Round two: Prospective medical marijuana cultivators take another shot

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Marijuana growing at a Cresco Labs plant in Illinois.

In 32 days, applicants for the second — and most likely final — round of permits to grow medical marijuana in Pennsylvania must have their applications completed and mailed to the state Department of Health.

This is what has to happen before then:

By the May 17 deadline, they must come up with a non-refundable $10,000 application fee, a refundable permit fee of $200,000 and proof of $2 million in capital, $500,000 of which must be on deposit.

While there’s no set acreage minimum, a facility that can handle mass agricultural production is probably going to need a minimum 20,000 square feet of land. The applicants will need to show they have a parcel in hand, or at least on contingency. They shouldn’t expect landlords will refund deposits used to hold the property for them, just in case they get a permit.

They also must have all necessary zoning approvals and a diversity plan and, if successful, be operational in six months.

“It’s a huge undertaking,” said Gabe Perlow, CEO of PurePenn, which picked up one of the coveted 12 cultivation permits last year. Its 23,000-square-foot McKeesport facility made a first harvest last week.

Given the state’s six-week timeline for applying, he said, repeat applicants who have already organized their financing and secured zoning approvals have a clear advantage.

Many of those unsuccessful applicants also took advantage of a post-selection debriefing by state officials that detailed where their application might be strengthened next time. In other words, expect stronger proposals from everyone this time around.

“That alone would scare me,” Mr. Perlow said. In the first round, he explained, there were many unknowns regarding what the state was looking for, making it easier for groups to set themselves apart.

“Now the playing field is really level for everyone in Pennsylvania,” which he believes will make this round much more competitive.

What’s at stake is a time-and-expense investment that may well exceed $1 million, all for a chance at one of the 13 remaining grower permits.

The permits will be distributed geographically among six regions; southwestern Pennsylvania gets two permits, with the 13th going to the highest remaining score statewide.

Southeastern Pennsylvania will get two growing permits and up to nine new dispensary permits.

If the region’s 27 unsuccessful first-round applicants try again and no newcomers apply, that means there’s roughly a 7 percent to 8 percent chance of winning a permit this time, if all other factors are more or less equal.

But, of course, they’re not equal.

Last year, Cure Pennsylvania missed scoring a first-round Region 5 permit by 12 points out of the 1,000 allowed while Cresco Yeltrah, which scored 9 points below Cure Pennsylvania, did get a permit in Region 6, which covers northwest Pennsylvania.

“That was pretty tough on us,” said Ryan Smith, the Colorado-based chief operating officer for Cure Holdings.

Despite its seeming inside track position this time, Mr. Smith will only say, “We are strongly considering” applying for one of this region’s second-round grow-process permits. “We have to make the final decision within the next two weeks.”

Meanwhile, PennAlt Organics in Harmony, Butler County, which had scored 87 points below Cure Pennsylvania and finished 11th in this region, is quickly gearing up for the second round.

Ron Zorn, president of the renamed Penn Health Group, said last week the organization has added to its leadership and brought on additional investors. He said the group’s total investment to date exceeds $1 million.

“We learned a lot from the first time. We’re better educated. We know a little bit more what’s expected,” Mr. Zorn said. “In the first round, you were guessing a little bit. There were some things we just didn’t know.”

The group, which currently has seven employees, is looking at “multiple sites” in Fayette County for its proposed cultivation facility. Mr. Zorn said they’re optimistic about their chances.

“You can’t go into any business any other way.”

Locally based Maitri Medicinals had the fifth-highest score in the first round, but three of the groups ahead of it got permits, so only Bay remains ahead based on first-round scores. Maitri did receive dispensary permits and plans to open shops in Uniontown and East Pittsburgh this summer.

Maitri CEO Corinne Ogrodnik said having those dispensary permits has led to regular communication with state health officials regarding compliance and other issues.

“Given it’s a brand new industry, it’s a dynamic process,” she said. “We have in round two a little more information on how each breakdown will be scored.”

But she also knows the competition has more information, too.

“We think the competition is going to be tougher this time.”

In fact, despite its strong showing in the first round, Maitri faces an extra hurdle. Pennsylvania law allows only five permits statewide for groups that want to both cultivate and dispense medical marijuana. Four of those “vertical integration” permits were issued in the first round.

“Unless the state changes the statute,” Ms. Ogrodnik said, “we indeed will be competing for one remaining VI permit.”

Steve Twedt: stwedt@post-gazette.com or 412-263-1963.