Cash crop: How to grow medical marijuana in Pennsylvania

The green stuff is officially legal for medicinal purposes. And entrepreneurs know it can bring them some serious green, too.

In addition to the thousands of Pennsylvanians waiting for legal medical cannabis to treat their diseases, another group is waiting in the wings for what happens now that it’s legal: Entrepreneurs, business owners and potential growers.

“People imagine that [dispensaries] look like tattoo parlors or check cashing places, like really shady, and it’s not,” said Steven Auerbach, managing member of Keystone Cannabis Law, a Montgomery County-based regulatory compliance and medical marijuana license acquisition firm. “These places are so clean you could eat off the floor. They’re warm and welcoming. They’re secure, and they’re not on every street corner.”

Before Pennsylvania became the 24th state to legalize medical marijuana, a state Senate panel estimated the legislation would spur a new industry that could one day net more than $600 million a year statewide (though more conservative estimates say it’ll be something like $125 million in year one.)

Growers, processors and dispensary owners stand to make a pretty penny, too. In Colorado, annual sales for medical marijuana were nearly $4,000 for every person with an ID card to obtain it. Business owners in Pennsylvania selling to people with 17 different conditions are better off than some other states that passed bills that cover far fewer diseases.

The Department of Health — which oversees the program in Pennsylvania — says it’ll be another 18+ months before the program is in place and an estimated 200,000 patients can start obtaining medical marijuana. Between now and then, an advisory board will determine how the state will choose which business owners will be selected to operate dispensaries as well as growing and processing operations.

The cost

Getting licensed won’t be cheap.

Fifty dispensary operators in Pennsylvania will be licensed. Each one can open three locations. They’ll pay $5,000 just to apply to be a dispenser, then fork over a $30,000 registration fee.

Total cost for dispensary operator: $35,000

Growers and processors will pay $10,000 to apply; the 25 selected will toss in $200,000 to the state for a license that has a $10,000 annual renewal fee. They’re also required to certify to the state that they’ve got $2,000,000 in capital, $500,000 of which must be on deposit with the bank. In addition, growers and processors will pay a 5 percent tax and the bill stipulates that cost can’t be passed onto patients.

Total cost for a grower/processor: $2,210,000 in year 1

While the $200,000 registration fee for growers and processors seem high, it’s not all that far off of what restaurant operators or bar owners might pay for a top-tier liquor license in Pennsylvania. But this time instead of purchasing one from the marketplace, growers and processors will be paying the marijuana program that operates something like the Liquor Control Board does.

There are other high costs associated with operating a marijuana-related facility, specifically growing operations. Auerbach said because of a perceived high chance of fire and theft, insurance rates are through the roof and sometimes just getting insured proves difficult.

High up-front costs exist too for growers: They’ll have to set up secure indoor growing facilities. (So no, this won’t be open fields of cannabis growing in the middle of Lancaster County.) A Harrisburg-based lawyer who specializes in regulated substances told The (Allentown) Morning Call that some in the industry expect up-front costs for growers and processors to reach $10 million. Auerbach, who has visited legal medical marijuana operations in other states, said most people wouldn’t be able to recognize a marijuana growing facility if they saw it.

The state law requires the marijuana be grown indoors and includes electronic locking systems, electronic surveillance and other features deemed required by the Department of Health.

But for some determined to be selected by the state as a licensee, the benefits far outweigh the high costs.

The perks of growing legal weed

Thomas Perko, a partner in Keystone Organic Farms, a western PA farm, already has a full business plan and a lease agreement to grow medical marijuana 100 feet underground, he told The Patriot-News last June.

Catherine Frederico owns Creative Accord, LLC, a Bristol-based independent laboratory that conducts research on food, essential oils, flavors and fragrances. Dr. Justin Frederico, a chemist in the lab, said he and his wife hope to partner with a growing operation in order to apply to process medical cannabis so the company can provide testing services to businesses and consumers.

Frederico said he and his wife are experts in the study of perfumes in plants and have been asked a number of times by businesses and consumers to study the plant. Once the medical marijuana program is finalized in Pennsylvania, the owners — if they’re approved for a license — plan to hire more employees and move into a larger facility for testing.

“This is going to be a big deal to our company,” he said. “Medical marijuana is changing the culture that our state has and our country has right before our eyes. And we’re going to be part of it.”

Few experts in the field have guesses for the number of companies that might apply to be licensed as dispensers, growers and processors. And it’s unclear still how the state will choose which companies get involved.

Auerbach, who consulted state senators who drafted the law, said the the advisory board can choose to go one of a few ways to select licensees:

  • A lottery system, similar to how Arizona distributed medical marijuana business licenses.
  • A “qualified lottery” where people submit applications and are entered into a lottery if they meet bare bones requirements.
  • A competitive process where a board reviews applications and scores each business based on their application. Those with the highest scores would be awarded licenses.

Auerbach said he expects Pennsylvania to go with a competitive process rather than a lottery. And within six months, the board is expected to agree on preliminary regulations.

For now, business owners who qualify will be massaging their business plans, getting application questions answered, shopping for insurance and likely engaging with lawyers to ensure compliance not only in getting a license, but in keeping it.

They’re also reaching out to doctors who have to get a permit themselves to recommend medical marijuana to patients. The economics behind the state’s newest cash crop won’t work if enough doctors don’t get certified to recommend the drug to patients.

“At the end of the day, this is a medical issue, this is not a political issue,” Auerbach said. “At the end of my life, I don’t want to be in hospice somewhere and somebody in Harrisburg telling me what I can and cannot put in my body. A doctor should be making these decisions.”

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