Lessons from South of the Pennsylvania Border: Pennsylvania Medical Marijuana Applicants Can Learn from Maryland’s Selections

September 8, 2016
Lessons from South of the Pennsylvania Border: Pennsylvania Medical Marijuana Applicants Can Learn from Maryland’s Selections

As the Pennsylvania medical marijuana industry continues to take shape under the proposed Medical Marijuana Act’s draft temporary regulations, a peek across the border to Maryland may provide some insight into the selection of, and competition among, applicants for the potentially lucrative grower/processor permits in Pennsylvania.  According to a recent article published by the Washington Post, the Maryland Medical Cannabis Commission recently approved the applications of 15 grower businesses from 146 grower applicants, and 15 processor businesses from 124 processor applicants, with 7 businesses receiving approval to both grow and process medical marijuana. This fall, Maryland is expected to issue its approvals for the 811 dispensary license applications received.

Unlike Pennsylvania, Maryland’s medical marijuana law allows for separate grower and processor operations.  Under such separate operations,  Maryland’s law provides for  15 grower licenses, an unlimited amount of processor licenses, and 2 dispensary licenses in each senatorial district, for a total of 94 potential dispensary license within the state.  In comparison, Pennsylvania’s law proposes a cap of no more than 25 grower/processor licenses and no more than 50 dispensary licenses.  Accordingly, Pennsylvania will have significantly less licenses available for those looking to become involved in the industry.

Those who obtained license approval in Maryland worked hard to establish qualified teams.  According to the Washington Post’s investigative findings, out of the companies seeking either grower or processing licenses, or both, 26 had political ties with major donors or high-ranking officials on their teams, 30 had ties to law enforcement with high-ranking law enforcement officials on their teams, and 47 had ties to medical marijuana businesses in other states (most predominantly Colorado and Illinois).  One company which received approval for both growing and processing, and is also seeking a dispensary license, hired the Maryland’s legislature top sponsor of the medical marijuana legislation to serve as its clinical director of an affiliated dispensary.

A significant criticism has been levied against Maryland’s selection process due to the lack of racial diversity present within the selected applicants, with none of the 15 grower permits being issued to African American led businesses.  Maryland’s law does state that regulators should “actively seek to achieve” racial and ethnic diversity within the industry.  However, Maryland Medical Cannabis Commission  did not provide extra weight to applications submitted by minority-owned businesses after the state’s attorney general suggested that such preferences would be unconstitutional without there being a history of racial disparity in marijuana licensing to justify such actions.

The Pennsylvania Medical Marijuana Act’s draft regulations currently attempt to address some of the perceived conflicts-of-interest seen in Maryland’s permit approval selections.  Pennsylvania’s proposed regulations forbid executive-level public employees and public officials, and their immediate family members, from holding a financial interest in, or being employed by, a medical marijuana organizations or an a holding, affiliate, intermediary, or subsidiary of a medical marijuana organization. As defined under the Public Official and Employee Ethics Act, a “executive-level public employee” includes, in part, “any State employee with discretionary powers which may affect the outcome of a State agency’s decision in relation to a private corporation or business or any employee who by virtue of his job function could influence the outcome of such a decision.”  Additionally, a “public official” is defined, in part, as “any person elected by the public or elected or appointed by a governmental body or an appointed official in the executive, legislative or judicial branch of this Commonwealth or any political subdivision thereof.”  A violation of the Medical Marijuana Act’s conflict-of-interest section can result in a misdemeanor conviction, with a punishment up to a $1,000 fine and/or one year imprisonment.  As such, prior to submitting an application, any medical marijuana applicant should close examine its team members, including the team’s immediate family members, to ensure that no conflicts of interest exist that would preclude the issuance of a license.

The Pennsylvania Medical Marijuana Act’s draft regulations also include provisions to further diversity among permit applicants.  In Pennsylvania, license applicants are required to provide a diversity plan with any initial permit application or permit renewal application that provides for diversity goals to “foster participation of diverse groups in all aspects of their operations.”  A “diversity plan” is defined in the Act as “a strategy that promotes or ensures participation by diverse groups in the ownership, management and operation of a medical marijuana organization through contracting and employment opportunities.”  Further, the term “diverse groups” is defined to include a “disadvantaged business, minority-owned business, women-owned business, service-disabled veteran-owned small business, or veteran-owned small business that has been certified by a third-party certifying organization.”  The applicant may demonstrate achievement of its diversity goals by “contracting or transacting business directly with diverse groups, contracting with a business enterprise under terms and conditions that establish a participation plan, or employing diverse individuals in all job classifications.”

Once a permit is initially approved, and the time has come to file a permit renewal application, the draft regulations require that a medical marijuana organization provide a report with its renewal application concerning the effectiveness of its diversity plan implementation.  This report should contain information on the organization’s employment, salary, recruitment, retention, contracts, subcontracts, investment, and management opportunities in relation to diverse groups, and describe other efforts made by the organization to implement, monitor, and enforce its diversity plan.  As such, in order to receive initial license approval, it will be imperative to the success of any medical marijuana applicant to create a comprehensive diversity plan.  Additionally, in order to maintain its license upon renewal, the diversity plan needs to be drafted in a manner that can be sufficiently implemented, maintained, and documented.

Based upon the quality and number of applicants in Maryland, the competition for permit approvals in Pennsylvania is sure to be intense.  As such, it will be crucial that any applicant understand and comply with the Pennsylvania Department of Health’s necessary applicant qualifications, permit requirements, and other factors the Department of Health may identify.  For guidance and counsel in this regard, for assistance with diversity plans or conflict of interest checks, or for any questions you may have about the process or permit requirements, please feel free to contact me or any of our attorneys within the Medical Marijuana Law Practice Group at HRMM&L.

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