Comparing Missouri’s program roll out to other markets
The two-year mark for medicinal cannabis legalization in Missouri is fast approaching. We voted yes on Amendment 2, now known as Article XIV, in early November of 2018. There has been a lot of groundwork laid over the past year and a half, and Missouri’s medical cannabis industry has made great strides during this time. A few facilities have neared completion of build-out, requesting commencement inspection. The race is on to be the first to break ground and open their doors to patients.
We wanted to compare other state’s industry roll-outs to Missouri’s as our program unfolds. We have had fantastic conversations with experienced and motivated industry leaders to get their insight on various cannabis program launches.
We talked with those highly experienced in working with cannabis industries across the nation, as well as being heavily involved with Missouri’s growing industry.
FEATURED IMAGE/Lyndall Fraker, March 4, 2020, at the mandatory orientation meetings held in Jefferson City. PHOTO/CHRIS SMITH
According to Gary Cohen, the CEO of cannabis software company Cova, Missouri did two things that are unique from other cannabis industry roll-outs. “1) Missouri appointed an executive from business and local government (Lyndall Fraker) to administrate the regulatory and licensing of a new cannabis program. Most states assign government administrators, or establish committees from across various governmental bodies to manage the cannabis program. 2) [Missouri also] publicly stated a desire to be open, transparent and fair,” said Cohen. “While it may seem obvious, this has hardly ever happened. It results in delays and/or incomplete programs that persist past the deadline to launch the state’s cannabis program because of conflicts, lawsuits and/or negligent policy.”
Ashley Picillo is the CEO of The Point Seven Group, a group named as the best general application consultant in the industry in 2019. Picillo feels that Missouri’s choice to have The Department of Health and Senior Services solely operate this industry was a good one. “It certainly helps that the medical cannabis program in Missouri is being more or less, governed, by DHHS. When you look at California for example, that’s a place we have done a lot of work, and one of the major challenges is that you have several different agencies regulating the same new industry. There have been instances where rules seem to contradict one another, or rules on the local level might not necessarily be working in tandem with the state. Because California does both local and state licensing, it is competitive at the local level where you are applying. Once licenses are approved at the local level, then they go on to be approved at the state level.”
Picillo said that the real competition in California is at the local level, but the problem is the rules are coming down from the state level and, “several different agencies depending on what you are doing. Whether you are cultivating, manufacturing, retailing, etc. I think there was merit to the way that was constructed, but at the end of the day these licenses don’t operate in a vacuum. They are very dependent on one another, and by setting up those rules and regulations per license type, from different agencies, you’re bound to have challenges, confusion, and gray areas. I think that was one area where Missouri was much cleaner.”
Cohen agrees with Picillo’s assessment of California’s program and said, “California has had more than its share of problems over the past 2 1/2 years with its implementation. While they tried to bring the illegal/gray/legacy players into the legal cannabis industry, California underestimated the need for enforcement of its rules and laws. There’s been an ongoing conflict between non-compliant legacy marijuana operators who don’t pay all the taxes, don’t buy and sell licensed products, use unbadged labor, and operations that operate legally at 60-100% more cost to be compliant. The result has been a huge lack of projected tax revenues because the gray market is still flourishing. Those revenues were earmarked for more licensing and enforcement, but since this “chicken and egg” situation persists, the market is years behind plan.”
RELATED: Timeline of Missouri’s Medical Marijuana Program
Cohen feels that an important factor in the success of Missouri’s industry will be “coordination between DHHS and its inspection processes with the cannabis licensee’s about exactly what they expect. Clear instruction about what is necessary to pass inspection, how to remedy issues, what the remedy satisfaction looks like, and the timing. It’s too early to tell whether the ‘Inspection-Remedy-Pass’ is well defined and will be implemented with quick turnarounds. Another excellent step would be early and frequent communication coming from DHHS and Law Enforcement. Providing consistent and aligned messages about proper conduct for marijuana use and consumption, including driving laws. Eliminate guessing on the part of patients, DHSS enforcement, and law enforcement.”
According to Picillo, Missouri can thrive by looking at what other states have and haven’t done. The states and municipalities that are developing regulatory frameworks now have a major benefit when you compare them to states like Colorado who were on the earlier end of legalization. These new markets can now cherry-pick rules and regulations that have proven to work in a comparable marketplace.” The Point Seven Group has noticed as they go through each state and help launch their program that many rules and regulations have been refined and made better from other states that they’ve worked within the past.
Though looking to other states is important at a regulatory level, patients in Missouri must be careful to not project what they’ve seen from other states as expectations for the Missouri program. Program director Lyndall Fraker said, “It continues to be a challenge to be sure everyone’s on the same page about what will be the reality in Missouri based on the Constitutional amendment we were given vs. what they may have expected from learning about other states.”
Picillo said that she loves the way Missouri’s application was structured and though it was challenging she appreciated the prompts being the same for each license type. “It was clear that a lot of thought went into this and it didn’t happen overnight. There was a rhyme or reason for everything that came forth here.” The Point Seven Group’s CEO referenced Florida and its roll-out process. She explains it was almost like a mad scramble to get applications out, but that their portal to submit applications didn’t open for years.
Picillo said one of the things that set Missouri apart immediately was the prevalence and magnitude of MoCannTrade. “We make it a point to get involved with associations in most of the markets where we are operating regularly. There are a number of cannabis associations across the country that are doing good things. I say this sincerely, there are no associations in my mind that are operating as effectively as MoCannTrade has and they are doing this from a few different standpoints. On the regulatory side, Andrew and his team have really been able to assess what was important to the association and to those considering applying.” Picillo says when the association formed, it allowed applicants a platform to begin networking and forming crucial partnerships with others in Missouri’s industry. “It made for stronger submissions overall, whereas in other markets I think the associations really start to come to life after applicants are awarded their permits.”
Missouri’s industry took off faster than many anticipated. We already claim over 40,000 patients without a single dispensary open. In terms of license application, we asked Picillo what made Missouri so attractive for her team and her clients. “We started pursuing Missouri the same way we did any other market. We went to the conferences and started to get involved with the associations. So those steps weren’t necessarily unique to Missouri,” said Picillo. She said what was unique to Missouri was how much Point Seven Group enjoyed working with Missourians. Picillo says the level of engagement her clients put out there was a huge part of that. “Most of our clients were very involved and very hands-on. They weren’t just hiring us to do the work for them and we let them know when we are finished.” Picillo said her Missouri clients displayed a lot of humility in terms of knowing where their knowledge ended, and Point Seven Group’s value and contribution were adequately appreciated by her clients.
We asked program Fraker if the explosive number of patients changed their annual revenue projection. He said they haven’t tried to update the projection, and “there would be other factors to consider than just patient counts, but it certainly seems reasonable to expect more revenue with this many more patients.”
Fraker told Greenway the huge number of facility applications has “no doubt” been the biggest surprise for the Department to navigate so far. “In a year of monumental logistics challenges, this was the biggest and all the more challenging for being a surprise. Thankfully, we have a team that has performed remarkably well and exceeded almost all of everyone’s expectations. We have been so pleased and maybe even a little surprised that the team we have put together truly like their jobs and their support for our objective is unprecedented.” The state received more than 2,000 applications to be a cannabis business in Missouri, and most of these licenses were rejected due to the limited number of licenses Missouri chose to accept.
MJ Biz Daily wrote an awesome article about Missouri’s application process and broke down the application numbers. They said those accepted applications “translates to roughly one license for every seven applications. However, businesses were not restricted to submitting a single application. On average across all plant-touching sectors, applications submitted per applicant was 1.5. This was slightly higher for dispensary applicants, which stood at 1.7 applications per applicant. But these averages are driven by a small number of businesses submitting a large number of applications in an apparent bid to secure additional licenses and a larger footprint. For example, only 17% of businesses accounted for 45% of dispensary license applications, having submitted three or more applications.” In other words, the majority of the applications were submitted by one business applying for multiple licenses.
Fraker said the application process was going to be competitive from the get-go, regardless of the number the state received. “Article XIV set that up by including that 10-factor scoring system,” said Fraker. “So holding applicants to their promises has been a concern from the beginning, which you can see in our rules where we say we will look at that during the renewal period.”
Picillo goes on to say, “I think the second part of [Missouri’s appeal] was the numbers. When we look at a market that is only going to give out five permits or 10 permits, it’s not really possible for us to work with multiple groups because at some point we are just competing against ourselves, and the odds are already so slim. So I think the numbers game worked for us in Missouri because we were able to work with teams that were in very different parts of the state. Some weren’t competing with each other at all. We found that because of the number of licenses that were going to be given, we had an opportunity to craft very unique stories for each of these teams, versus two groups having side-by-side identical applications and competing in the same region.”
According to Cohen, Missouri’s biggest win so far “has been the adherence to a schedule for roll-out and the timing of procedures from the state. Missouri will have medicinal cannabis this summer and will be within three months of the best case.” Cohen explains that the level of applications processed paired with what he feels to be an underqualified group scoring the applications is the biggest drawback of Missouri’s program as of yet. “Because of time constraints to check their ‘scoring’ work, the variances in application scores have created lawsuits/appeals and bad will,” Cohen said.
Picillo feels that when Missouri is ready to transition to an adult-use market, we should look to Colorado. “Colorado isn’t without its pitfalls, but it was a solid transition.” Cohen adds, “Though not perfect, Colorado is the best example of not only managing the early medical marijuana industry, but also the transition to recreational. They did not just hand the cannabis industry over to an old governmental bureaucracy and say, “squeeze this in with what you do,” they started from scratch with policymakers, cannabis veterans, and enterprise. As a model: regulatory, enforcement, and business have painstakingly worked together to deliver a program that addressed all constituencies concerns and needs.”
Looking at Colorado’s transition from medical to recreational, a white paper published by Cannabis Benchmarks says there was an 88% annual rise in retail sales from 2014-2015 due to the explosion of the recreational market. This then prompted many entrepreneurs to get involved in the industry, leading to a cannabis oversupply. Due to the influx of people growing cannabis, “the eventual result was that this summer saw a dramatic price crash in Colorado’s adult-use market driven by increased supply, a significant portion of which was cultivated using lower-cost production methods fueled by natural light. However, while wholesale rates have dropped precipitously on the recreational side due to oversupply, product in Colorado’s medical market has retained value to a greater degree due to a more stable relationship between supply and demand established over a number of years in the state’s now over six-year-old commercial medical system. Colorado’s patient count has largely remained steady in the face of adult-use legalization, and retail sales in the medical market have even grown year-over-year, from about $386 million in 2014 to $408 million in 2015.”
Oregon made the transition from medical to adult-use in 2015. The report says, “From August through October 2015, the wholesale price in Oregon increased more than $200 per pound, or about 12%, from $1,737 to $1,941 per pound, as dispensaries accelerated buying to meet increased demand from recreational consumers. The Oregon spot price rose above the national average while other markets were enjoying price declines driven by the surge of newly harvested outdoor flower coming to market.”
Fraker said he hopes to see all facilities up and running one year from now.
“It would be our hope that all facilities would be up and running and the patients of Missouri would be pleased with our program. I also would hope that all of the citizens of our great State, even those that maybe aren’t as supportive of medical marijuana, would agree that we have a program that is well regulated, safe and transparent in the way we operate.”