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Cannabis industry gears up for potential gold rush

If a ballot initiative succeeds next year, Floridians won’t need a medical card to buy cannabis, and legalization of the weed would be a business bonanza. But risks abound.

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By Brian Hartz

8:00 a.m. March 29, 2023

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Key takeaway: Momentum is building to legalize adult, non-medical use of cannabis in Florida, with a ballot initiative well on its way to becoming a factor in the 2024 general election. Legalization could lead to a business bonanza as the Sunshine State, with only a medical marijuana program currently, is already the nation’s third-largest cannabis market.

Core challenge: Gov. Ron DeSantis has not made cannabis use one of his culture-war issues, but his administration has drastically raised the cost of new licenses and license renewals. Also, all forms of cannabis use remain illegal at the federal level, causing financial and regulatory headaches for the industry.

What’s next: Spearheaded by a political action committee dubbed Smart & Safe Florida, the petition for the 2024 ballot initiative has collected more than half of the required 891,589 signatures. Medical cannabis giant Trulieve, one of the first operators to enter the Florida market, has donated $30 million to the cause.Two years from now, Florida might be among the rapidly growing number of states that allow adult, non-medical use of cannabis.

As of March 3, more than 420,000 Floridians had signed a petition in support of the Florida Marijuana Legalization Initiative, which would appear on the 2024 general election ballot and allow voters to decide whether the state constitution should be amended to allow for full legalization of cannabis use and sales.

Led by Smart & Safe Florida, a $30 million political action committee funded mostly by medical cannabis giant Trulieve, petitioners are more than halfway to their goal of 891,589 signatures, making it likely the fate of adult recreational cannabis use will be decided on Nov. 5, 2024. If challenged in court, the Florida Supreme Court could rule against it, of course, but proponents believe the ballot initiative is worded in such a way that it will pass muster, legally. Other initiatives for recreational marijuana, in 2019 and 2021, didn't make it to election day. “I think if it gets on the ballot, it does pass,” says Brady Cobb, CEO of Sunburn Cannabis and son of the late Bill Cobb, one of Florida’s most notorious marijuana smugglers. “The polling has been relatively consistent in that in that respect. Getting it on the ballot has always been the stumbling block. But I think of all the amendments thus far, this one has the best chance to do it, based on how it's drafted.”

Florida has had a successful medical cannabis program since 2017 — at least based on usage and growth metrics. More than 800,000 Floridians have obtained a medical marijuana card, and the state has 2,540 qualified physicians and 546 approved medical marijuana treatment centers (MMTCs) or dispensaries, as they’re more commonly known, according to data from the Florida Department of Health's Office of Medical Marijuana Use.

The nascent industry has been a boon for Florida’s coffers, generating $73.8 million in tax revenue in 2020 alone, in addition to more than $50 million in license fees.

Even without a non-medical program, Florida’s cannabis industry is now the third-largest in the nation, according to Leafly, a company that specializes in cannabis news and education. Many who work in the industry believe that, given its already fast-growing population and popularity with tourists, it could easily be No. 1 if the ballot initiative passes. John Sullivan, executive vice president of government affairs at Cresco Labs.Courtesy photo Two years after approving non-medical adult use of cannabis, “Illinois collected more tax revenue than alcohol,” says John Sullivan, an attorney and executive vice president of government affairs at Cresco Labs, a Chicago-based company that owns and operates 27 dispensaries in Florida, including five in the Tampa Bay region. “We're seeing that in state after state. It’s a boon for state economies. You look at job creation — Illinois is up to 30,000 jobs in cannabis right now. You'll see a huge amount of job growth.” Follow the money

Tallahassee-based Trulieve, publicly traded on the Canadian Securities Exchange, has donated $30 million to Smart & Safe Florida, a political action committee behind a proposed 2024 statewide ballot initiative that would allow for full legalization of cannabis use and sales. Trulieve donated $5 million six separate times to the PAC between Aug. 9, 2022, and Feb. 7, according to a Florida Department of State Division of Elections database. (The donations are connected to a Trulieve address in Clearwater.)

Trulieve posted $1.2 billion in revenue in 2022, up 32% over 2021, according to its most recent earnings report. It had gross profit of $682 million and a gross margin of 55% in 2022. Indeed, in 2020, when Florida employers shed hundreds of thousands of jobs at the height of the pandemic, the medical cannabis industry hired some 15,000 people.

According to a 2021 report by New Frontier, which produces studies and industry reports covering a variety of cannabis industry topics worldwide, if Florida were to legalize recreational adult cannabis use, the industry’s annual revenue could reach $1.6 billion by 2025. That would generate up to $305.4 million in state tax revenue — based on a 10% excise tax, a 6% sales tax and a 1.5% local tax on cannabis sales.

“It’s certainly a win for business,” Sullivan says, “but it's a bigger win for the state.” November 2024 might seem far off, but several presidential campaigns are already underway or — in the case of Gov. Ron DeSantis — are all but certain to launch soon. What should current medical cannabis license holders, and those who aim to break into the industry, do now so they’re well positioned to get a piece of the lucrative adult-use pie? What can be done to mitigate risk? Sunnyside, owned by Chicago-based Cresco Labs, operates 27 dispensaries throughout Florida

Despite marijuana being illegal at the federal level, a cottage industry of cannabis-related professional services has sprung up in Florida. Some enterprising banks, law firms and even a fintech company are helping marijuana businesses navigate regulatory complexities and establish a solid footing from which to grow. “At some point, we're going to move forward in Florida with recreational cannabis, but who knows what will happen at the federal level?” says Chris Hartman, Cogent Bank’s cannabis banking expert and chief deposit officer. Red, White, Blue & Green

An overwhelmingly majority of U.S. adults support legalization of cannabis for medical use, recreational use, or both, according to a November 2022 Pew Research poll. Some 59% of respondents say recreational and medical use should be legal, while 30% say medical use only should be legal. Only about 10% say all forms of marijuana use should be illegal. The politics of pot are also rapidly shifting. According to Pew, “45% of Republicans and Republican-leaning independents favor legalizing marijuana for both medical and recreational use, while an additional 39% say it should only be legal for medical use.” Also, Pew says, “About four in 10 conservative Republicans (37%) say marijuana should be legal for medical and recreational use, compared with a 60% majority of moderate and liberal Republicans.”Headquartered in Orlando, Cogent Bank has branches in several Gulf Coast cities, including Clearwater, Fort Myers, Naples and Tampa. It offers basic banking services for cannabis companies but cannot issue credit cards, because of restrictions imposed by Visa and MasterCard. The bank has, however, financed the construction of cultivation and processing facilities, and it’s loaned money for commercial real estate deals that involve shopping centers and strip malls with tenants that include medical cannabis dispensaries. “We are seeing a great deal of interest,” Hartman adds, saying the state is expected to begin accepting applications for new medical cannabis licenses later this year. At present, Florida has granted 22 licenses but that number could double if the Department of Health follows through on an expansion plan announced in December. One big obstacle: the cost to renew a license is set to rise drastically, from $60,000 to $1 million, while the fee for a new license will increase from $60,000 to $146,000. Rent is Due While more service providers than ever before are willing to work with cannabis companies, that doesn’t mean it’s all a smooth roll. Dustin Robinson, owner and operator of Mr. Cannabis Law, a law firm with offices in Fort Lauderdale and New York, says commercial real estate landlords should tread carefully when leasing space to cannabis companies. Dustin Robinson, owner and operator of Mr. Cannabis Law in Fort Lauderdale.Courtesy photo “Most mortgages basically have language that says if you operate an illegal business [on the property], you’re in default of the mortgage,” he says. “So, if a landlord has that type of mortgage on their property, and they lease to a cannabis company, they risk being foreclosed upon. As a result, trying to help secure real estate that doesn't have a mortgage on it like that tends to be very complicated. There’s a low supply of landlords who own their property outright or have a mortgage on it that doesn't have that type of clause.”

Robinson says landlords will use risk factor as an excuse to charge higher lease rates for cannabis companies — one of dozens of challenges facing the industry as it tries to prepare for the possibility of adult use being legalized. However, there are ways to avoid such pitfalls, and they begin and end with a key term: disclosure. “If you're a cannabis company and you're entering into a lease,” Robinson says, “you want to have some language in there to the landlord, just letting them know that your business is federally illegal and that they need to check their mortgage. It’s all about disclosure.” In addition to specialty law firms such as Robinson’s, fintech companies that cater to the cannabis sector are popping up. Bonita Springs-based Green Check Verified, for example, serves both cannabis businesses and the service providers, such as banks, those companies rely on — in fact, one of its clients is Cogent Bank. Paul Dunford, Green Check Verified’s co-founder and vice president of knowledge.Courtesy photo Paul Dunford, Green Check Verified’s co-founder and vice president of knowledge, describes the company’s platform as a “compliance rules engine.” It’s capable of monitoring dispensary transactions to ensure that they comply with local and state regulations. That's more important than it might sound, because most of the cannabis companies in Florida are multistate operators that do business in other parts of the country. “You have to be able to demonstrate that every dollar is the result a legal sale,” he says. Dunford says the company’s platform has been met with open arms, because most banks either didn’t have the knowledge or were too risk averse to develop banking products and services for cannabis companies. “Cannabis is something people in banks and credit unions have been told for their entire careers that they can't touch — in fact, they have to keep it out,” he says. “So, there’s been a huge shift that we had to effect in the industry, to say, ‘Yes, you can do this; you're not going to lose your charter; other folks are doing it.’ So, we also have a consulting piece of the business, which involves working with financial institutions to literally build out their [cannabis banking] programs from scratch.” Green Check Verified’s financial success is indicative of the gap it’s helped fill in the marketplace. The company recently closed a $6 million Series A funding round led by Mendon Venture Partners, a venture capital investment firm focused on the intersection of innovative technology and banks, and it ended 2022 with 87% revenue growth, 55% growth in financial institution clients and 261% growth in number of cannabis businesses served. Florida Freedom The Bellamy Brothers, a Pasco County-based global country music duo, have played a key role behind the scenes in the move to legalize recreational marijuana in Florida. One half of the act, David Bellamy, for example, is the chairperson of Smart & Safe Florida, the political action committee behind the initiative, Florida campaign records show. In addition, according to a 2022 story from the News Service of Florida, the duo previously joined forces with medical marijuana company Trulieve on a line of cannabis products. (Trulieve has donated $30 million to Smart & Safe Florida.)The act made their musical debut in 1968 in San Antonio, Pasco County, at the Rattlesnake Roundup, and are now based on a 150-acre ranch in Darby, Pasco County, when not touring, according to their website. The brothers, in an email response to questions from News Service last year, said “as we travel the country, we see the benefits of adult use and as Florida residents we love the ‘freedom state’ moniker and believe that Florida needs to join the millions of Americans whose adults are free to use cannabis without fear of being incarcerated.”The influx of capital has emboldened Green Check Verified, which already works with 130 financial institutions and more than 4,000 cannabis-related companies, to expand its business: It recently launched Green Check Connect, a marketplace that connects cannabis companies to reputable service providers. “We’re pulling in marketplace providers that are willing to work with the industry, such as lenders, payroll companies, HR companies — pretty much any financial service a cannabis business could need,” Dunford says. Lindsay Larson, Cogent Bank’s Bank Secrecy Act and anti-money-laundering compliance officer, says services such as Green Check Verified and Green Check Connect are welcome additions to the cannabis industry because of how much those entities can help mitigate risks to both cannabis companies and the firms that do business with them. “There are stories out there about banks whose cannabis program was shut down for not having the right anti-money-laundering tools in place,” she says. “That’s one of the reasons why at Cogent we’re conservative and vet our clients. We wouldn’t take on the risk of any group that didn’t intend to follow the law, because one tarnish and you’re done as a bank or a marijuana-related business.” The interiors of Sunburn Cannabis dispensaries are designed to be bright, welcoming, fun and high-tech

Dunford, with Green Check Verified, says legalization of adult, non-medical cannabis use would not only be a lucrative opportunity for current cannabis companies in Florida, It would also potentially allow entrepreneurs and small- and medium-sized businesses to gain a foothold in the industry, he says.

That’s because the state, in issuing more licenses, could also make licenses available for companies that want to specialize in, say, secure transportation and delivery of cannabis. Such a development would, in turn, significantly lower the barrier to entry, because at present, only companies that are vertically integrated — meaning those businesses cultivate, process and sell cannabis, from seed to shelf — are eligible to be licensed by the state. “Florida has been marked by the presence and dominance of multi-state operators,” Dunford says, referring to companies such as Cresco Labs that are headquartered in another part of the country and have the financial muscle to meet the incredibly high cost of establishing a comprehensive cannabis operation. “Vertical integration usually doesn't exist in adult use programs … there are so many people and providers involved.”

Industry fragmentation would almost certainly bring down the astronomical cost of cannabis licenses, says Mr. Cannabis Law's Robinson — who adds he’s helped facilitate license transactions that have ranged from $28 million to $65 million.

“Just to submit your application, it’s $146,000,” he says.

“You’re going to spend at least $250,000 to $500,000 on legal fees and application drafting, then you’ve got to enter into leases, get the property, build the team, do site plans … it’s a very, very expensive endeavor.”

A lot could change between now and November 2024, but it’s notable that, so far, there’s no formal, organized opposition to the pro-cannabis ballot initiative, and DeSantis — possibly in a savvy reading of national political tea leaves, but also in a nod to how successful Florida’s medical cannabis program has been — has not made marijuana one of his culture-war issues. “Cannabis polls extremely well, nationally,” says Sullivan, with Cresco Labs. “The tide has certainly shifted, and if I were running for president, I would certainly be pro-cannabis legalization at this point. The numbers are just undeniable, even from a Republican primary voter perspective.”


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