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Speaker: Regulations for legal marijuana framework complex

As an industry, medical marijuana has become a permanent fixture in Ohio, but its economics are complex and creating a regulatory framework for it has been a long journey through some unexplored territory.

Mark Hamlin was put in charge of helping create that framework for the Ohio Department of Commerce two years ago, and he spoke to a meeting of the Economic Roundtable of the Ohio Valley in at the Marietta Country Club Wednesday about the business side of the new industry.

“It’s not often in government that you have the opportunity to create a new program around a new industry, and even less often to create a legal framework around something that was previously illegal,” he said. “That makes for some challenging conversations.”

A ballot initiative in 2015 to legalize marijuana that failed provided much of the impetus for the state legislature to act, Hamlin said. Lawmakers preferred to take the initiative in crafting legislation rather than risking another ballot initiative that might succeed, he said, and he began working on regulations for the Department of Commerce the year after that.

The commerce department regulates the cultivation, processing and laboratory testing of medical marijuana products, he said. Other aspects of the industry are controlled by the state board of pharmacy – dispensing and patient registries – and the state medical board, which controls physician licensing.

Hamlin described the laws as a broad framework of legislation, with the details left to the regulatory agencies.

“One thing I’ve learned is that there are no easy decisions,” he said. “Marijuana is a high-profile, controversial industry. All the businesses are licensed, there are competitive applications, there is a lot of scrutiny, not everyone who applied was licensed – 24 of 185 cultivators were successful in their applications – and there is a lot of litigation. We had to make some tough calls. We really had to stick to the guiding principles.”

Those principles are: patient centered and safe; responsive, data-driven and transparent; flexible, scalable and sustainable; characterized by consistency, integrity and collaboration across one program.

Although much of the attention has been focused on short-term concerns, such as when the product will become available for purchase, he said, the department’s goal has been the long-term health of the industry.

“This industry will be around forever. So we need to know how we’re going to work with stakeholders and patients. When this becomes just another boring regulatory program, that’s the goal,” he said. “But it’s getting a lot of attention now, there’s a lot of money looking to get invested in this space.”

Regulations are devised to prevent “diversion” – putting legally grown pot into the black market – and cover “seed to sale” inventory reporting and auditing, along with strict control over transportation that includes requiring the product to be locked in a safe and law enforcement authorities to be notified of transportation routes and times, he said.

The dispensaries will also be under strict rules, requiring security provisions to protect customers and a security camera system that authorities can view at any time.

“There’s a lot of cash in this industry, in part because it’s not covered by insurance, so we’re concerned with how to make sure people are safe in the dispensary. That’s a big part of licensing evaluation,” he said.

And like other new industries, it will bring jobs, investment and tax revenue, he said. Hocking Technical College in Nelsonville, he noted, is devising a medical marijuana technician program as part of its curriculum.

Some of the challenges involve the ambiguous legal status of marijuana, which despite its legalization at various levels in 32 states is still a Schedule 1 narcotic under federal law. That complicates matters for bankers, he said, which operate under federal regulations.

“Banking is one of the huge issues,” he said. “There is a lot of risk and regulatory compliance involved. The Treasury Department has said it won’t enforce the applicable laws against financial institutions (who act as bankers for legal enterprises) but there is still a risk level. There are a lot of pressures pushing against banking in this space.”

Although the feds are operating in a somewhat gray area in most respects, one agency that is pretty black-and-white is the Internal Revenue Service, which Hamlin said doesn’t particularly care how your money is made as long as you declare the income and pay taxes on it. Ohio will have no specific tax on marijuana but will collect sales tax revenue on it, he said. Additionally, the industry is subject to substantial fees, which help operate the regulatory agencies.

A cultivation license is an annually renewable cost of $200,000, a dispensary license is $70,000 renewable every two years and a processing license is $100,000, renewable annually.

Pricing of the product, he said, will not be regulated. The state’s 56 dispensaries are geographically distributed and to some extent subject to market demand in pricing their products.

“Once the industry is stood up, it will be accessible to everyone, and the market should regulate itself,” he said. “And, speaking candidly, if nothing else it will also be regulated by the black market.”

After the session ended, Hamlin said it is difficult to say what the total economic value of the industry will be – the pricing and demand are unknown at this point – but major players in other industries, ranging from Scott’s Lawn Care to Coca-Cola, are positioning themselves for investment.

Greg Delemeester, representing the economic roundtable, said the organization is recruiting members and has several further events planned, including a talk by Paul Worstell, retired president of Pro-Tec Coatings, who will be speaking on multinational business partnerships in February. In March, Mark Schweitzer, senior vice president of the Federal Reserve Bank of Cleveland, will talk about the economic forecast for the Heartland, and in April Mary Korn, chief operating officer of trisk.com, is scheduled to speak on blockchain applications.

Delemeester, who also is the Milton Friedman Chair in Economics at Marietta College, can be contacted at 740-376-4630. Further information on the roundtable is available at economicroundtable.org.

Medical marijuana in Ohio, the economics

•Three Ohio government agencies involved.

•Seventeen employees in state Department of Commerce.

•Strictly regulated industry.

•Issues include conflicts with federal law.

•Flexibility built into legislative framework, including provisions for more licenses, additional qualifying conditions for patients, additional forms of approved marijuana.

Source: Mark Hamlin.

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