Spurred by Commissioner Kay Doyle, the Cannabis Control Commission has solicited public comments on whether it should dismantle the vertical integration model for Marijuana Treatment Centers in the Commonwealth. In a formal public notice dated August 11, 2020, the Commission explains that it will be considering whether to allow vertically-integrated MTCs to, subject to existing licensing caps, apply for certain adult-use endorsements, including cultivation, marijuana product manufacturing, or retail endorsements, which are not available to MTCs under the current regulatory scheme. The animating purpose of this "endorsement" concept would to level the playing between medical and adult-use licensees in response to presages from MTCs that they may abandon their medical operations because MTC economics do not "justify the high costs associated with the vertically-integrated license structure."
Appended to the formal public notice was an April memorandum from Commissioner Doyle to the Commission's internal working group on proposed regulatory changes. Notably, the internal memo looked outside of the borders of the Commonwealth and included a survey of various state policies on vertical integration in the medical marijuana industry. According to the survey, Massachusetts and Colorado are the only two states that mandate vertical integration within their respective medical marijuana industries while permitting non-integrated adult-use marketplaces. Similarly, 10 other states require vertical integration in both medical and adult use markets. Conversely, 17 states permit, but do not mandate vertical integration in their respective medical marijuana industries. These divergent approaches to vertical integration suggest there is no clear consensus on how to structure and regulate medical marijuana marketplaces.
Perhaps in light of the inconsistent approaches, the memorandum posits two different options for unwinding the Commonwealth's vertical integration mandate for MTCs. Option one would defer to the legislature to lift the "awkward statutory cap" on MTCs. Although this would certainly be the most straightforward approach, the legislature's preoccupation with the COVID-19 public health emergency and other timing considerations bear against the adoption of option one. As the memorandum explains, "the high costs associated with a vertically integrated business create a high barrier to entry and are likely a significant contributing factor to the lack of diversity in the leadership of medical marijuana treatment centers, [therefore] a delay in addressing the issue contributes to continuing inequity in the marijuana industry."
Option two could be implemented more expeditiously. Rather waiting for the gears of legislative action to slowly turn, the Commission could immediately proceed with a regulatory solution that respects the existing statutory cap of three MTCs per entity, but stratifies the authorization of different parts of the MTC operations into specific endorsements. In essence, option two would be an end run around the stifling statutory cap on MTCs. But, because of the obvious benefits of swift action, including, most critically, preserving access for medical patients in the Commonwealth, the regulatory working group has identified option two as the more desirable pathway.
In September, the Commission will vote on all of the recently proposed regulatory changes.
Originally published by Foley Hoag, August 2020
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