New Market: Ohio medical cannabis program set to be big, but license rules could curb growth

By Bart Schaneman

Ohios medical cannabis program is expected to be large, generating up to $400 million in annual dispensary sales several years down the road.

But possibly stringent regulations governing the number of dispensary licenses could limit patient access and curb the industrys growth potential, industry officials said.

Ohio Gov. John Kasich signed legislation legalizing medical cannabis last June, making the state the 26th to join the MMJ fold.

The new law, which took effect last September, also put the country past the halfway mark for states that have approved viable medical cannabis programs.

Ohio has more than 11 million people and ranks seventh in population.An extensive conditions list should be a boon for the market. And out-of-state entrepreneurs will have a crack at securing a license because there is no residency requirement.

But uncertainties remain given that state regulators are still writing the rules. Dispensaries arent likely to open before late 2018 provided all goes as planned.

According to$200 million and $400 millionin annual retail sales via dispensaries once the market matures. The patient pool is expected to reach 100,000 several years after the first dispensaries open and could reach 200,000 down the road.

Business opportunities are emerging for cultivators, dispensary owners, software companies, packaging and testing services and consultants.

I think theres a real opportunity to have a very, very large marketplace here, said Patrick McManamon, CEO of Cleveland-based marijuana insurance firm Cannasure.

On the flip side, however, an initial proposed cap of 60 dispensary licenses could mean storefronts cant meet patient demand. Also, regulators have proposed steep license fees for large grows, which could limit that sector to the most well-heeled businesses.

Business opportunities

The core business opportunities lie in cultivation, said Brian Wright, executive director of the Ohio Cannabis Association. The state also recently announced it needs a contractor to implement a seed-to-sale tracking system.

He added that security offers an untapped market, given that firms have been slow to emerge in this field.

Among ancillary companies, McManamon sees opportunities for packaging and testing services. Lawyers and consultants also are emerging as the market develops.

People are just starting to pull their heads out of the sand and see whats going on, he said.

Number, types of licenses

According to industry and government officials, regulators have proposed the following license caps:

• 12 large cultivator licenses, or so-called Level 1 growers with 25,000-75,000 square feet of canopy
• 12 boutique cultivator licenses, or Level 2 growers with 3,000-6,000 square feet of canopy
• 60 dispensary licenses, a number that can be expanded
• 40 processor licenses

Cultivation licenses would be divided into four geographic regions, with three Level 1 and three Level 2 licenses in each section. All cultivation must be done indoors. Smaller grows could be dedicated to cultivatingcustom hybrids for specialized treatments.

License caps for testing labs havent been determined.

The Ohio Department of Commerce must finalize fees for cultivation, processing and testing licenses. It has proposed a $180,000 license fee for large grows on top of a $20,000 application fee. The Board of Pharmacy must finalize fees for dispensary permits.

License holders can own one cultivation facility. But that doesnt preclude them from owning dispensary or processing licenses.

Wright contended the number of dispensaries will need to expand quickly beyond the initial 60.

Unfortunately the state is using very conservative numbers (for the patient pool,) he said.

He sees the patient pool as potentially 2% of the population, or roughly 230,000 people. The state is estimating around 120,000. In a state with 88 counties, he estimates that about 200 dispensaries will be needed.

We dont need to see lines wrapping around the corner or people driving long distances to get the medicine they need, Wright added.

While there is no residency requirement, any Ohio ties are expected to help applicants.

McManamon anticipates a provision in the application benefiting minority applicants.

Timeline

Application details havent been ironed out.Rules must be in place by May for cultivator applications. Applications should come out at that time. Prospective cultivators will have a 60-90 day window before the state accepts applications.

Cultivation license winners will be announced in September. Rules governing the application process for dispensaries and processors are due out that same month.

Applicants will likely be scored based onmerit, which bodes well for those who know what theyre doing ...