HB 2272: Decoding the “Death to Small Business” Bill
* THE PROVISIONS MENTIONED IN THIS BLOG DID NOT PASS. THERE WILL NOT BE LICENSE CAPS IMPLEMENTED IN SEPTEMBER OF 2021.
A Medical Marijuana bill introduced in Oklahoma is stirring up quite the debate. Is HB 2272 really bad for small business? We’ll take you through it to decide for yourself.
A new bill, HB 2272 introduced by Rep. West relating to the medical cannabis program is causing concern about what it could mean for small business. Before we dive in, let’s establish those concerns are righteous and valid. It’s important to protect and preserve the integrity of our program, the low barrier for entry, those aspects that make it a gold standard for green rushes, free market cannabis programs across the country and have allowed almost anyone with a dream to enter the market and make something of it.
What does HB 2272 do?
Places caps on medical marijuana business licenses
Prohibits license renewals due to inactivity
Requires dispensary and processor licensees to have a minimum of $5,000 per month in gross monthly sales calculated on a twelve-month rolling average
Requires grower licensees to have under cultivation a minimum of 50 marijuana plants per month, calculated on a twelve-month rolling average
Introduces a voucher system
Establishes a $10,000 fee for vouchers
Authorizes the sale or transfer of business vouchers
Establishes a $2,500 fee for voucher transfers plus an additional $25,000 to the Oklahoma Tax Commission from the purchaser
The Inevitable License Cap
The areas of concern may have been obvious, presenting themselves in the bullets. Capping licenses is debatable, and we all saw it coming eventually, it just doesn’t speak to the issue being cited in introducing them, which is to curb black market activity. Whatever you think about that, the details remain the same.
If passed…
“Beginning September 1, 2021, the number of medical marijuana dispensary licenses, medical marijuana processor licenses and medical marijuana commercial grower licenses authorized in the State of Oklahoma shall be capped at the total number of licenses active in each category as of September 1, 2021, combined with the total number of applications pending in each category with the Oklahoma Medical Marijuana Authority which were submitted prior to September 1, 2021. ”
Right away, if you apply for your application before September 1st, 2021 you will not be affected by a license cap in the event the bill becomes a law. To accommodate for the rush to get your application in prior to a cap being put in place, there is a provision to waive the requirement for a Certificate of Compliance to be submitted with the application. Under the provisions of the bill, each applicant will have 180 days from the date their license is approved to provide the document.
What are the caps?:
Dispensaries: 2,000 (2,090 currently active)
Grows: 5,000 (6,769 currently active)
Processors: 1,000 (1,290 currently active)
(Caps for other license types were not mentioned in the bill.)
Obviously, in Oklahoma we are currently above those thresholds in every category. These caps would go into effect in the eventual case that through licenses being surrendered, cancelled or terminated, we get down to the numbers in the first place.
The most important thing to offer here for potential future business owners if this passes, is get your application in before September 1st, 2021. We are already capped. So, after September 1st—if passed—you will not be able to apply for a cannabis business license until the number of active licenses drops a number of 100 or greater below the cap for your respective category, opening a temporary application window. All applications submitted prior to September 1st, 2021 will be processed by the OMMA.
Caps aren’t inherently bad or good, like most things, it’s in the application. For what it’s worth though, if it is the idea of the legislature to reduce black market activity as it has been communicated, the only real demonstrated way to do that is to make it easier for the black market to move into the legal market. Limiting competition within the legal market can only do so much to affect players not operating in that dimension.
Is this bad for small business?
It largely depends on if you already have a license. If you don’t, you could still enter the market in one way outside of a temporary window opening. That one way would be through the purchase of a voucher awarded to another applicant. On top of the purchase price of the voucher, as the purchaser you would need to pay a $25,000 tax to the Oklahoma Tax Commission. That would certainly open the opportunity to players with more liquid capital and close it for others (small businesses), and may well even create a market for vouchers that is inherently exclusive to people with more purchasing power. More on that later.
For a contrary positive point, license caps will make licenses themselves more valuable which increases the asset value of every small business currently holding one. With HB 2023 also on the table that if passed would eliminate prohibition of license transfers, there is also the perspective to consider that in some ways license caps actually protect small business owner’s longterm profitability.
Measuring Inactivity
This will move us closer to the caps. Inactivity will be measured by different factors depending on the category. The one factor consistent across all categories is that any licensee who does not use their license for a period of 18 months will not be allowed to renew their license.
“Beginning September 1, 2022, any medical marijuana
dispensary licensee who does not actively use the medical marijuana dispensary license for a period of eighteen (18) months shall not be authorized to renew the license. ”
For dispensaries and processors active use requires that every dispensary licensee have a minimum of $5,000 per month in gross monthly sales calculated on a twelve-month rolling average.
Gross monthly sales shall be calculated by taking the total amount of income and subtracting all discounts and sales and excise tax collected on medical marijuana and medical marijuana products.
-HB 2272
For Grows active use requires that a grower licensee have under cultivation a minimum of fifty marijuana plants per month, calculated on a twelve-month rolling average.
Is this bad for small business?
As the bill is written, potentially, but probably not. $5,000 is not a lot to have in rolling capital. If banks were involved in the financing of this industry, it would most likely be a minimum for any level of loanability as well. For some perspective, according to Marijuana Business Daily, for the first three months of 2020, the average patient spent $184 on medical cannabis products. In May, the average spend was $249, a 35% increase. Even at the low average, a dispensary would only need to see roughly 27 customers throughout the month to hit their target. Overall, this type of regulation is intended to protect longterm market sustainability: That’s good for businesses of all sizes.
I do reserve caution for rural dispensaries. Those business owners have a rightful concern in that they may be shut down because they don’t necessarily need to hit these numbers to be active in supplying medicine for their patients and sustaining themselves as a business—albeit small. In that case, it could certainly be bad for small business and the patients who rely on them for their medicine.
Creating a Voucher Market
The real sticky icky. This is the one really making its rounds and being debated about across the social sphere.
Here’s the short of it: If this bill passes, OMMA applicants will submit an application for a voucher for their sought after category. The application fee will remain $2,500. If your application is approved and you are awarded an mmj business voucher, you will have 15 days to pay $10,000 for that voucher and 60 months (5 years) to convert it to a business license of the same category.
Upon being awarded a medical marijuana business license voucher, the applicant shall pay a voucher fee of Ten Thousand Dollars ($10,000.00), which shall be paid by the applicant within fifteen (15) days of notice of being awarded the voucher.
-HB 2272
$10,000 is a dramatic increase to the barrier for entry and is being criticized by many as prohibitive. Yes, vouchers are good for 5 years, adding up to the same amount it would be to hold a license for that duration, but vouchers are only profitable when they are converted or if they are sold. The way the price has been calculated, paying upfront $2,000 a year over 5 years assumes a voucher recipient would find value in holding one alone for the full 60 month grace period. When you convert a voucher into a license, you will then be paying all license renewal fees, etc. In other words, your forward paid 60 month period, as it's been presented, does not convert with it.
8. Upon conversion of a medical marijuana business license voucher to an active medical marijuana business license, the applicant shall, from the date of said conversion, pay all application, license and license renewal fees as required of any active medical marijuana business licensee in that license category.
-HB 2272
So, in the case a business owner converts their voucher immediately, their baseline license cost increases 100% over 5 years.
The sale of vouchers
It’s like a double edged sword. At its worst potential, this section creates a voucher market where people who have no intention of opening a business acquire vouchers to sell to the highest bidder. At its best, it provides a failsafe if something falls apart within the business structure between the time of acquiring the voucher and opening shop. The main concern in any case: The cost.
5. A medical marijuana business license voucher may be sold or transferred by its registered owner, once in any calendar year, upon application to the Authority and upon payment of a transfer fee of Two Thousand Five Hundred Dollars ($2,500.00) payable to the Oklahoma Medical Marijuana Authority….
6. In addition to the transfer fee provided for in paragraph 5 of this subsection, in the event that a medical marijuana business license voucher is sold or transferred, the purchaser or transferee shall pay to the Oklahoma Tax Commission a purchase fee of Twenty five Thousand Dollars ($25,000.00) per sale or transfer. The purchase fee shall be paid at the time of the sale or transfer.
-HB 2272
Is this bad for small business?
If you’re listening to the small business owners themselves, yes. For many reasons. Some cities have implemented ordinances that require the licensee to pay their municipality the same as the state. In those cases, a $12,500 startup cost would actually be $25,000. If passed unrevised, the dream that Politico once wrote about, “where anyone with a credit card can take a crack at it,” would essentially be dead for many Oklahomans.
With each category already capped, the only way into the market would be buying your way, and at $25,000 to the State plus the asking cost of the coveted voucher, that would make small businesses rely on literal limited windows of opportunity.
Beyond if it’s bad for small business, the necessity for a voucher system is simply unclear and undefined. Vouchers typically act in place of regulation. Regulation, that in this case already exists. Implementing a new application process and supporting voucher redemption adds state processing steps and would focus OMMA resources further away from enforcing existing regulations that speak directly to the legislative concerns surrounding the black market. Creating a voucher market is not the way.
Navigating new regulation
It’s not fun for any industry, but through our collective investment in the process, we can hopefully sustain the long-term viability of a truly free market industry here in Oklahoma.
Remember, none of this has passed and it’s all subject to change. One thing you can do right now is write your representatives. Stay on the wire as new information comes. Spread awareness so others take similar action. The people of Oklahoma voted for and created something that no other state has. Even as it evolves, it’s important we protect the elements that have provided Oklahomans with market equity and allowed for small businesses to succeed.
Know that at Gies Law Firm we are staying with all the changes as the come, and have the industry insight and legal experience to see you through them all. Contact us today if we can represent you in any matter relating to Oklahoma’s medical cannabis program.
