Maryland’s medical cannabis industry has been targeted for months by big out-of-state corporations trying to dominate the market by taking control of multiple marijuana stores despite a regulation that limits ownership to just one dispensary.
The corporations have been evading the limit by using management agreements in which they pay a fee to state-licensed dispensary owners, who then effectively turn over their operations.
Several state lawmakers vowed to address the situation this year after an investigation by The Baltimore Sun in November revealed the practice. as well as the Maryland Medical Cannabis Commission’s failure to curtail consolidation that threatens to push homegrown firms out of business.
But the only legislation that claims it seeks to prevent consolidation could instead accelerate it, several dispensary owners say.
A bill poised to win approval in the Maryland Senate this week calls for scrapping the one-dispensary rule, and a loophole allowing for management agreements. The new law would impose a five-dispensary limit on owning or managing cannabis stores.
Sen. Bobby Zirkin, a Baltimore County Democrat, said current rules need to change because large cannabis corporations with years of experience are using them to gain an advantage over small Maryland businesses just getting off the ground. Equipped with existing revenues and expertise from operating in other states, the bigger companies are entering management agreements that smaller firms are unable to execute.
“We needed to act to stop the potential for management agreements to usurp the entire industry,” Zirkin said. He said that contrary to the intent of state regulators, the current loophole means that could happen.
“As we stand here today, it’s limitless,” Zirkin said Tuesday. “If we don’t do something, one Colorado company could come in and have an interest in all 100-and-some-odd dispensary licenses. We can’t have that. That’s a complete monopoly.”
The Senate Judicial Proceedings Committee, which Zirkin chairs, approved the measure last week. The Senate is expected to consider the bill Wednesday.
Supporters of the bill say a five-dispensary cap would limit expansion by out-of-state corporations, while also providing an option for small businesses currently operating in Maryland to expand.
But opponents say the measure contradicts the state’s original intent of encouraging an industry dominated by small Maryland businesses. There are ongoing efforts to help launch operations owned by minorities and women largely shut out of the initial licensing process.
Regulations issued by the Medical Cannabis Commission allow companies to own no more than one license in each of the state’s three categories — growing marijuana, processing it into medical products and selling them from retail stores called dispensaries. And a law that took effect in May imposed a moratorium on selling cannabis businesses through the end of this year, in part to avoid the type of consolidation that out-of-state companies are trying to execute.
The Sun investigation found that several large out-of-state companies have either taken control of multiple dispensaries through management agreements or are poised to acquire businesses with Maryland licenses. The commission was unaware of several of those deals until informed by The Sun.
The bill’s sponsor, Sen. Chris West, said the cannabis commission misinterpreted state law when it sought to impose the one-dispensary limit. (Commission officials note that that the Maryland attorney general’s office endorsed the panel’s interpretation of state law. A letter from the attorney general’s office states that allowing companies to control multiple licenses could “put smaller operations out of business and risks the creation of monopolies.”)
West, a Baltimore County Republican, argues that the five-store cap could help small independent operators by allowing them to sell to another dispensary owner if they run into financial difficulties.
Nonetheless, Dr. Michael Chiaramonte, president of the Maryland Medical Dispensary Association, said his group believes it is “premature to change the ownership structure.”
There are currently 71 dispensaries operating in Maryland and another 31 in a pre-approval stage. Those pending stores have faced many types of delays, including local zoning issues.
“So before we even started, we’re changing the entire ownership structure,” Chiaramonte said.
And the result, he said, would be to transform an industry dominated by Maryland small businesses into one controlled by large out-of-state companies, a trend that management agreements have already started.
Bobby Windsor, owner of Nature’s Care & Wellness dispensary in Perryville, said Maryland designed its cannabis program “to give everyone an even-playing field.”
The Senate bill “is changing the whole game,” he said.
The Sun reported last year that several big corporations that are traded publicly on the Canadian Securities Exchange — MedMen, MPX, GTI, Curaleaf — had all entered into management agreements to effectively take over operations of firms with licenses to grow and sell in Maryland.
Windsor said West’s bill would “reward” those companies for their behavior.
“All the independents who are new to the industry were working to get open while all these big companies were making deals behind the scene,” Windsor said.
Zeina Frayha sank much of her life savings into opening the HerbaFi dispensary in Silver Spring last May because the one-store system appeared to be fair enough to let her compete. Allowing ownership of five dispensaries could put her out of business, she said.
“It crushes anyone who is not a conglomerate,” Frayha said of West’s proposal. “It’s going to be eight to 10 companies” owning a majority of the market.
Jamie Delgado of Greenhouse Wellness dispensary in Ellicott City testified against the bill last week, saying it would “eliminate fair business practices” unless the state forbids growers from selling their products at different prices to different dispensaries.
“The onslaught of management agreements is causing monopolistic pricing in the industry,” Delgado said. “This will only get worse if a single entity is allowed to control [five] dispensaries.”
She also said expanding ownership would undermine the state’s current process of awarding new grower and processor licenses to minority and women owned companies that were largely left out of the industry.
Sen. Jill Carter, a Baltimore Democrat, voted against West’s measure in committee because she fears it does not consider the state’s desire to include more minority firms.
“We’re not doing enough for inclusion,” Carter said.