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As Maryland’s cannabis industry consolidates and grows more competitive, how one dispensary plans to thrive

If Anthony Darby had to do it all over again, he couldn’t — at least not in today’s cannabis industry.

Newly laid off and living off a severance package in 2015, Darby was looking for something more meaningful to do with his life.

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He considered becoming a lacrosse coach. But he knew the state of Maryland was poised to launch a medical cannabis industry. Knowing firsthand the benefits of using cannabis, Darby got together with a couple of college friends and a doctor he’d recently met and they filled out a hundred-plus pages of forms, detailing their plans for a cannabis dispensary on the Eastern Shore.

More than 700 applicants vied for 94 dispensary licenses. Some had hired pricey consultants or made deals with out-of-state management firms to help with their application, but Darby and his friends won a license on their own. As relative novices, they bootstrapped their Salisbury business — Peninsula Alternative Health — into one of Maryland’s bigger dispensaries.

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That was when Maryland’s cannabis market was still in its infancy.

In just a few years, the state’s cannabis industry has gone from crawling on the floor to hitting its head on the ceiling. The number of new patients is tapering off. Companies are consolidating. Deep-pocketed, out-of-state firms have gobbled up market share. Competition is fiercer than ever.

But the ceiling is about to get much higher. The state is poised to legalize adult-use cannabis. What is a $600 million industry could more than triple in the coming years into a $2 billion giant.

It’s unclear yet who would benefit — and whether a new generation of upstarts can succeed like Peninsula Alternative Health did.

Justin Tepe, a lawyer at Goodell DeVries, where he started the Baltimore firm’s cannabis practice, has been tracking developments in Annapolis. State lawmakers passed a bill April 1 for a referendum allowing Marylanders to vote this fall on legalizing recreational cannabis. If approved, the General Assembly would hammer out the details in its 2023 legislative session.

Tepe rattled off a handful of the biggest industry concerns that need to be addressed:

  • Would the existing medical cannabis industry be grandfathered into the recreational cannabis industry?
  • How would lawmakers going to incorporate social equity into the recreational cannabis industry?
  • How many new cannabis business licenses would lawmakers create, and who would get them?

Another cannabis bill passed by lawmakers said the Maryland Medical Cannabis Commission would become part of the Maryland Alcohol and Tobacco Commission, if voters approve legalization. The legislation does not delve further into regulation.

It primarily deals with expunging criminal records for people with cannabis possession convictions. It also would create two funds tied to a recreational cannabis industry. One would help small, minority-owned and women-owned businesses break into the market. The other would help communities disproportionately hurt by the criminalization of cannabis.

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Few other details are clear, but Tepe said it appears clear that medical cannabis businesses would be allowed to participate in the recreational cannabis industry.

“It’s too hard to leave them on the sidelines,” Tepe said.

Wendy Bronfein, the chief brand officer and director of public policy at Timonium-based Curio Wellness, agrees. Curio is one of the state’s largest cultivators and processors. It’s trying to take its medical cannabis brand nationwide and is starting a dispensary franchise business.

“For the most part, there are many pieces of the puzzle that carry over,” Bronfein said of Maryland’s medical program, such as safety protocols and cannabis testing practices. “The majority of the framework should be applied.”

Still, Bronfein said there should be distinctions between the medical and adult-use cannabis businesses to ensure that the medical industry isn’t hurt if recreational cannabis is legalized. There should be a tax on adult-use cannabis, Bronfein said, and medical dispensaries should be allowed to sell products with higher content of THC — the psychoactive component of cannabis.

Bronfein expects medical cannabis would become a smaller piece of Maryland’s market, but Curio has no plans to abandon the medical industry, which she hopes remains robust.

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“Maryland has an amazing medical program … No one should ever see medical as the leapfrog to recreational,” Bronfein said. “That is a very shortsighted view and very noncompassionate view.”

Jake Van Wingerden runs SunMed Growers in Cecil County, another of the state’s biggest cultivators. He thinks it’s possible to protect the medical market, build a recreational market, deliver quality product to patients and consumers, and diversify the industry.

Van Wingerden, who also leads the Maryland Wholesale Medical Cannabis Trade Association, said that if lawmakers handle legalization correctly, the pie would grow big enough so that everyone can get a slice. Van Wingerden expects a combined recreational and medical cannabis industry in Maryland would generate $2 billion in annual revenue eventually.

“[Lawmakers] will want to add more people to the pie and that’s fine,” he said.

The state should charge existing medical cannabis businesses a fee to join the recreational industry, Van Wingerden said, and use that money to fund a loan guarantee program. The state could then guarantee bank loans for social equity applicants, making it easier for them to get credit and start businesses. There are Maryland banks that finance cannabis businesses, but many remain wary of lending to an industry that is considered illegal at the federal level.

“The single biggest obstacle to any licensee is access to capital,” said Van Wingerden, noting that SunMed has invested $40 million in its cultivation and processing facilities, which employ about 150 people. “There’s a solution here, but the state has to step up and put its money where its mouth is.”

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The businesses that have the capital to succeed are often multistate operators, commonly known as MSOs in the industry, Van Wingerden said. MSOs have dispensaries or grow facilities across multiple states. Some are even traded on the Canadian stock exchange.

When Maryland started its medical cannabis program, lawmakers put caps on license ownership and restricted license holders from selling their licenses for at least three years. This was supposed to protect and encourage independent Maryland cannabis businesses. But MSOs have been building market share in Maryland steadily, shelling out millions of dollars for individual dispensaries.

Van Wingerden pointed to a November report from state regulators that found MSOs owned or controlled 39 of the state’s 101 licensed cannabis dispensaries, 11 out of 26 processors, and 10 of 21 cultivators. MSOs have focused on vertical integration in Maryland and elsewhere, getting a Maryland cultivation license, a processing license and up to four — the maximum — dispensary licenses, he said.

Yet, he noted, independent Maryland dispensaries were largely outperforming their MSO competitors in sales. According to the report, nine of the top 10 dispensaries are independently owned, bringing in about $1.2 million in revenue a month, or more than $14 million annually.

However, state regulators made a rule change Wednesday that could aid further consolidation.

Previously, companies and individuals were banned from owning any part of more than one grower, one processor, or four dispensaries. That appeared to block companies with overlapping investors from entering Maryland’s market. The Baltimore Business Journal reported in February that the rule could be holding up a $20 million deal for a Massachusetts company that wanted to buy Hagerstown cultivator Kind Therapeutics.

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State lawmakers failed this session to pass a bill that would have loosed the restriction. But now the Maryland Medical Cannabis Commission has adopted a policy that will clear the way for the deal by permitting partial ownership of more businesses in the industry.

Tepe said he expects regulators will study this rule change further and potentially tweak it.

“It’s going to be absolutely vital to narrowly tailor the new regulations so this change cannot be used to consolidate the industry.”

Back in Salisbury, Darby said he could see the writing on the wall — and it’s not necessarily a bad thing.

“One of our best partners is GTI [Green Thumb Industries of Chicago]. They’re a multistate operator, but they are a great, great partner for our patients and our patients depend on their products,” Darby said. “And they have sophisticated products that not necessarily every Maryland operator can produce.”

Last year, Darby and his partners at Peninsula Alternative Health decided to sell the dispensary. He could have followed some of his competitors, sold to an out of state corporation, and walked away from the business.

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But Darby said he believes in Peninsula Alternative Health’s patient-centric model. Some dispensaries treat patients like customers, Darby said, but Peninsula Alternative Health educates patients and helps them find the right product for safe, consistent and affordable use.

That’s why Tracey Brimer keeps coming back. Brimer has had hip surgery and neck surgery and has anxiety. Brimer said she’s tried the dispensaries on the Eastern Shore and few in the Baltimore area, but none are quite like Peninsula Alternative Health. She’s learned about different cannabis products, such as terpenes, a compound found in cannabis.

“They answer my questions. They’ve taught me a lot there,” Brimer said. “They take the time to work with you.”

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Darby said he realized that the wrong buyer could gut the mission of Peninsula Alternative Health.

“Some of the [venture capital] guys are looking at our spend and they’re saying, ‘Well, you don’t need to do all these things for the patients,’” Darby said.

Instead, Darby found a way to sell while doubling down on the medical cannabis industry.

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Earlier this year, state regulators approved the sale of Peninsula Alternative Health to a Maryland family that owned a small dispensary in Silver Spring. Darby will remain CEO, though he and his partners have no ownership stake anymore. The Silver Spring dispensary has taken on the Peninsula Alternative Health name and is bringing its patient-centric model to the Western Shore, Darby said.

The dispensary will face stiff competition in the Washington, D.C., suburb, which has several nearby dispensaries, but that doesn’t faze Darby. Regardless of what happens with recreational cannabis, Darby said Peninsula Alternative Health will keep focusing on patients.

“If you do a good job of making people feel better than when they came into your building and help them with the challenges and issues that they have, they’re going to keep coming back,” Darby said.

Coming Wednesday: The Baltimore Sun’s special 4/20 coverage of medical marijuana.

For the record

An earlier version of this article incorrectly identified Jake Van Wingerden's affiliation. He is the former head of the Maryland Wholesale Medical Cannabis Trade Association. The Sun regrets the error.


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