California, Colorado, and Washington have long been championed as destinations to participate in the green gold rush. But as a recent story in NM Political Report shows, New Mexico—a state whose medical marijuana entities are supposed to be structured as nonprofits—is figuring out a way to carve out a larger piece of the medical marijuana potpie. And that has patients and activists worried.
New Mexico’s law is clear: To be a medical marijuana entity in the state, you must be a state resident. People residing outside the state, or outside the country for that matter, are prohibited from being involved in what is supposed to be a nonprofit business.
But the recent acquisition of 51 percent of Santa Fe’s Sacred Garden dispensary by Canadian-based Nutritional High has brought more nuanced issues to light. “We don’t need the money that comes in the program going out of state, let alone out of the country,” Tim Scott, president of New Mexico Cannabis Patients Alliance, told New Mexico Political Report. While some states like New Mexico do have residency requirements to own a dispensary, no state bans foreigners outright.
Superficially, that might sound at once both incredibly patriotic and stereotypically American. The story in NM Political Report highlights fears of foreign investments in the medical marijuana industry, and fears of corporate consolidation and displacement of poor patients. Many of these concerns—especially of corporate influence and low-income patient displacement—are concerns shared by medical marijuana activists nationwide, from Massachusetts to Oregon, yet there is no tracking or compilation of data that illustrates how widespread corporate or foreign investment is. It is well-known that a huge amount of investment comes to the medi-pot industry via private channels, because that’s the only way to get the capital. It’s not like you can go to the Small Business Association to get a loan for start-up or expansion costs.
So what’s a struggling nonprofit supposed to do? Though the dispensaries are technically nonprofit, the federal government’s continued insistence that marijuana is a dangerous drug with no medicinal value and a high propensity for abuse keeps those nonprofits from exercising the greatest benefits to being a nonprofit. Especially, being tax-exempt.
Add start-up costs to that, which in the pot industry can be steep, along with licensing fees, and there can be hundreds of thousands of dollars out of pocket before even a penny comes in.
“Because of that, there are producers looking for alternative access to capital for putting production facilities together,” says Joel White, vice president of New Mexico Cannabis Patients Alliance. “I understand the issue with trying to raise capital. It is difficult.” What some of the producers are doing is setting up a for-profit management company that runs the nonprofit. That is the entity that can be sold, or allocated to a foreign entity, whether it’s a company in another state or another country, like Canada.
It’s also the entity that can make the money.
“Anytime someone is looking to increase quarterly profits and yield, you expand production and you cut costs,” White continues. In the medical marijuana industry that can include using sub-standard ingredients, and lower-cost and unskilled labor—which often results in inferior products. He says that’s already happened in New Mexico, where there have been sub-par producers whose medical marijuana products are contaminated or moldy, or have unreliable potency. This is especially problematic for sick patients, many of whom have compromised immune systems.
“Getting the profit motive in there can create a problem,” White says. “You have to count on the honor and decency of people, and as much as I’d like to do that, it doesn’t work out well when there is a potential to make significant amounts of money. I have concern about people trying to insert or opening themselves up to alternative capital sources, strictly driven by profit. It could have some adverse effects to care and compassion.” White points out the state’s medical marijuana law is called the Lynn and Erin Compassionate Use Act. Profit motives, he says, can eliminate the “compassion.”
Taylor West, deputy director of the National Cannabis Industry Association, says that the cannabis industry is evolving very rapidly. The way she sees it, “it’s a tricky industry, because of the huge amounts of regulations, and the different regulations from state to state. There’s a lot of red tape that has to be dealt with. The people who are most interested in, and successful in, investing are the ones most informed about the structure of the industry and willing to work in those confines.”
West says there’s a tremendous amount of opportunity in cannabis, but also a tremendous amount of risk, especially given it’s status at the federal level. As such, “It’s not easy to project how long it’ll take to turn a profit…It’s a series of complications at the regulatory level, and the business owners and investors end up carrying the burden of that.”
As the situation in New Mexico bubbles, and other states grapple with their own regulatory frameworks (Illinois was supposed to have dispensaries open at the end of last year; Massachusetts, two years ago; Neither state has any at this time), everyone is wrestling with the question of what the industry is going to look like as it becomes a broader business, says West. “I don’t think anyone knows right now how it’s going to play out.” She says Colorado’s system seems to address many concerns by keeping medical marijuana separate from recreational and not subject the same taxation levels. “You’re able to access your medicine at a lower price as a patient.”
Now that Washington state has a regulated adult use system, West says “there’s a lot of debate about how to fold the medical into that. It remains to be seen how it plays out. This push and pull about outside investment and money is part of a larger debate and process.”
In an ideal world, she continues, “we would see a system that makes medicine accessible to anyone who can benefit from it. And there are certainly activists committed to that. At the same time, the influx of business and the normalization of cannabis as a business industry has allowed more expansion of access to cannabis, new products, new technology, and those are good things. The industry over all has benefited from the influx of people with money they want to use in a smart way, and that has benefited the perception of it as well.”
“It’s something that as an industry we have to work consistently on balancing. Not having to rely on friends and family [for medical marijuana] is a good thing. This has started and should always be considered as having a mission to serve patients and grow into an industry that is responsible and sustainable, and not just about making money.”