In an unsuspected act, the West Virginia legislature passed Senate Bill 386, Creating the WV Cannabis Act during the 2017 regular legislative session. SB 386 authorizes the sale and use of medicinal marijuana in the state of West Virginia. The bill originally passed the West Virginia Senate and many thought the bill would not be taken up in the West Virginia House. However, in a very unprecedented procedural move, the body of the West Virginia House voted to dispense with the committee reference on the bill and read it a first time. Due to the bill not going through the committee process, the House Judiciary chairman worked on an amendment to the bill that was eventually accepted by both the House and the Senate and signed by the Governor. The amended version of the bill drastically changed the original bill. We have reviewed the bill as passed by both the House and the Senate and can provide a summary of the workings of the bill and some points to think about if you are thinking about entering into this new industry in West Virginia.
The medical cannabis program is administered by the Bureau of Public Health within the West Virginia Department of Health and Human Resources. This means that the governmental agency that is responsible for licensing, enforcing and implementing the sale of medical marijuana in West Virginia is the Bureau of Public Health which is currently headed by Commissioner Dr. Rahul Gupta. The Bureau is tasked with promulgating legislative rules to determine the process for licensing and implementation under the Act. The Bureau currently states that it does not believe that applications for licenses under the Act will be available until the first quarter of 2018. No patient in West Virginia is permitted to be issued a card authorizing them to utilize medical cannabis until July 1, 2019. As a result, the Bureau will have a lot of leg work to do before it can start issuing the permits and licenses necessary to get the industry running. If you are interested in becoming a part of the industry whether it be as a grower, processor or dispensary, it is a good idea to monitor the rule making of the Bureau and provide input on the rules that are being implemented if you believe input is needed.
In addition to the rules which will be promulgated by the Bureau, there are several provisions of the law which may be of interest to those who are thinking about getting into the medical marijuana business. The act provides for three types of permits: 1. Grower 2. Processor and 3. Dispensary. A Grower is an entity that is authorized to grow the medical cannabis. A Processor is an entity which accepts the plant form of the medical cannabis and processes it into the legal form of medical cannabis. A Dispensary is a store that is authorized to sell the legal forms of medical cannabis to patients with a medicinal marijuana card.
Medical Cannabis may only be sold to patients who have received a medical cannabis card from the Bureau who have been certified by a physician as meeting one of the conditions which are considered serious medical conditions. These conditions currently include cancer, HIV positive or positive for AIDs, Amyotrophic lateral sclerosis, parkinson’s disease, MS, damage to the nervous tissue of the spinal cord with objective neurological indication of intractable spasticity, epilepsy, neuropathies, huntington’s disease, chron’s disease, post traumatic stress disorder, intractable seizures, sickle cell anemia, sever chronic or intractable pain or neuropathic origin or severe chronic or intractable pain in which conventional therapeutic intervention and opiate therapy is contraindicated or has proved ineffective as determined as part of continuing care or terminal illness. Medical cannabis cards may not be issued in West Virginia until July 1, 2019 unless the law is changed prior to then. This might be problematic as most states that did not provide for allowing medical cannabis cards well in advance of opening up medical marijuana businesses, such as Maryland, New York and Nevada, experienced difficulties in persuading doctors to recommend medical cannabis cards. This delayed the effectiveness of each state’s medical cannabis program.
If an entity or individual would like to obtain a permit to become a Grower, Processor or Dispensary, it must be organized under the law of West Virginia or be a West Virginia resident. Applicants for permits also must demonstrate that they have the ability to obtain in an expeditious manner sufficient land, buildings and equipment to properly grow, process or dispense medical cannabis. This means that any entity would likely have to identify the property it intends to utilize and have a plan of acquiring the rights to utilize such land. The state will also do a criminal background check on all principals, operators, financial backers or employees of the entity applying for a permit. No employee, financial backer or principal of a Grower, Processor or Dispensary shall have been convicted of any felony criminal offense related to the sale or possession of illegal drugs, narcotics or controlled substances. A waiver of this requirement may be obtained from the Bureau. Accordingly, it is not advisable to have a person who has any felony convictions with regard to drugs be a part of the team applying for a permit. Applications are subject to the Freedom of Information Act. Public officials or their immediate family members, which means the spouse and any dependent children or parents, shall not intentionally or knowingly hold a financial interest in a Grower, Processor or Dispensary or Dispensary or any holding company, affiliate, intermediary or subsidiary or be employed by a Grower, Processor or Dispensary or any holding company, affiliate, intermediary or subsidiary while the public official is a public official and for one year following the termination of the individual’s status as a public official.
In addition, the Grower, Processor and Dispensary permits are not transferrable. Therefore, an exit strategy for businesses in this field would require proper planning to be effective. The Bureau is limited to issuing not more than ten Grower permits with each permit authorizing up to two locations. The Bureau is limited to issuing not more than ten Processor permits. The Bureau is limited to issuing not more than thirty Dispensary permits with no more than five in any of the three regions. Unless this provision is changed in the future, this provision could actually limit the Dispensaries to fifteen total Dispensaries. Each Grower and Processor may only have one permit and may not also be a Dispensary. No current statutory limitation exists for the amount of Dispensary permits an entity may receive. Prior to obtaining a permit, the Bureau must receive written permission from the Board of Health in the county in which the permit is to locate and operate business. Communicating with the local board of health where the proposed facility is located prior to submitting an application to the Bureau is advisable. Based on a neighboring state where 500 applications were received for 39 Grower and Dispensary permits, competition for Grower, Processor and Dispensary permits in West Virginia should be very high.
Growers and Processors may only grow, store, harvest or process medical cannabis in an indoor, enclosed, secure facility within West Virginia. Growers, Processors and Dispensaries must have facilities that are secure, have surveillance directly accessible to the Bureau and have a tracking system that can track all medical cannabis possessed by each entity. Growers and Processors must also contract with an independent laboratory test medical cannabis at the time of harvest and a test at final processing. Quarterly reports are also required to be submitted to the Bureau. As a result, the cost of adequate security, tracking, testing and reporting should be carefully examined when determining the capital needs of a business. Dispensaries may not operate on the same site as a Grower or Processor and may only dispense with a 30 day supply of medical cannabis until a patient has exhausted all but a seven-day supply of medical cannabis. Dispensaries must also have a physician or pharmacist present at the Dispensary during all times the Dispensary is open and a physician is prohibited from issuing a certification at the Dispensary.
Counties and municipalities may pass ordinances that prohibit the location of Growers, Processors or Dispensaries within the boundaries of the county or municipality. In addition, the municipality may pass an ordinance that limits the place, manner and manner of operation of any Grower, Processor or Dispensary. It is important to ensure that the location of the business will not be threatened by one of these ordinances. The price of medical cannabis is also subject to a potential price cap of the Bureau, if it determines that the price of medical cannabis is unreasonable or excessive. The price cap can be implemented for six month periods. Growers, Processors and Dispensaries must meet the same zoning requirements as other manufacturing, processing and production facilities located in the same zoning district.
Growers and Processors are subject to a gross receipts tax of ten percent. This means that each Grower and Processor must remit quarterly to the state ten percent of the total revenue each Grower and Processor receives. It is important to note that this is on the gross revenue and expenses will not limit the amount of taxes that are remitted to the State. The gross receipts tax is not permitted to be passed on to the dispensary as a line item or separate charge on any invoice, receipt or sales slip. Dispensary sales of medical cannabis to patients or caregivers are not subject to a sales tax. The ten percent gross receipts tax should be taken into account when determining the business model for Growers and Processors.
We hope this summary of information contained within Senate Bill 386 is helpful in guiding you in your decisions with regard to how to structure businesses and businesses plans in the medical cannabis industry in West Virginia. The law requires many steps are taken that will affect the cost and ability of those businesses to operate in West Virginia. In order to have a successful application and ultimate business, it is important to structure your business in a way that will provide the flexibility necessary to comply with the statute, whether it be by acquiring the property rights or evaluating the cost of compliance. In addition, the Bureau is also in the process of promulgating rules that will also have an impact on the cost of setting up and running a successful business. If you are serious about starting a business, you may want to actively engage the Bureau in their procurement of the rules which may have a serious impact on costs of doing business. White Law Offices will be glad to talk to you about any legal needs or any desire to become active in the rule making process or legislative process. Please contact us at 304-720-1400 with any questions or email us at [email protected].