutes
Out-of-State Cannabis Companies Look to Grow in Newly Legal States

As new states have legalized medical cannabis, there is a mad dash for both local and major out-of-state businesses to secure licenses. As of Nov. 4, 2020, 36 states have legalized medical cannabis, though the newest two states to legalize do not have licensing application systems working yet. 

Still, with well over half the country allowing medical cannabis sales, are these businesses helping local economies? 

Some States Favor Experience in the Licensing Process

West Virginia legalized medical cannabis all the way back in 2017 but is just now tackling the licensing process for businesses. The Office of Medical Cannabis within the Department of Health and Human Resources announced on Oct. 2 the selection of 10 applicants for medical cannabis grower permits, largely favoring established out-of-state companies over local business people. Of the 10, only two appear to be exclusively West Virginia companies according to a search of business filings on the West Virginia Secretary of State’s Office.

This issue isn’t new. States that have had long-standing medical cannabis programs have allowed their local businesses to build better infrastructure, to try and test operation plans and to make mistakes before these newer application processes. 

Jason Frame, director for West Virginia Office of Medical Cannabis told the Weirton Daily Times that when choosing the considered factors “like the operational plans that the facility submitted, their security plans, plans to prevent diversion, which of course is our primary mission with the Office Medical Cannabis, and also the background and education on the folks that will be working there also.”

These backgrounds, it could be assumed, include scaling and operating major cannabis businesses previously, something that isn’t available in states like North Dakota and Mississippi, where cannabis was a serious offense prior to 2021. 

Some States Fight Back

While West Virginia may be favoring experience, some states are actively working to limit outside interests in their local medical cannabis. On May 21, Oklahoma Gov. Kevin Stitt vetoed HB 3228, which featured a provision to protect dispensaries that had been licensed prior to when a 2019 bill established a 1,000-foot boundary around preschools, and would have authorized home delivery of medical marijuana products. But also, it would have overturned a residency requirement for cannabis businesses. With the veto, out-of-state operators are in a limbo where they don’t know if they can operate their cannabis businesses in the new year.

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After legalizing medical cannabis in 2018, Oklahoma legislators approved HB 2612. This bill established medical marijuana guidelines in state statute and changed the definition of what was considered a “resident” for purposes of commercial medical marijuana licenses. It required applicants to have lived in Oklahoma two years prior to applying or to have resided in the state at least five of the previous 25 years.

This residency requirement, enacted after licenses had been issued, is causing distress for many who moved to Oklahoma to get in on the green gold rush. 

“A lot of people [moved and opened businesses] because [the state’s] licensing scheme is so permissive. That is to say the barriers to entry are extraordinarily low as compared to basically any other jurisdiction with legal weed,” Oklahoma City attorney Blake Johnson told NonDoc, an Oklahoma watchdog website. “Because of that, [Bill] 788 caused a huge rush of people to move to start a cannabis business in Oklahoma.”

Johnson said legal challenges to the new residency requirement are expected, meaning Oklahoma could once again be open to outside interests in their medical marijuana ecosystem. 

Local Owners Frustrated

This isn’t an issue in West Virginia or Oklahoma alone and it also isn’t a new complication. When Missouri began accepting licenses in 2019 competition was steep. Nearly 700 groups filed a total of 2,163 marijuana business applications in Missouri, again, a bulk of them out-of-state operations. 

“There are rich men in suits coming from all over this country with bags full of cash,” said Richard Rodriguez, a St. Louis restaurant owner who applied to open a dispensary, told the Associated Press in 2019. “I’m all for competing in a fair playing field. But that’s not what appears to be happening here in Missouri.”

As new states step up their licensing practices, they’ll have to decide which path to take. An RCG Economics and Marijuana Policy Group study on Nevada says that legalizing recreational marijuana in the state could support over 41,000 jobs till 2024 and generate over $1.7 billion in labor income. Will those jobs and labor income be local, or will they go to public companies like Canopy Growth Corp. (CGC), Cronos Group Inc. (CRON), and Tilray Inc. (TLRY)?

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