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Marijuana business: Uncharted territory?

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When Pennsylvania legalized the medical use of marijuana this week, it created an environment that one advocate described as uncharted territory for the private sector.

“It’s literally the wild, wild west,” said Russ Cersosimo, director of strategic alliances for the Pennsylvania Medical Cannabis Society said.

There is opportunity in the nascent medical cannabis industry, but there are also challenges, and little direction on how to get there.

Business owners from a variety of industries are interested, albeit quietly, and while some have space for growing and some have capital to invest, others simply have ideas.

There are many reasons to invest in the medical marijuana market in Pennsylvania, according to Justin S. Moriconi, a Philadelphia-based attorney specializing in regulated cannabis.

The main reasons: A large number of potential patients and a significant number of licenses for companies that want to grow, distribute or process marijuana for medical use.

While a provision of the bill allows state officials to set prices if they feel those set by medical marijuana organizations are unreasonable or excessive, there is no automatic cap, as there are in other states, according to Moriconi.

“It is a robust medicinal law that allows for robust sales,” Moriconi said, noting that the Pennsylvania market could be larger than others on the East Coast.

The state’s law lists 17 qualifying conditions, one being “severe chronic or intractable pain in which conventional therapeutic intervention and opiate therapy is contraindicated or ineffective.”

The language “leaves the door open for a very large patient base,” Moriconi said.

Homework is key

But before you get started, do your homework, according to Dan Clearfield, an attorney in the Harrisburg office of Philadelphia-based law firm Eckert Seamans Cherin & Mellott LLC and a member of the firm’s regulated substance practice group.

Establish which part of the business you want to invest in – growing, processing or dispensing. Companies might also invest in lab space.

“Everything has to be tested,” Moriconi said.

Next, evaluate the minimum requirements, including the amount of money you might need.

To become a grower or processor, businesses are required under the legislation to submit a nonrefundable, initial application fee of $10,000 to the state, and they must prove they have at least $2 million in capital, with at least $500,000 on deposit with a financial institution.

To dispense medical marijuana, the initial application fee is $5,000, and applicants need to prove they have at least $150,000 with a financial institution.

If approved for a license, dispensers also need to pay the state a one-year permit fee of $30,000 for each location, with an annual renewal fee of $5,000.

From there, it comes down to establishing a corporation, finding a team and securing land. 

From licenses to land

The state Health Department will begin working on regulations when the law becomes active, which is 30 days from April 17.

The department has six months to complete the regulations. The application deadline for businesses is predicted to be in January 2017, according to Cersosimo.

Applicants will be required to verify all principals, operators, financial backers and employees of the medical marijuana organization, according to S.B. 3. Anyone listed on the application will have to undergo a criminal record check.

A professional team should include experts in a variety of fields such as real estate, medicine, drugs and law, Moriconi suggested.

Next, be prepared to describe exactly what the medical marijuana organization will do, and to prove that it has access to “sufficient land, buildings and other premises and equipment to property carry on the activity,” as stated in the bill.

It is important to have real estate locked down, Moriconi said. He predicts that 20 percent to 30 percent of the battle in breaking into the medical marijuana industry will be in finding the right land.

Challenges could include getting permission from a landlord to use space for a cannabis-related business and finding a location with proper zoning.

Investors also wil have to watch out for scams.

Some organizations claiming to be experts in the application process may charge extremely high fees and request an ownership stake in the company, Moriconi said.

Although it is important to have a consultant who understands the application process, be careful.

“That’s where the scams come in, in a big way,” Moriconi said.

Federal-state conflict

The biggest challenge is that marijuana remains illegal under federal law. As a result, cannabis-related activities that may be legal under state law may still violate federal law.

Marijuana is classified as a Schedule 1 drug under the federal Controlled Substances Act, meaning the government essentially sees it as a dangerous substance with no acceptable uses.

This month, the Drug Enforcement Administration told lawmakers that it will consider rescheduling marijuana in the first half of 2016, according to multiple news reports.  

The Pennsylvania Medical Society, which has consistently opposed the passage of S.B. 3 due to lack of medical research, is also pushing for a change at the federal level.

“In light of the passage of this legislation, it is our hope that marijuana’s status as a federal Schedule I controlled substance is reviewed with the goal of facilitating the conduct of clinical research and development of cannabinoid-based medicines, and alternate delivery methods,” Scott Shapiro, president of the Pennsylvania Medical Society said in a prepared statement.

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