Ohio Department of Commerce Proposes Cultivator Rules: The Highlights

Earlier this month, the Ohio Department of Commerce issued proposed rules for Ohio cultivators. The proposal was met with significant opposition, not the least of which was the low number of licenses the Department proposed awarding. There is an opportunity for public comment, as outlined below:

• The initial public comment period ended on November 15 — this was the first opportunity for Ohio citizens to comment on the substance of the proposed cultivator rules.
• The Ohio Medical Marijuana Control Program is required to prepare a Business Impact Analysis and submit the analysis to the Common Sense Initiative office. The public will have an additional opportunity to offer input on the rules at this time.
• The Ohio Medical Marijuana Control Program will hold a public hearing between 30-41 days after the rules have been filed with Joint Committee on Agency Rule Review, which cannot happen until the Common Sense Initiative has provided input on the proposed rules. Public testimony will be accepted at this hearing.
• Finally, the Joint Committee on Agency Rule Review will hold a public hearing addressing a limited number of issues that are within the jurisdiction of the Committee:
  • Do the rules exceed the agency’s statutory authority;
  • Do the rules conflict with an existing rule of that agency or another state agency;
  • Do the rules conflict with legislative intent;
  • Has the rule-making agency prepared a complete and accurate rule summary and fiscal analysis of the proposed rule, amendment, or rescission (ORC 127.18);
  • Has the rule-making agency met the incorporation by reference standards for a text or other material as stated in ORC sections 121.72, 121.75, or 121.76; and
  • If the rule has an adverse impact on business (ORC 107.52), that the rule-making agency has demonstrated through the business impact analysis (BIA), the Common Sense Initiative Office (CSI) recommendations and the agency’s memorandum of response to the CSI recommendations, that the rule’s regulatory intent justifies its adverse impact on business.

The Department’s proposed rules for Ohio medical marijuana cultivators will significantly affect the supply of medical marijuana in Ohio, as well as the operation of the industry more generally. Below are some highlights (no pun intended) of what the Department has proposed:

• The Department will issue two tiers of cultivator licenses — 12 Level I licenses capped at 15,000 square feet of marijuana cultivation area, and 6 Level II licenses capped at 1,600 square feet of marijuana cultivation area.
• Flowering marijuana cannot constitute more than 75% of the marijuana cultivation area.
• Various felony offenses (for instance, drug offenses under R.C. 2925) will automatically disqualify interested applicants from obtaining medical marijuana licenses, although the Department may grant a hearing to allow applicants with only misdemeanor versions of those offenses to obtain a license.
• The Department defines (but provides no substantive regulations for) “plant only processors,” which the Department defines as cultivators that have “received a license . . . for the limited purpose of packaging, selling, and delivering finished plant material directly to a licensed dispensary for sale to a patient or caregiver.
• H.B. 523 allows for Ohio patients to purchase plant material from dispensaries, and the Department proposes defining “plant material” as “the leaves, stems, buds and flowers of the marijuana plant, [not including] seedlings, seeds, clones, stalks, or roots of the plant or the weight of any non-marijuana ingredients combined with marijuana.”
• Licenses will be split among various designated territories within Ohio, although the Department does not identify what those territories will be.
• Ohio medical marijuana cultivator license applicants will have to submit applications that include a business plan, an operations plan, a quality assurance plan, a security plan, and a financial plan.
• Ohio will charge a nonrefundable $20,000 fee to apply for a Level I cultivator license, and a $2,000 nonrefundable fee to apply for a Level II cultivator license.
• The Department of Commerce will issue provisional licenses to successful applicants, and then the applicant will have 9 months to execute the plans included in their applications. If the applicant can successfully do so, then a “certificate of operation” will be awarded.
• During the application process, an applicant must demonstrate that real estate is either leased or owned, or that the applicant has the ability to lease or purchase the property where the cultivation facility will be located.
• Applicants for Level I cultivator licenses will have to show liquid capital in the amount of $500,000, while applicants for Level II cultivator licenses will have to show liquid capital in the amout of $50,000. This means that the applicant will have the ability to liquidate that mount of money within 30 days.
• Level I cultivator applicants must have either $2 million in escrow or a $2 million surety bond. Level II cultivator applicants must have either $200,000 in escrow or a $200,000 surety bond.
• Provisional cultivator licenses are nontransferable, and ownership changes of operating cultivators are subject to approval by the Department.
• Cultivators must annually renew their certificates of operation. Level I cultivators must pay an annual renewal fee of $200,000, while Level II cultivators must pay an annual renewal fee of $20,000.

These rules are not yet finalized, and this list does not include all of the rules proposed by the Department. There remains an opportunity for public input, and if you are considering applying for an Ohio medical marijuana cultivator license it makes a lot of sense to get involved in the public comment process. The State needs to hear from concerned entrepreneurs and cannabis professionals so that Ohio has a functioning medical marijuana market by the target operational date of September 2018.