Facilities await approval amidst commencement clog
Updated with DHSS response 4-14-2021 at 14:02
The Department of Health and Senior Services’ Section for Medical Marijuana Regulation has had over 50 requests for approval to operate for over two months. Within those awaiting approval, some waiting beyond 50 days for action, cultivation, and manufacturing facilities sit and wait to provide Missouri patients with an increased variety of products.
Greenway spoke to seven facilities who all are over 50 days into their commencement process, meaning over 50 days ago, these facilities requested approval to operate from the Department and while their buildings and teams stand by to operate. These facilities represent operations ready to create a variety of products and additional medicine for Missouri’s qualified and certified patients.
All seven of these facilities, who agreed to talk to Greenway on the condition of anonymity as well as legal collaboration for fear of causing further delays or retaliation, stated they are ready to operate tomorrow, being able to provide medical marijuana products to Missouri patients within 10 to 60 days, including vape pens, concentrates, edibles, flower, and more – all of which are in high demand by the patient community.
For context:
- A facility is any state-licensed medical marijuana operation, whether cultivation, manufacturing, dispensary, testing or transportation.
- Commencement is the process a facility must go through to receive approval from the state to operate and legally handle medical marijuana within the confines of Article XIV of the Missouri Constitution and related executive rules.
- Article XIV is Missouri’s constitutional framework for the medical marijuana program.
- Rules are Department-promulgated program guidelines for internal functions. Rules are created by the Department, not by the legislature. The legislature creates statutes. The legislature’s Joint Committee for Administrative Review (JCAR) does review all rules created by the executive branch.
- Missouri’s medical marijuana program (SMMR) operates within the Department of Health and Senior Services, which also oversees the pandemic response, healthcare, senior care, child care, hotels, and more.
SUPPLY CLOG
Seventeen total cultivation facilities have been approved to operate by the SMMR as of April 9, 2021. However, the Department has not approved any additional cultivation facilities to operate since the week of March 12, 2021 – six weeks ago from publication.
The State is constitutionally required to award 60 cultivation licenses. Each license is allowed to grow up to 30,000 square feet of canopy space.
Within the past week, the state has approved one additional manufacturing facility to operate – GF Extraction Lab was approved to operate the week of April 9, 2021. There are now 9 manufacturing facilities approved to operate of the 82* licensed. (*There are manufacturing licenses recently revoked or pending surrender, as well as others pending announcements from resulting awards from appeals settlements. The constitutional program requires the state to award at least 86 manufacturing licenses. The Department is currently reporting 82 manufacturing licenses.)
- As of the week of April 9, 2021, 187 facilities had requested commencement. There have not been fewer than 50 facilities awaiting approval to operate since the first week of March 2021.
- Missouri sat at 8 manufacturing facilities approved to operate for 3 weeks – from the week of March 12 to the week of March 26.
- The week of April 5, the state had approved 71 dispensaries to operate. As of April 9, the state was up to 77 approvals with no increases in cultivation facility approvals.
- As of April 12, 2021, Missouri has over 90,000 certified patients being serviced by these 17 cultivators, 9 manufacturers, and 77 dispensaries.
- See the week-by-week data after the jump.
As of April 9, 2021, the state had approved 17 cultivation and 9 manufacturing facilities to operate. The week of February 26, 2021, the Department had approved 15 cultivation facilities, 4 manufacturing, and 44 dispensaries – an increase of 2 cultivation, 3 manufacturing, and 27 dispensary approvals to operate in 8 weeks. It is commonly accepted that facility inspections for dispensaries and transportation facilities are easier and faster than those of 50,000-120,000 square foot facilities focused on cultivation and/or manufacturing.
As dispensary approvals continue at a steady pace, Missouri officially has more dispensaries approved to operate than the state of Illinois and has more per capita than any other state with the sole exception of Oklahoma, of which the program is currently being reviewed by their legislature. Those 70+ dispensaries can only obtain products from licensed and commenced cultivation and manufacturing facilities.
Transportation facility approvals have also increased – with 11 licensed transporters now approved to operate – though the increase does not reflect an overall increase in supply to transport.
DELAYS IN APPROVALS
All awarded licensees are required to first complete minimum standards verification, where the Department verifies the applicants’ application information, as provided, and makes sure the applicant meets minimum constitutional requirements to operate. This process was clarified at the March 2020 mandatory facility training hosted by the Department at the DoubleTree Hotel in Jefferson City.
This announcement halted the facility build-out process for many facilities that awaited verification before proceeding.
“Each facility must request a Commencement Inspection from the Department when it has completed the Minimum Standards Review and is ready to begin operating,” reads a Department document graphing current approval stats. “Once a facility has completed the Commencement Inspection, it will receive approval to operate and may then begin working with medical marijuana.”
For at least one facility, it was their distinct understanding they “would receive an inspection 30 days from our call for commencement, and a commencement letter about 10 days after that, barring any issues.”
“We were ready for inspection within the 30-day window set forth in the regulations when we requested 60 days ago,” said one facility operator. “We pushed our construction contractors incredibly hard to finish the job so we could have sales in March. This cost us significantly larger sums of money, which is compounded by necessary overhead and lack of sales revenue while the facility sits unused until cleared to operate. DHSS has given multiple estimates as to when the anticipated phone call and onsite inspection would occur, but neither have occurred and remain unscheduled.”
One industry operator made it clear that though they are frustrated and this is overall a frustrating situation, they know that not only have they not been perfect, but empathize with the Department’s growing pains.
“We didn’t do everything right and they didn’t do everything wrong,” the operator noted, despite continued disappointment in expectations.
The strong presence of 118 facilities approved to operate remains giving hope of progress.
“The fact that DHSS has approved 118 Missouri medical marijuana facilities to operate is optimistic and a testament to their hard work,” said Andrew Mullins, MoCannTrade Executive Director. “We know how seriously the department takes their charge to comprehensively and strictly regulate this program. It’s our hope the current list of 71 facilities actively requesting commencement can be approved in a timely and expedient manner, so we can continue to grow our industry and serve Missouri’s 90,000+ medical cannabis patients.”
The Department is constitutionally tasked to create a program meeting certain programming deadlines – all of which it has met. On top of the constitutional framework, the Department also promulgated additional programming rules, including a one-year operational deadline for facilities to operate within. The Department has received 322 operational deadline variance requests – a facility’s request to vary from an existing rule – as of April 9, 2021. It is worth noting that a facility may file multiple requests.
“We were forced to commence both our manufacturing and cultivation licenses at the same time because the Dept. denied our variance request to extend out the manufacturing license commencement a few more months,” said one facility group. “We asked for commencement for both licenses on Feb. 1 and received our inspection on March 18 after being assigned our third compliance officer for the cultivation.”
Of those 322 operational deadline variance requests, 279 have been processed. A processed request does not necessarily mean approved, many requests have been denied by the Department.
The Department has further not updated their own rules – of which includes the operational deadline – since filing emergency program rules other than to create a new enforcement clause to allow the Department to investigate physicians – in addition to the already functional Board of Healing Arts and Board of Psychiatry, which handle complaints and investigations, respectively. The emergency rules were promulgated and published prior to the pandemic, which resulted in economic instability seen globally.
In spite of not creating new rules, the Department’s Section for Medical Marijuana Regulation has issued at least nine guidance letters, which address anything from late trend concerns to ideal timelines to request commencement. The Department’s rule for operation further states that the Department may, after one year, revoke a license. The Department has thus far revoked a handful of licenses. In general, several licenses have been deactivated, which could mean revoked or surrendered. (A facility has the right to surrender its license back to the state for any reason.)
This guidance on the timeline for requesting commencement is generally accepted by industry thought leaders to have created a predictable wave of commencement inspections, of which the Department’s guidance on requesting commencement early hoped to curtail and limit operational deadline violations.
In a statement to Greenway, the Department defended their progress, saying:
“The Department has always tried to communicate proactively with licensees about our processes and the timeframes involved, such as the several communications we sent out through 2020 to warn licensees of the inevitable backlog that would result from the bulk of the industry waiting to seek commencement until the end of their one-year deadlines. As most know, this is exactly the situation that ultimately developed. In fact, each licensee currently in the commencement inspection process is one that failed to meet its obligation to be operational within a year and sought an extension of time. While our compliance officers are working very hard and many long hours to ensure each licensee reaches its commencement inspection in a state most likely to ensure success in that inspection, it is a simple fact that the number of licensees now seeking commencement have [sic] caused the process to proceed more slowly for each of them than would be the case if licensees had been seeking commencement throughout 2020. Again, this is not unexpected for anyone monitoring the guidance from the Department throughout 2020. Finally, for those licensees experiencing a significantly longer commencement process than average, the most common reason for this is that the licensee requested a commencement inspection before they were fully prepared. Unfortunately, the second most common reason for a longer commencement process is discovery [sic] that the licensee has not understood they must be prepared to fully implement the proposals in their application; the Department is working with these licensees to ensure their operations at commencement align with the commitments they made in their applications. All that said, we are proud of the progress Missouri has made in providing access to medical marijuana for qualifying patients. At this time, we have more dispensaries operational, by far, than any other medical marijuana state in the country, other than Oklahoma, and more than many adult-use programs. We also have more cultivation facilities operational than are needed to serve the current patient population in Missouri. This is a moment of rapid expansion in Missouri’s medical marijuana program, including rapid diversification of products, and while some licensees may continue to see challenges in their efforts to reach commencement, Missouri’s patients are well-served by the excellence of the licensees who have accomplished this milestone; and many more truly excellent licensees are joining them every week.”
Read guidance letter 7, released in September 2020, on commencement requests here (EXTERNAL LINK TO DHSS GUIDANCE LETTER 7).
Greenway is yet to find another Missouri business license to operate any type of business that has a timeframe on operations.
REAL COSTS
For facilities awaiting commencement progress, their buildings, operational structures, and staff stand in waiting. Despite the delay, the facilities must continue to pay building operational costs (utilities, mortgages, taxes, etc.), staff salaries, contractors, etc.
The monthly overhead for facilities ranges between $50,000-300,000 monthly – regardless of their legal inability to operate. This breaks down to an average daily cost of $1,500-$10,000 a day.
One facility that spoke to Greenway refused to calculate their monthly costs, saying, “I can’t calculate that. It would be too depressing.”
Further, not only are these facilities continually expending finances without cash flow, the lost cash flow itself is staggering. Facilities are losing out on between $7,500-50,000 a day of product they are not legally able to create and sell. This breaks down to a monthly loss of cash flow of $225,000 to $1,500,000.
“In the midst of a pandemic, we managed to raise an incredible sum of money to build a state-of-the-art facility with top-of-the-line equipment and staff,” one facility operator said. “We have loans and a mortgage to pay, as well as employees/consultants to compensate as well. When we requested commencement, we anticipated being operational by mid-March. We are a month past that with no firm timeline as to when we will be operational.”
The numbers may seem surreal, but they represent actual product creation and distribution that is stalled.
Despite delays, Missouri operations near over $30 million in cumulative sales since the first sale on October 16, 2020.
WEEKLY DATA
Note, the following data is from weekly public reports from DHSS; a breakdown of facilities requesting commencement has not available in the Department’s weekly data and report updates. This information is obtained and provided weekly in the Greenway weekly emails.
COMMENCEMENT STATS VS. APPROVED TO OPERATE BY FACILITY TYPE
Week of 4/9/21
187 requested, 70 in progress, 5 set aside, 112 approved to operate
17 cultivation, 9 manufacturing, 71 dispensaries, 11 transportation
Week of 4/2/21
179 requested, 67 in progress, 6 set aside, 106 approved to operate
17 cultivation, 8 manufacturing, 68 dispensaries, 9 transportation
March
Week of 3/26/21
179 requested, 67 in progress, 6 set aside, 106 approved to operate
17 cultivation, 8 manufacturing, 68 dispensaries, 9 transportation
Week of 3/19/21
170 requested, 68 in progress, 4 set aside, 98 approved to operate
17 cultivation, 8 manufacturing, 60 dispensaries, 9 transportation
Week of 3/12/21
164 requested, 65 in progress, 2 set aside, 97 approved to operate
17 cultivation, 8 manufacturing, 60 dispensaries, 8 transportation
Week of 3/5/21
161 requested, 65 in progress, 3 set aside, 93 approved to operate
16 cultivation, 6 manufacturing, 56 dispensaries, 7 transportation
February
*Week of 2/26/21
15 cultivation, 4 manufacturing, 44 dispensaries
*Other data not currently available from Greenway records
Week of 2/19/21
132 requested, 62 in progress, 3 set aside, 78 approved to operate
15 cultivation, 5 manufacturing, 50 dispensaries, 4 transportation
Week of 2/12/21
136 requested, 62 in progress, 3 set aside, 71 approved to operate
15 cultivation, 4 manufacturing, 44 dispensaries, 4 transportation
Week of 2/5/21
129 requested, 52 in progress, 9 set aside, 68 approved to operate
15 cultivation, 4 manufacturing, 41 dispensaries, 4 transportation
January
Week of 1/29/21
115 requested, 41 in progress, 15 set aside, 59 approved to operate
15 cultivation, 4 manufacturers, 33 dispensaries, 4 transportation
December
Week of 12/25/20 (week of one-year operational state deadline)
91 requested, 51 in progress, 0 set aside, 40 approved to operate
12 cultivation, 1 manufacturer, 20 dispensaries, 4 transportation