Some of Florida's Regulatory Restrictions on Cannabis Industry Could Soon Be a Thing of the PastOn January 17, 2018, Florida’s new governor, Ron DeSantis, delivered news that could supercharge the growth of Florida’s medical-cannabis industry. Governor DeSantis indicated he may drop the State’s appeal from a trial court’s ruling that the statutory cap on the number of licenses for “medical marijuana treatment centers” (MMTCs), and the requirement that MMTCs be vertically-integrated companies that cultivate, process, and dispense cannabis, violate the medical-cannabis amendment to Florida’s Constitution. Further, Governor DeSantis asked the Florida Legislature to remove the statutory ban on smoking medical cannabis, and stated he would drop the State’s appeal from another ruling that the ban was unconstitutional absent legislative action.

Eliminating these restrictive licensing requirements would allow new companies to enter Florida’s medical-cannabis market, and eliminating the smoking ban would allow MMTCs to cultivate and sell a new product. Both changes to Florida law would provide additional opportunities for cannabis companies and the financial institutions that provide services to them.

The Tension Between Florida’s Constitutional Amendment and the Implementing Statute

Florida’s cannabis regime is grounded in a voter-approved amendment to Florida’s Constitution (Amendment). The Amendment authorizes licensed physicians to prescribe cannabis to patients with certain medical conditions, who can then purchase cannabis from licensed MMTCs. The Amendment charges Florida’s Department of Health with implementing regulations regarding the “[p]rocedures for registration of MMTCs,” but is silent regarding the number of MMTCs that can operate in the state. However, the Amendment requires that the Department of Health’s regulations “ensure the availability and safe use of medical marijuana by qualifying patients.”

Following the Amendment, the Florida Legislature enacted Florida Statute 381.986 (Statute), which provides a host of restrictions on how medical cannabis is cultivated, dispensed, prescribed, and consumed, including a ban on smoking cannabis. The Statute initially provided for 10 MMTC licenses, and requires that four additional licenses be issued each time 100,000 additional patients are added to Florida’s medical marijuana use registry. There are 14 MMTCs currently operating in Florida.

Florigrown, LLC v. Florida Dept. of Health

Florigrown, LLC, a company seeking an MMTC license, filed suit in December 2017, contending that the Statute’s licensing requirements were unconstitutional under the Amendment. Florigrown first moved for a temporary injunction on April 30, 2018, seeking to enjoin the Department of Health from registering MMTCs pursuant to the “blatantly unconstitutional” Statute, and requiring that the Department register MMTCs in accordance with the Amendment’s “plain language,” which, according to Florigrown, did not allow the licensing cap or the vertical-integration requirement found in the Statute.

While the court initially denied the motion, it found that Florigrown had a substantial likelihood of success on the merits of its core claims – that the Statute’s licensing cap and vertical-integration requirement are unconstitutional.

Florigrown renewed its motion for a temporary injunction, and on October 5, 2018, the trial court granted it, finding that the Department of Health’s failure to “cure the serious Constitutional problems” the court outlined in its order denying Florigrown’s first motion showed the injunction would serve the public interest. The court thus entered an order that:

(1) [I]mmediately enjoined the Department of Health from registering or licensing any MMTCs pursuant to the unconstitutional legislative scheme set forth in [the Statute], (2) requir[ed] the Department … to commence registering MMTCs in accordance with the plain language of the [Amendment], and (3) require[d] the Department to register Florigrown as an MMTC … unless the Department [could] clearly demonstrate to th[e] court that such registration would result in unsafe use of medical marijuana by qualifying patients.

The Department of Health appealed, which automatically stayed the injunction while the appeal is pending.

While the order’s language is far from clear, reading it in conjunction with the court’s previous order outlining the Statute’s constitutional infirmities indicates that it strikes down the Statute’s vertical-integration requirement and its cap on the number of MMTC licenses. If the State drops its appeal, it appears the Department would no longer be limited in the number of MMTC licenses it could issue, and that entities could obtain a license to operate exclusively as a cultivator, processor, or dispensary, rather than all three, allowing smaller businesses to enter Florida’s medical-cannabis market.

State Senator Jeff Brandes has announced he will file a bill to remove the Statute’s licensing cap and vertical-integration requirement during the next legislative session, which begins on March 5, 2019.

People United for Medical Marijuana v. Florida Dept. of Health

People United for Medical Marijuana (PUMM) filed suit in July 2017, seeking a declaration that the Statute’s ban on smoking cannabis was unconstitutional under the Amendment. The trial court agreed with PUMM, and entered an order declaring the Statute’s smoking ban unconstitutional on May 25, 2018. The Department appealed, which automatically stayed the order while the appeal is pending.

On January 28, 2019, State Senator Jeff Brandes introduced a bill that, if enacted, would remove the smoking ban from the Statute.

Takeaways

The Statute’s restrictive licensing and smoking ban have curtailed the growth of Florida’s medical-cannabis industry. That industry is beginning to take flight nonetheless – the number of cannabis patients in Florida rose from 65,310 at the start of 2018 to approximately 209,000 at the end of the year, and the number of dispensaries grew from 25 to 83 during the same period. Lifting the Statute’s limit on the number of MMTCs, its requirement that MMTCs be vertically integrated, and its smoking ban – whether through legislation or the State dismissing its appeals – should accelerate that growth by allowing more entrants into the market and allowing those in the market to sell additional products.

This growth, in turn, will provide additional opportunities for financial institutions seeking to serve Florida’s medical-cannabis industry. As we’ve noted in previous blogs, many banks are unwilling to provide financial services to state-legal cannabis companies given that cannabis remains illegal under federal law. However, this lack of supply provides a potentially lucrative opportunity for financial institutions willing to work with the cannabis industry. Such institutions would be wise to keep a close eye on Florida given the DeSantis Administration’s apparent willingness to loosen Florida’s restrictions on the medical-cannabis industry.