Plan to diversify Maryland medical marijuana market might boost white firms instead


or months, Maryland lawmakers have planned to address the lack of diversity in the state’s nascent medical marijuana industry by offering more licenses. A new round of licensing was supposed to give the black-owned firms that were all but shut out of the first round another chance to gain a foothold in the lucrative industry.

But the legislation lawmakers have now come up with favors companies that already hold licenses to grow and process marijuana. Only one of the 30 licenses awarded two years ago is held by a firm owned by African-Americans.

The concept, approved last week by the House of Delegates, would create 15 new licenses, but set aside four of them for companies that already hold licenses.

That has puzzled and rankled black-owned firms. They expected a new round of competition that would eliminate the barriers that prevented most black firms from winning licenses the first time.

Instead, leading state lawmakers chose to designate some licenses for existing winners in the market. Two marijuana growing companies owned by white men — including a top donor to Republican Gov. Larry Hogan — would be among the four to get first dibs at expanding their market share.

The remaining 11 new licenses would be open to competitive bidders in a process that favors minority-owned firms. But those licenses would not be granted until at least a year later.

“The whole idea of it flies in the face of free competition,” said Darryl Hill, a marijuana entrepreneur who has advocated more minority inclusion.

The University of Maryland graduate broke racial barriers by becoming the first African-American to play college football in a formerly whites-only Southern conference, and he has spent the past few decades trying to help minority firms like his break barriers in business.

Hill’s company, Tilstar, already has a dispensary license to sell the drug to consumers in a retail setting. But he had hoped to get a license for the wholesale end of the market, to grow and process marijuana.

It’s that lucrative trifecta of licenses — for growing, processing and dispensing — that entrepreneurs covet, to consolidate their entire supply chain.

Why, Hill and others ask, should the state pick which companies get to achieve that more profitable “vertical integration”?

“I don’t see the logic in giving [those companies] a license because they already have a license,” Hill said. “Are they the best? I don’t know. Maybe. But they should have to prove it.”

Supporters of the bill’s current version — which passed the House of Delegates 121-16 last week — say the state needs to guarantee that this round of licensing establishes companies that can grow, process and sell the drug.

Doing so will achieve three goals, they say: Fulfill broken promises to some existing growers, avoid the possibility that no African-American firms will win in this round and, most importantly, reduce the cost of medical marijuana.

Del. Sandy Rosenberg, a Baltimore Democrat who helped draft the legislation, said combining growing and processing operations under one roof can save money that can be passed on to patients.

Health insurance does not cover medical marijuana. Rosenberg said the fastest way to reduce prices prices for consumers would be to set aside some new licenses to companies that the state has already vetted and are up and running.

The four companies that could get those licenses ranked among the top applicants in the first round.

“These were people who were already qualified,” Rosenberg said. “We were satisfied that was appropriate.”

Two of the four companies are white-owned, one is owned by a family of South Asian descent, and the other is the only black-owned company among growers and processors.

The proposal now moves to the state Senate, where some lawmakers view the plan to designate licenses to specific companies with skepticism.

“I’m not certain that I’m happy about it right now,” said Sen. Joan Carter Conway, the Baltimore Democrat who chairs the Education, Health and Environmental Affairs Committee.

In a state in which nearly a third of the population is black, legislative leaders in both parties agreed that more black-owned firms should share in profits from medical marijuana.

None of the 14 existing growing companies are owned by African-Americans. Just one of the 15 processing companies is.

After the first round of licensing, the Legislative Black Caucus led an uproar about the lack of diversity, and Hogan ordered a disparity study. The authors concluded that minority-owned companies faced disadvantages in the medical marijuana industry, giving state lawmakers legal grounds to create new licenses designated for minority-owned firms.

Companies owned by minorities and women can get an advantage in the ranking process during the next round.

Del. Cheryl D. Glenn, the Baltimore Democrat who chairs the Legislative Black Caucus, said it’s possible under the current proposal that no African-Americans would win the new licenses, which is why she supported designating one for the only black-owned company currently in the wholesale industry.

The legislation would establish 15 new licenses — five for growing the drug and 10 for processing it into products such as oils or vapor cartridges.

The plan approved by the House would authorize the Medical Cannabis Commission to award one of the 10 new processing licenses to an existing licensed grower, if the grower had applied for a processing license in the first round and ranked among the top 30 applicants.

Three licensed growing companies meet that standard. State regulators had assured each of them that they would be granted a processing license, but they never were.

One of the growers, ForwardGro, is owned by Gary Mangum, a top fundraiser for Hogan.

Hogan’s spokesman, Doug Mayer, said the governor’s office did not lobby to help Mangum.

Gail Rand, a spokeswoman for ForwardGro, said the company built space in its marijuana greenhouse for a processing facility because the cannabis commission had said it ranked high enough to be approved for a new processing license. Regulators later decided not to license any additional processors.

Since then, ForwardGro and other growers have been advocating a system to grant them processing licenses.

Rand said the ability to process the drug would allow growers to eliminate the cost of securely transporting the marijuana flower from their greenhouses to another party for processing.

“We expected the commission to act on this a long time ago,” Rand said. “We’ve been through the whole competitive process. … Our whole expectation was based on the competitive process.”

The two other growing companies that could benefit from the plan — HMS Health in Frederick County and Harvest of Maryland in Western Maryland — did not respond for requests for comment.

HMS Health is owned by Shakil Siddiqui and Meher Siddiqui, who are of South Asian descent. Harvest of Maryland is owned primarily by Harvest CEO Steve White. The town of Hancock, where the facility is located, owns a 5 percent stake.

The fourth company that would benefit from the proposed legislation is Seven Points Agro in Prince George’s County, the only African-American-owned company in Maryland’s medical marijuana wholesale industry.

Seven Points Agro is a licensed processor. Under the proposal, Seven Points Agro could receive one of the four new growing licenses without having to compete.

Rosenberg and Glenn said this process would allow a new grower to enter the market quickly, rather than waiting for the commission to develop a new application and award process, which commission officials said could take more than a year.

Companies that were ranked higher in 2015 than Seven Points Agro, such as GTI Maryland, questioned why the state has singled it out.

“It’s not fair,” said Pete Kadens, CEO of GTI Maryland.

Glenn said lawmakers were trying to find a way to improve diversity in the industry and fulfill the promises the commission made to existing growers.

“Our whole effort for this year is about fairness, and to legislate diversity,” Glenn said. Another goal, she said, is to create vertical integration and make medical marijuana less expensive.

“We didn’t want this to be a rich man’s drug,” she said.

Reginald Alston is one of three owners of Seven Points Agro, which is developing smokeless ways to take medical marijuana.

Alston said his company has not asked to be awarded one of the new growing licenses without reapplying. He said he learned about the possibility only from industry lobbyists and a reporter.

“If it is a fact, fantastic,” he said. If his firm were awarded a new growing license, he said, they could start building a facility right away because they still have access to the capital and real estate they secured when they applied.

“We can act on it quick,” he said. “Really quick.”

By: Erin Cox, Baltimore Sun