Vertically Integrated System Medical Marijuana System In Florida

Vertically Integrated System Medical Marijuana System In Florida

At this time, Florida has a closed vertically integrated medical marijuana business system where one license owner is able to cultivate, process, transport, test, and sell the medicine. This is not the only possible way of regulating the industry. In fact, it is the most inferior way. This article discusses all aspects of the existing industry structure, other states’ experiences, and the ways Florida may modify or completely change the current limited system.

Cons and Pros of The Closed Vertically Integrated Medical Marijuana System.

The closed vertically integrated system has its pros and cons. We are going to begin this discussion by identifying the cons, as there are so many of them. First of all, one cannabis strain has a potential to affect patients’ medical conditions differently. Certain strains of medical marijuana are considered suitable for specific ailments. The larger the variety of strains, the better the chances for a patient to find the best selection for her personal condition.

Moreover, even the same strain may affect two patients differently due to each body’s unique biochemical composition. It means that patients need a great diversity of the strains cultivated. Very limited amount of licenses will lead to limited cannabis strains availability on the market. This is due to the fact that there is about a dozen of popular strains, such as Sour Diesel, that almost any grower will produce. Thus, about 70-80% of overall production will be limited to the most popular strains. The rest will constitute the “diversity” of strains. Lack of competition in the market will not induce the license holders to grow a greater variety of medical marijuana strains. And a dozen of types will not suffice.

Second, the quality of the medicine is negatively affected. In the open market, the best quality of a product is the key to success. The growers and processors strive to produce the superior quality of the medicine to make it more marketable. With a limited number of growers and processors, the quality of cannabis will decrease as the patients are forced to buy from what is available.

Third, the prices are higher. This result, of course, stems from a limited supply the oligopolistic companies provide. Combined with the lower quality of the medicine, this undermines the entire compassionate aspect of the industry and sets the limits for the patients to get so much needed relief.

Fourth, the State has less control over the flow of the medicine and money. The more businesses are involved in transactions, the larger number of them have liability and duty to report to the government.   With the implementation of a sophisticated tracking software, it becomes practically impossible for medical marijuana businesses to deal with the gray or black markets when license owners report each step. Conversely, in the case of the fully integrated licenses, the control over all transactions is in the same hands. Same people are responsible for all processes and transactions from seed to sale, making the entire process less transparent.

This is called a conflict of interest—the main reason why advanced medical marijuana jurisdictions disintegrated or significantly modified the industry. By way of an example, Florida will have to set up the regulations on the testing of cannabis quality. If a grower or processor get to conduct the testing, what are the guarantees of the properness of such testing? And who is the gatekeeper?

Fifth, the vertically integrated system hinders the expansion of the industry. This means fewer jobs, fewer investments, and low economic boost. In the disintegrated system, each type of license should be separately applied for and different locations for the facilities are generally implied, whereas the integrated license assumes the tendency to grow, process and test in the same facility. Sometimes even a retail store may be located at the same place.

Sixth, the integrated licenses are a great target for criminals. When all operations are occurring in the same location, it makes it more lucrative for criminal minds to pay their attention to this fact. Imagine, an integrated license facility is burglarized. The criminals will get flowers, extracts, and maybe even cash money at one point in time. This is not only devastating for the business, but also dangerous for the community, as the regulated medicine will become available to people without doctor’s recommendation.

Finally, what are the pros of a closed vertically integrated industry structure? Apparently, all the benefits are going to the owners of the licenses rather than the community and the State. The pros include large profits, less overhead, less money spent on branding and marketing, less money spent on competing with the others, meaning no need to improve the quality or increase the variety of the product.

At this point, many readers would want to ask, “How do the patients and the State benefit from a vertically integrated system?” The only way for all interested groups to benefit from the medical marijuana industry is to implement a disintegrated system. With the disintegrated system, Florida will have the variety of strains, better quality of medicine, lower prices, better control over the industry, boost the economy, and lessen criminal activity.

How About Other Legal Marijuana States? 

Let’s see now how other medical/adult use States implement these benefits.

Notably, the current structure of the Florida cannabis industry is one of its kind after the passage of the Amendment 2.   It is not clear whether the lawmakers took another state’s model and modified or tried to create something new. For instance, New York is also a closed vertically integrated system. There, the State allocated five licenses. However, New York was developing its industry parallel to Florida. So there was neither statistics nor raw data available on how successful that system was. Even more surprisingly, Florida legislature has created the system, which the older cannabis jurisdictions have been trying to significantly modify or get rid of.

Colorado is one of them. In the past, Colorado also pushed the businesses to obtain a license that allowed them to grow, process, and sell medical marijuana. Nevertheless, the State, as time progressed, modified the system and added multiple separate types of licenses while still keeping the old ones.

California, the oldest medical marijuana jurisdiction in the US, allowed vertical integration in the past. The State is taking a different approach now. Under Medical Marijuana Regulation and Safety Act (the “MMRSA”), the State offers 17 types of licenses. At the same time, under some limited exceptions, California allows the integrated licenses that existed before July 1, 2015.   Moreover, MMRSA expressly creates a restriction to prevent vertical integration: a licensee cannot hold more than two separate types of licenses.

Hawaii and Arizona are fully integrated systems. Hawaii has, just like Florida, closed vertically integrated system. There is no data on Hawaii yet as the industry is not operational as of now. Arizona cannabis industry, although vertically integrated, is not a closed system. Arizona has issued about 80 licenses that can grow, process, transport and sell medical marijuana. 31 out of those 80 licenses have been issued recently.

Washington disallows vertical integration.

A lot of smaller states, like Connecticut, Maryland, and New Hampshire, also have vertically integrated systems but those states are so small in comparison to Florida that using the data from them for our analysis is quite questionable.

What Florida Will/Should Do With Its Medical Marijuana Industry As The Amendment Passed?

We do not know exactly how lawmakers will approach this issue.   So, all we can do at this point is to try and analyze the plain language of the Amendment 2 and see if the authors left any tips or guidelines on how it should be implemented.

First of all, let’s see how the amendment defines the Medical Marijuana Treatment Center (MMTC). MMTC “means an entity that acquires, cultivates, possesses, processes (including development of related products such as food, tinctures, aerosols, oils, or ointments), transfers, transports, sells, distributes, dispenses, or administers marijuana, products containing marijuana, related supplies, or educational materials to qualifying patients or their caregivers and is registered by the Department.”

So MMTC is an organization that grows, processes, transports, or sells medical marijuana to registered patients and registered by the Department of Health (DOH).  The conjunction “or” is there for a reason.

Further, within 6 months after January 3, 2017, the DOH should promulgate “[p]rocedures for the registration of MMTCs that include procedures for the issuance, renewal, suspension and revocation of registration, and standards to ensure proper security, record keeping, testing, labeling, inspection, and safety.”

Let’s combine the two. By July 3, 2017, DOH must promulgate the rules for registration of organizations that may grow, process, transport, or sell medical marijuana to registered patients.

Following the plain language of the Amendment, it mandates the expansion of the medical industry providing new licenses for all types of activities in the medical marijuana market.

The way to disintegrate the current system of licensing is the topic for a new article.

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