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The Business of Florida Medical Marijuana- Regulatory Structure Affects Profitability

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By MICHAEL PATTERSON

As of March 15, 2019, Florida had over 250,000 patients in the Department of Health Office of Medical Marijuana Use (OMMU) registry approved to use Medical Marijuana (MMJ). These numbers keep increasing 3,000-5,000 patients per week. With marijuana flower ("bud" or plant material) recently being approved to sell at dispensaries, we expect those numbers to climb to 5,000-7,000 patients per week in 2020. With this rapid growth of the industry in Florida, how does Florida compare to other states from a regulatory and business perspective?

Florida MMJ is a vertically integrated licensed industry. The technical name for the license is a Medical Marijuana Treatment Center (MMTC). Vertical integration means that license holders must cultivate, process, transport, and dispense MMJ by themselves. There is no wholesale market. Other states like Colorado, Oklahoma, Pennsylvania, Illinois, Nevada, Oregon, and Washington are horizontal integrated licenses. You must apply or purchase a license to cultivate and/or process cannabis, a separate license to process cannabis (in certain states), a separate license to transport, and a separate license to dispense. (FYI- No license in any state allows you to transport product across state lines because marijuana is still illegal at the federal level)

Florida MMJ patient numbers are increasing faster than any other state- New York State, which has a similar population of Florida, legalized MMJ in 2014 and had approximately 80,000 patients as of 2018, compared to Florida's 250,000 patients. Florida is expected to have half of the medical marijuana patients in the entire country by 2020.

Florida MMJ Industry only has 14 licensed entities. To compare, California recently had over 8,000 licensed cannabis businesses in 2017. Each FL MMTC licensee can open as many stores as they would like after April 2020. This unlimited dispensary per license policy is extremely unique in the United States. There is no other state which has an unlimited dispensaries per license policy. This policy leads to extremely high valuations of licensed companies. Two MMTC licenses were recently sold in November 2018 for $70 million (Harvest Health) and January 2019 for $67 million (Acreage Holdings). Trulieve, Florida's largest MMTC, recently went public on the Canadian Securities exchange (CSE) with a valuation close to $1 billion (upon going public, Trulieve only had business in the state of Florida).

The OMMU has been scheduled to issue more MMTC licenses since October 2017 (potentially up to 10 or more). However, due to litigation these licenses have not been issued. The issue should be resolved in the current Florida Legislative Session which will end in May 2019, and more licenses should be available for application in late 2019. Currently, Florida has approximately 110 licensed MMJ Dispensaries open and operating around the state with 2-3 new dispensaries opening weekly. The average price per month of MMJ is between $150-$250. This price should continue to decline as competition continues to increase.

Where is the Florida market going?

Up, Up, Up! In 2018, the Florida MMJ market generated approximately $250 million in total sales. In 2020, Forbes and the University of South Florida have predicted the FL MMJ Industry to surpass $1.5 BILLION in 2020 in total sales (yes, that is next year) and 140 percent compounded growth by 2024. Cannabis is the fastest growing industry in America, and Florida is one of the fastest growing cannabis states in the US. The reason for the rapid growth is multifold:

  • Licensed MMTCs coming to market with medicine- After each MMTC license is awarded, it can take up to 18 months to bring a consistent MMJ product to market. With almost half of the licensed MMTCs yet to open stores as of 2018, all licensed producers will have stores open in 2019 dramatically increasing access to medicine for more patients.

  • More Physicians participating writing MMJ recommendations- As of March 2019, there were over 2,100 Florida Physicians who have taken the required 2-hour CME on Florida MMJ. However, up until 2018, most MMJ recommendations were coming from approximately 500-750 Physicians across the state. As the MMJ stigma decreases and Physicians can see that no punitive consequences have happened to FL Physicians who recommend MMJ, more and more doctors will begin writing MMJ recommendations. This will bring the price down per Physician recommendation (which currently is between $150-$300 per MD visit).

  • Social stigma continues to decrease- The fasting growing demographic of cannabis users in Florida is residents over 65 years old (the average MMJ user in 2018 was approximately 50 years old). As more and more seniors begin to see the first-hand benefits of MMJ from friends, relatives, and others, they are a lot more willing to consider MMJ as a medicine rather than sticking to the old ideology that marijuana will destroy our society and become the "devil's lettuce."

  • Hemp becoming 100 percent legal in the United States- The 2018 Farm Bill declared hemp as a 100 percent legal crop to grow and use in the United States. Most people know that hemp is used to make many products including rope, clothing, and food. But hemp also has CBD, a cannabinoid which has shown many benefits to health without getting a person euphoric or "high." Marijuana is known for its euphoric effect caused by the cannabinoid THC, but marijuana also has CBD. As the use of Hemp and CBD proliferate rapidly across the USA and the globe in 2019 and 2020, it will continue to decrease the stigma of its cousin, marijuana. This will lead to more acceptance of cannabis as a safe, natural medicine with few minor side effects (hunger, dry mouth) and potential alternative to prescription and opioid medications.

Michael C. Patterson, founder and CEO of U.S. Cannabis Pharmaceutical Research & Development of Melbourne, is a consultant for the development of the medical marijuana industry nationwide and in Florida. He serves as a consultant to Gerson Lehrman Group, New York and helps educate GLG partners on specific investment strategies and public policy regarding Medical Marijuana in the U.S. and Internationally. He can be reached at mpatterson@uscprd.com



 
 
 
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