High Cotton: The Emergence of a Southern Cannabis Industry
When Neil Young wrote that “Southern change gonna come at last,” he wasn’t talking about cannabis— but he might as well have been in light of the recent and extraordinary developments in the cannabis industry in the southern United States. Florida is turning into the monster many expected; Louisiana is rounding into form, as is Arkansas; Alabama and Mississippi will launch programs this year; Georgia may even (finally) get off the ground; and Tennessee and the Carolinas look to be major players in the years to come. This article will examine on a state-by-state basis the fastest growing region in the cannabis industry.
The Existing Players
Any discussion of Southeast cannabis starts with Florida. Florida’s medical cannabis program is grounded in a 2017 voter-approved amendment to Florida’s Constitution, Fla. Const. art. X, Section 29, which was implemented through a statute passed in 2018, Fla. Stat. 381.986. The program is a “limited license” regime, under which a capped number of vertically integrated “Medical Marijuana Treatment Centers” are licensed to cultivate, process and dispense cannabis to patients that have obtained a physician’s certification. There are currently 22 licensed Medical Marijuana Treatment Centers (17 are operational) that serve approximately 650,000 patients.
Florida’s combination of vertical integration and limited licenses has resulted in stratospheric valuations for its Medical Marijuana Treatment Centers. One Center, Harvest Health, was forced to auction off its license following its acquisition by a competitor, Trulieve. Harvest’s license alone sold for $55 million. And the Florida cannabis industry as a whole sold more than $1.2 billion in products in 2021.
Like Florida, Arkansas began its medical cannabis journey through a voter-approved amendment to the state constitution—the Arkansas Medical Marijuana Amendment of 2016 (Ark. Const. Section 23, am. 98). That law created the Medical Marijuana Commission to regulate Arkansas’s medical cannabis program. Arkansas is also a limited license regime, although it eschews vertically integrated licenses for separate dispensary licenses (up to 40) and cultivation facility licenses (up to eight).
While the program took time to stand up after the amendment, dispensaries began offering product to qualified patients in 2019. Since that time, patients have purchased more than $500 million in medical cannabis. Currently, there are approximately 80,000 quali!ed patients.
Louisiana’s medical cannabis program—which was enacted through the Legislature and began in 2020— is unique in many respects. It only authorizes two state universities to cultivate medical cannabis: Louisiana State University and Southern University. As for dispensing, Louisiana divides the state into nine regions, and authorizes one “medical marijuana pharmacy” to dispense medical cannabis in each. While the cultivation and dispensing regime is strict, the qualifying conditions for which a patient can receive medical cannabis are not. The law authorizes doctors to prescribe cannabis for a long list of specific qualifying conditions, as well as any condition the doctor “considers debilitating to an individual patient” that the doctor “is qualified through their medical education and training to treat” (La. Rev. Stat. Section 1046).
Despite the expansive qualifying conditions, the limited number of cultivation and dispensing licenses has led to high prices and limited growth in patient count in Louisiana. Even with those issues, Louisiana’s medical cannabis sales are projected to exceed $90 million in 2022.
Of the existing Southeastern players, Georgia has struggled the most to stand up its medical cannabis program. Georgia’s Hope Act, which was signed into law in April 2019, authorized qualified patients to obtain medical cannabis oil with up to 5% THC (Ga. Code Section 16-12-191). The act created the Georgia Access to Medical Cannabis Commission to regulate the program, and the commission began accepting applications for medical cannabis “producers” in 2020. Six licensees were chosen through a competitive application process, but unsuccessful applicants have filed administrative appeals and litigation to challenge the application process. As a result, no production licenses have been issued, and the application process for dispensing licenses has not yet begun.
In May 2021, the Alabama Legislature passed the Darren Wesley “Ato” Hall Compassion Act, which created the Alabama Medical Cannabis Commission to oversee a statewide “seed-to-sale” tracking and licensing system that permits the medical use of smokeless cannabis products for patients with qualifying conditions (Ala. Code Section 20-2A-1).
Alabama’s medical cannabis program will have a limited number of licenses. There will be no more than 12 cultivator licenses, four processing licenses, four dispensing licenses (each allowing no more than three dispensaries), and five “integrated facility” licenses which allow the licensee to cultivate, process, and dispense cannabis. There will also be licenses for secure transporters and laboratory testing facilities.
Completed applications are due Sept. 1, although the Medical Cannabis Commission is not expected to finalize regulations and applications until approximately July 2022. Patients are expected to have access to product in summer or fall 2023.
After the state supreme court stymied a ballot initiative in which more than 70% of Mississippians voted to allow medical cannabis, the Mississippi Legislature voted earlier this year to adopt a medical cannabis program (S.B. 2095). Unlike the Alabama program, there is not a formal cap on the number of licenses available in Mississippi. While this lessens the competition for licenses themselves compared to a limited license regime, it will result in fierce competition for licensees, at least initially.
Applications for all license types except dispensaries are scheduled to be submitted in June 2022, while dispensary licenses are scheduled to be submitted in July 2022.
The Next Ones Up?
While North Carolina does not currently have a medical cannabis program, many expect that to change soon. North Carolina’s Compassionate Care Act, which has already cleared the state’s Senate Judiciary, Finance, and Health Care committees, is expected to be taken up by the Senate during the next legislative session, which begins in May. The act would set up a limited license, vertical integration regime, under which 10 licenses would be issued to medical cannabis suppliers to cultivate and process cannabis. Those 10 medical cannabis suppliers can then obtain licenses for “medical cannabis centers”—the act’s term for dispensaries. Only licensed suppliers can obtain these dispensary licenses, and no supplier can hold more than four such dispensing licenses.
Like its sister state, South Carolina does not currently have a medical cannabis program, but it is expected to soon. South Carolina’s proposed legislation, also called the Compassionate Care Act, would set up one of the strictest medical cannabis programs in the country, only allowing patients with a narrow list of qualifying conditions to obtain medical cannabis. The act’s licensing regime is most akin to Alabama’s, with separate license types for each part of the cannabis supply chain. It would allow 15 “cultivation center” licenses, 30 “processing facility” licenses, and one “therapeutic cannabis pharmacy” (i.e., a dispensary) for every 20 traditional pharmacies in the state, in addition to four transportation and !ve testing lab licenses.
Unlike the Carolinas, Tennessee currently does not have proposed medical cannabis legislation that appears to be on the cusp of passage. But there are plenty of reasons to be optimistic that this will change sooner rather than later. Legislation passed in May 2021 created a Medical Cannabis Commission, whose purpose is to “serve as a resource for the study of federal and state laws regarding medical cannabis and the preparation of legislation to establish an effective, patient-focused medical cannabis program” (T.C.A. Section 68-7-102(a)). The statute requires that the commission prepare recommendations for “how best to establish an effective, patient-focused medical cannabis program,” along with proposed legislation for the state Legislature.
However, the statute does not yet “authorize a medical cannabis program to operate” in Tennessee, and “licenses for such a program shall not be issued … until marijuana is removed from Schedule I of the federal Controlled Substances Act.” Whether the Tennessee Legislature will keep this restriction in place is anyone’s guess. But it is not difficult to imagine the tax revenue in neighboring states incentivizing the Tennessee Legislature to expedite the path towards state-level legalization if Washington gridlock continues to delay cannabis reform at the federal level.
Time has a tendency to move more slowly in the South. After all, we are the home of tradition, barbeque and bourbon. Will the wait be worth it? On the one hand, the region has lagged behind the rest of the country on cannabis issues. On the other hand, the demographics (from patient base to cost of land and labor) may make for a perfect storm. Perhaps it is too soon to tell how it will all shake out, but southern change has come at last.
—After this article was submitted for publication, the South Carolina House of Representatives ruled the Compassionate Care Act is unconstitutional under the state Constitution because it originated in the Senate and created a new tax.
Republished with permission. This article, "High Cotton: The emergence of a Southern Cannabis Industry," was published by The Legal Intelligencer (login required) on May 13, 2022.
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