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Florida Medical Cannabis Market Growth Stymied By Red Tape

By Aaron G. Biros
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The demand for medical cannabis in Florida might be growing steadily, with patient numbers soaring, but that doesn’t mean the market will grow accordingly. Due to hampering regulations and a lack of state guidance, the industry in Florida is tiny and patients have limited options for medical cannabis products.

A little more than three years ago, Governor Rick Scott signed a bill into law, legalizing medical cannabis, but only for terminally ill patients and only for one strain, Charlotte’s Web. That stipulated a low-THC, concentrated oil form of cannabis. That bill also set up the licensing framework for what is now an extremely limited market.

Florida Gov. Rick Scott has been accused of making the licensing process secretive Photo: Gage Skidmore, Flickr

In November of 2015, the Office of Compassionate Use, now called the Office of Medical Marijuana, issued licenses for five dispensaries. To get a license, applicants needed to meet a variety of absurd requirements. That included being a nursery in business for thirty years, growing a minimum of 400,000 plants at the time of applying, paying $300,000 in fees and a $5 million performance bond.

Fast forward to Election Day last year when voters passed Amendment 2 by a wide margin, amending the state’s constitution and legalizing medical cannabis for a broader scope of qualifying conditions. What hasn’t changed, however, is the old vertical licensing framework. Critics have dubbed this a “pay-to-play” market, with massive barriers to entry prohibiting small businesses from gaining market access.

David C. Kotler, Esq.

David Kotler, Esq., attorney and partner at CohenKotler P.A., says we shouldn’t expect to see a viable market for years as a result of all this red tape. “Honestly the State of Florida, with their limited licenses and odd requirements to qualify for licensure have stunted what could be a good market both for businesses and patients,” says Kotler. “It has been an inefficient roll-out and is truly an embarrassment for the state, legislature and the Department of Health.” Kotler says he’s heard reports of extremely limited product selection, poor quality, as well as no dried flower being offered.

But the patients are pouring in by the thousands- on July 27th, the Office of Medical Marijuana reported 26,968 registered medical patients, with more than 10,000 patients signing up since June 7th. “Despite my belief that it would be a slow roll out, it appears the patient count is picking up,” says Kotler. “The elimination of the 90-day doctor-patient relationship will certainly help this.” He is referring to the reversal of a waiting period policy, where patients had to wait 90 days before receiving a medical cannabis certification. “But there still seems to be a backup with issuance of cards and poor guidance from the Department of Health leaving many doctors unsure of what they should be doing,” says Kotler. The rules and guidelines for physicians participating in the program are still not established, but the Florida Board of Medicine expects to vote on them this week, reports say.

Matt Karnes, founder and managing partner of GreenWave Advisors

With seven licensees right now and a total of ten licensees by October allowed to grow and distribute cannabis products, the question remains if that is enough to satisfy the growing number of patients. According to Matt Karnes, founder and managing partner of GreenWave Advisors, the state is adjusting by adding more licensees and allowing them to operate more dispensaries, potentially trying to sate that demand. “Both of these amendments will likely serve as a catalyst for revenue growth but could be tempered by a lack of physician participation (as we have seen in other states) in the medical marijuana program,” says Karnes. “For every incremental 100,000 patients who register in the Medical Marijuana program, four more licenses will be issued and existing licensees will be allowed to open another four dispensaries (current cap is 25). We do not expect an incremental 100,000 patients until sometime in 2021.” His firm’s market projections account for those increases and edibles now being sold, but still no dry flower allowed. They project total sales figures in the state to reach $712 million by 2021.

Those figures are contingent on the increase in registered patients and more licensees. If Florida’s vertical licensing model remains, it’s quite possible the state will see a cannabis shortage, much like Nevada during their opening month of adult use sales. “Instead of learning from so many states before it, Florida forged a path down the rabbit hole that may limit Florida’s potential until either a legislative change or a backlash at the polls in the form of an amendment bringing forth adult use,” says Kotler. In New York, that vertical licensing model arguably created a monopoly, with only a select few businesses controlling the entire market. That doesn’t foster market growth; it hurts quality, keeps prices high and prevents real competition. “We see how that worked out for New York,” says Kotler. “We cling to that despite what could be a large patient base with the potential to service tourists who wish to have reciprocity.”

Florida’s market could be a powerhouse for the state, with the potential to generate millions in tax revenue, create thousands of jobs and actually help patients get the medicine they need. But until the state ditches their conservative, closed-door approach, we won’t see the industry truly flourish. .

Analyzing National Trends for Marijuana Policy: Q&A with Matt Karnes

By Aaron G. Biros, Matthew A. Karnes, CPA
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According to Matthew Karnes, founder and managing partner of GreenWave Advisors, LLC, looking toward the growth of the cannabis industry requires analysis of the changes in state and federal laws. “Eventual rescheduling or de-listing of marijuana as a federally prohibited drug, will hopefully lead to consistent and uniform national regulation and taxing authorizations that will ultimately change the structural and economic landscape of the industry,” says Karnes in an article here.COLOR-PIC-200x300

Looking at the sales trends in current legal states is a viable option to make financial projections, but much of that relies on the changing legal and political landscape of our country. According to Karnes, because it is impossible to accurately predict federal rescheduling or full legalization, investors must look at short, medium and long term trends to guide their decision making process. Cannabis Industry Journal sat down with Matthew Karnes to discuss some of the foreseeable trends.


 

Cannabis Industry Journal: What are some of the trends happening presently, that you can expect to continue?

Matthew Karnes: Just as states continue to pass legislation in some form of legalization measure, there is talk at the federal level of minimizing interference with state policies and removing prohibition statutes. We can see this national progression continuing until rescheduling cannabis eliminates the current obstructions that have limited industry growth.

Where states continue to roll out legislation to legalize cannabis, the rate of retail and cultivation license granting will have a large effect on the growth rates for each given state. Free market approaches as seen in Colorado and California will allow for faster growth rates than more restrictive states.

Recreational and adult use measures being introduced are notable disruptions in the medical sector that once fueled legalization. Medical research and development of strains for specific ailments is still in its early stages due to the impact of federal policy on research.

With an eye forward to eventual federal rescheduling or possible de-listing it is reasonable to assume that uniform national testing and operational standardization protocols will eventually be implemented at least as a baseline binding thread that will steadfastly assure consumers of an expectant consistency of product.

CIJ: Where do you see medium term trends taking the industry?

Matt: With more and more states legalizing cannabis in some form, we can expect the federal government to make a policy change. This will be accomplished via a DEA policy change or through congressional avenues in conjunction with federal agencies like the FDA, USDA and Department of Agriculture administering regulations.

With FDA or Department of Agriculture implementing cannabis policies, we can expect increased interest from outside the industry in research and development of cannabis-based drugs. This will lead to a medical market with more targeted medicine with precise dosing. We can expect more physicians to gain comfort in treating ailments with cannabis as well.

The recreational market will expand greatly with normalized commerce, enabling larger cultivation operations and infused products brands could grow to the national scale with interstate commerce.

CIJ: Where do you see the industry going long term?

Matt: When the cannabis industry matures down the road, we can expect multiple offshoots occurring. The recreational industry will involve local, regional and national policy much like the alcohol industry, and will likely resemble a liquor store model with individual “mom and pop” type businesses.

We anticipate that the medical market will recalibrate as more targeted products with precise dosing and efficacy are developed. At that point it will experience increased competition and consolidation. Without medical research and clinical trials, we cannot accurately project the growth of the medical sector.

Regulations involving tax revenue will most likely use a similar mechanism that states use for alcohol and tobacco taxation. Entities like state liquor control boards will oversee cannabis regulations. When that time comes, the cannabis industry will no longer be a novel idea and will become another conventional ‘consumer staple.’