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Are Ohio’s Delay Putting a “Dark Cloud” Over Ohio’s Medical Marijuana Program?

By: Christopher Nani

Ohio was slated to have a fully functional medical marijuana program by September 8th. The Department of Commerce, The state department in charge of distributing processor licenses, Has delayed announcing the licensees and has decided to take a more methodical approach to award licenses due to issues that occurred when cultivator licenses were awarded.

Litigation and other factor stall the medical marijuana program launch

Ohio’s medical marijuana program has been stalled by litigation, planning issues, and the process of streamlining the multiple agencies tasked with regulating the program.  The greatest delay lies in product availability.  Of the 25 cultivators with licenses, only four have been cleared to grow. One example of this is CannaAscend Alternative, LLC.  The state of Ohio recently revoked OhiGrow LLC’s license because the company hasn’t put forth enough of an effort to start building and growing. 

Both companies holds cultivation licenses but does not have the approval to grow due to struggles with construction delays and meeting the state’s medical marijuana program regulations.  

Medical marijuana could hit the Ohio market by January 2019 

Buckeye Relief is one of the few cultivation companies with a license and state approval to grow. They appear to be the closest to deliver a harvest that will be available to patients in January 2019.  Even with Buckeye Relief on track to bring products to market early next year, there are still concerns that patient demand will not be met.  

Delays impact investors and patients

The delays are impacting everyone from investors to patients.  On the investor front, potential startups are hesitant to partner with Ohio-based medical marijuana companies when they can invest in cannabis projects in more mature markets in neighboring states like Pennsylvania and Michigan.  

From a patient perspective, the delays preventing people from receiving the potentially life-saving medicine.

A spokeswoman for the Ohio Department of Commerce, Stephanie Gostomski cites Companies failing inspections before receiving their licenses as one of the reasons for the delays.

Missing out on millions in revenue

Ohio is expecting to reap millions in revenue from the medical marijuana program. In fact, a report from 2016 predicted a fully functional robust Ohio market to reap in between $200 and $400 million in sales from cannabis. The delays are costing Ohio revenue from the medical marijuana industry. Over the next three months, the state can expect to lose tens of millions of dollars. 

Ohio is looking to see revenues similar to Maryland. According to a report by Marijuana Business Daily, Maryland made close to $100 million in its first full year of medical marijuana. With the three-month delay in the launch of the program, Ohio has already lost a third of its potential sales– which is roughly $33 million dollars. That means on a weekly basis the state is missing out on $2.75 million in medical marijuana sales.

The three-month loss in sales impacts the state and municipalities tax revenues.  While Ohio has yet to determine how it will tax marijuana other states have a base tax rate of between four and 10 percent for medicinal marijuana and local governments typically tack on their own taxes between two and eight percent.

 Aside from the lost profit, the opportunity cost to businesses could take a significant toll on investor interest.

Investors may lose interest 

In Ohio, dispensaries cost roughly $750,000 to 1 million dollars to start. The application process, legal fees, and starting capital requirements all make starting a dispensary a serious endeavor. Many people looking to launch a medical marijuana business in the state search for funding opportunities.  

Funding for marijuana businesses is limited and mostly investor driven.  Due to federal laws prohibiting marijuana sales, cultivation, retail, and use. Because most financial institutions avoid loaning marijuana business money.  Marijuana business entrepreneurs are seeking funding from private sources. 

Normally, loans are single digits and less than five percent. However, because lenders know marijuana businesses have no other source of capital, businesses can face up to 30 percent in interest rates from lenders. 

As the delays continue, loans already given to Ohio medical marijuana businesses may collect interest even though the first product has yet to hit the market. The clock is ticking…..

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