State by State Look at Cannabis Legalization with Kris Krane

kris krane

Kris Krane and Matthew Kind touch on the most important states ending prohibition, and what you need to know about each state right now.

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Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback at cannainsider.com to get started. Now here’s your program.

More and more states are ending prohibition of cannabis, however how each state is ending prohibition varies dramatically. That is why I asked Kris Krane from 4Front Advisors to help us understand the changing landscape of cannabis markets across the United States. We’re going to try and put into context both the challenges and the opportunities for each state. Kris welcome to Cannabis Insider.

Kris: Thanks for having me on Matt.

Matthew: Sure thing. To give us a sense of geography can you tell us where you are in the world today?

Kris: I am in 4Front Ventures East Coast Headquarters in downtown Boston, Massachusetts.

Matthew: Oh great, great. What’s the weather like there today pretty good?

Kris: It is about as perfect a day as you could get. It’s about 80 degrees and abundant sunshine about as nice of a day as you could possibly ask for.

Matthew: Oh nice. Kris what is 4Front Advisors?

Kris: So Forefront Advisors is a management consulting company that is dedicated to working with aspiring operators in the cannabis space. Primarily dispensary operators but also some cultivation, production operators as well and helping them navigate this business opportunity. So from the start we help them navigate the very complex process of obtaining a license to operate a dispensary or cultivation facility. Meaning that we help them project manage through that whole process. Create a lot of the content that goes into these very robust and very complicated applications and help them win licenses and then we license them an operating model once their licensed to run a very professional high end medical cannabis dispensary that includes all of their policies and procedures and manuals, SOPs, job descriptions, assistance in hiring their management team, a weeklong training program where they learn our operating model and how to run their departments and how to hire entry level employees, things like floor planning. So it’s essentially a full operating model so that by the time our clients get up and running they are ready to basically hit the ground running and operate at peak efficiency very early while avoiding a lot of the pitfalls and mistakes that many operators make. So that’s largely what we do at 4Front Advisors.

We also have a couple of other companies under our sort of umbrella. 4Front Ventures being the parent company and then we have 4Front Capital which is dedicated to making strategic investments in the space and 4Front Publishing which is going through a huge revamp as we speak so you can check out the content on there now it’s really good but it will look extremely different by early next year and that is more of a sort of a news and information service about the industry.

Matthew: Kris how did you get into the cannabis industry?

Kris: Well that’s a long answer so I’ll try to be as brief as possible. I’ve been involved with this issue for about 20 years now. I was a founding member of Students for Sensible Drug Policy back in 1998. Before that I was actually a member of my colleges NORML Chapter. This was at American University in D.C. So I was an advocate and activist on this as a college student something that had sort of been with me from childhood really. My father was a medical cannabis patient when I was very young. He passed away when I was nine. So it’s something that I thought a lot about and got involved as an advocate in college. From there went on to work at NORML for six years at their National Headquarters. I was Associate Director of National Operation. By the time I left there I was then hired back at Students for Sensible Drug Policy which I had been involved with as a student and I was the Executive Director of that organization for four years from 2006 through about the end of 2009 and from there made the jump into the industry.

I got my start with Harborside Health Center in Oakland which was, they actually had been a donor of mine and Steve DeAngelo and Harborside had been a donor of mine at SSDTP. Helped Steve start a consulting business called CanBe which was sort of the precursor to what we do now at 4Front which helped people set up dispensaries that were very much in the mold or model of Harborside Health Center PC Medicine and sparked some of the more high end dispensaries in Northern California at the time. This was in 2010 and from the ashes of that that great experiment as a little ahead of its time came 4Front. I mean I could say my motivation in making the move from the advocacy world to the business world really was advocacy driven. As an advocate who had been working with some of these better dispensaries. At the time this was almost exclusively Northern California.

The scene in Colorado was just barely starting to develop then but you know I could see the places like Harborside and Berkeley Patients Group and some of these really professionally run dispensaries, I could see the impact they were having on their communities and on changing public perception and it became apparent that if we could demonstrate to the public that cannabis could be distributed in a way that is socially responsible and community focused that it would have as much of an impact on changing public opinion and ultimately ending prohibition as the work that we had been doing as advocates through nonprofit organizations in D.C. and the idea of being able to sort of patent, you know harvest the power of private enterprise and utilize that to help end prohibition I found to be extremely sort of fun and different and a novel approach to this and kind of jumped in with both feet and haven’t really looked back since.

Matthew: That’s really interesting. You know a lot of people ask me all the time how do they get into the cannabis space and I hear you and Troy Dayton and a lot of folks that Steve DeAngelo all have this advocacy background or they’re still advocates at heart in one way or another so people out there listening that’s a great way to get started in the cannabis industry.

Kris: Absolutely and I may even add to that particularly if there are any you know younger folks, college students in particular that are listening to this to get involved with a Students for Sensible Drug Policy Chapter on your campus is probably the number one way that you can go about getting involved with the cannabis industry after graduation. We certainly know that most of the businesses out there when they see an applicant with SSDP on their resume that resume generally gets put to the top of the pile because they know that’s somebody that is dedicated, is motivated, is trained on the issues and is likely going to be a highly motivated employee.

Matthew: Great points. Now switching gears a little bit how many states currently have legalized cannabis one way or another?

Kris: I believe we’re up to, I believe it’s about 36 states have some degree of cannabis or medical cannabis legalization, but it really varies wildly from, you know from your adult use states like your Washington, Colorado, Oregon, Alaska, and D.C., D.C. not being a state, to some extremely restrictive you know CBD only legislation that even prohibits the production of CBD medication within those states. So when we talk about having legalized in some form or another there are, there really are vast differences between those on the full legalization end of the spectrum and those on the sort of CBD only conceptual end of the spectrum and there’s sort of everything in between.

Matthew: Everybody talks about Colorado and Washington and now Oregon and Alaska quite a bit where adult cannabis use has been legalized, but let’s talk about some states that aren’t on the radar as much for people starting with Maryland. What’s going on there?

Kris: Sure so Maryland passed a medical bill, medical marijuana bill last year. I believe it was late last year. They have been going through the process of implementing that you know much to the chagrin of understandable chagrin of many patients. These laws take a while to implement and so it’s not like once a law passes you’re going to have dispensaries within a few months. It generally takes time because the state has to go through rule making. And so they’ve been engaged in that process of coming up with the rules that are going to govern the medical marijuana program. They are extremely close to being done with those rules. In fact they’re expected to be adopted next week. So once that happens the state will then open up an application process for people and companies who want to cultivate, process, and distribute through retail dispensaries medical cannabis to qualified patients in the state.

The way they’re going about this is they’re going to grant about I believe it’s 15 cultivation licenses for the state and up to 94 dispensary licenses. There’s a max of two per senatorial districts, state senatorial district so it’s unlikely that they give out all 94 licenses the first time. There’s a lot of really rural districts in the western part of the state where I think it’s unlikely that you have two applicants, but they’ll have the ability to grant up to 94 and those no defined number of licenses for production of infused products. They’re going to grant as many as they think the market needs and that process will happen over the later part of this year potentially into early next year. We expect that by the next fall of, sorry next Spring of 2016 that winners will have been announced. Hopefully a little before then and you will start to see the beginnings of an industry take shape with likely the first dispensaries opening in Maryland by if we’re lucky late in 2016.

Matthew: So allowing as many processing licenses as the market will bear is that kind of a new approach or is that a little bit more liberal where they’re trying to say that we don’t know so we just want to see what happens?

Kris: Well you know I’m not sure where exactly that came from. It’s not a novel approach. Other states have done something similar, Colorado being the biggest example. Colorado had no, even under the medical program, had no cap on the number of any kind of licenses and that’s the case under adult use as well. It’s in some ways on the processing side it’s probably most similar to what we saw in Nevada where they had a cap on the number of dispensary licenses but no cap on the number of cultivation and production licenses. They said that they would grant as many as were qualified and could meet the demands of the market and they’re taking a similar approach in Maryland although they’re only doing it on processing, not on cultivation. In fact they’ve gone the opposite way that Nevada went on the cultivation licenses in having a more restrictive number.

So I think on the cultivation end it actually looks a lot more like Illinois which has a pretty restrictive number of cultivation licenses to serve a larger population of dispensaries and more like Nevada on processing where there is no cap and they’ll grant as many as they see fit. My guess though is that they are probably going to be stricter in what they consider to be a minimum standard for licensure in Maryland then they were in Nevada where they, essentially in Nevada they granted them to everybody that applied. I think that you’ll see a lot more, you’re likely to see a lot more get rejected for not being up to par in Maryland than we saw in Nevada where like I said they basically gave them to anyone who filled out a complete application.

Matthew: Staying on the East Coast here how about Pennsylvania can you give us a little synopsis of what’s going on there?

Kris: Sure so in Pennsylvania we don’t have law yet. There are two bills currently pending in the legislature one in the House, one in the Senate, with two very different visions for how medical cannabis will look in the state. One of the bills I believe the Senate bill is more of a traditional medical cannabis bill which would allow for I believe it’s a 125 dispensaries and 60 cultivation facilities with a fairly wide ranging list of qualifying conditions. Whereas the House bill, and forgive me if I’m flipping those two I haven’t gone back and double checked my research on this, but the other bill I believe the House bill would look a lot more like New York’s program with a very restrictive number, a small restrictive number of licenses both in cultivation and dispensary or cultivation, production, and dispensary a much more limited qualifying condition list so there would be a much smaller patient base and a ban on any smokable products which is the case in New York and Minnesota. So you would only be able to sell vaporized oils or vap pen cartridges or different kinds of edibles but nothing that could actually be smoked.

So we don’t know what’s going to happen exactly in Pennsylvania. My guess based on some intel that we hear from behind the scenes is that the final bill will likely look like a compromise between the two and that’s likely going to pass sometime this year. So we will see them then getting into rule making so they’re basically about a year behind Maryland or a little less than a year behind Maryland but if this does pass then we’ll begin to see the formation of a market late this year and into sometime next year when they’ll start accepting applications.

Matthew: And on to Massachusetts where you are currently what are some of the unique aspects of legalization in Massachusetts because I believe it started out one way. The governor got involved or a new governor and that it changed is that right?

Kris: That’s absolutely right. So what’s happened in Mass, my current home state, I’ve bounced around quite a bit in the last few years, but here in Massachusetts the first round of the program by statute they had a limit of 35 total licenses. Now in Massachusetts these are vertically integrated licenses so the license gives you the right to cultivate, process, and dispense and you essentially have to vertically integrate. There’s a small, the potential for a small wholesale market amongst those license holders but it’s more like Colorado’s old 70-30 rule with actually more restrictions. You have to demonstrate a need in order to buy something wholesale. So if for all intensive purposes it’s a vertically integrated market where everybody has to produce everything that they sell within their dispensaries.

So by statute when they first granted the licenses the state was limited to a maximum of 35 licenses with a minimum of one in every county and a maximum of five in any county, and so in a process like that you had to have a really competitive licensing process. And so there was a competitive application process for those up to 35 licenses. It was, it wound up being rife with controversy. They initially granted about 28 licenses just under half of those were then kicked out of the process for allegations of having lied on their application or misstated support from locals or having set up you know improper management or funding structure. There were a whole bunch of different reasons and a lot of it frankly was just very political. There was controversy over political cronyism you know that the top scored applicant in the state happened to be a former congressman and district attorney with no operating experience but very close ties to the Head of the Department of Public Health at the time. And so there was some media controversy around that, and what ended up happening is essentially you had only 15 licenses that made it through after that first round. They didn’t come anywhere close to the 35 that were necessary. To date only one of those is actually open and we’re now over two years into the program so it’s been a real slow go here in Massachusetts.

So what wound up happening was I mentioned by statute you had a limit of 35 but that limit expired two years into the program. So we’re now passed the two years. There is a new Governor. Governor Charlie Baker who came into office this January took a look at the program and decided to lift the cap which the state had the right to do after two years so there is no longer a cap on the number of licenses, and they’re approaching this current round which is actually ongoing this licensing ground as if it’s or similarly to the way they’d handle a pharmacy licensing process. So it’s a rolling application basis. You have to go through a few different steps of applications, a few different phases of applications to demonstrate your competency and financial wherewithal and to demonstrate that you’re in a community that is comfortable having you there so you have to demonstrate support from the community and everybody that meets those criteria is supposed to be granted a license.

So that’s ongoing. It’s early in the process. Nobody has gotten a license yet in this second phase. It’s too early for that, but by the end of this year and through the course of next year we’re likely to see a whole number of businesses get license in this state. And so I think we will see that number rise from 15 to I would guess it will be anywhere between 75 and 200 by the middle to end of next year. And then of course in Mass we at that point we start dealing with the potential for adult use and there will be an adult use initiative on the ballot in November 2016 which will obviously create a whole new market opportunity for both these existing license holders and potential new entrance into the market.

Matthew: Wow a lot of changes there and opportunity in Massachusetts. Now what about the dysfunctional markets as I like to call them I mean can we call New Jersey and Connecticut dysfunctional markets where there’s just not enough business owners able to do the right thing and there’s not enough patients that are able to get access in a geographically dispersed way. Am I wrong about that? They just seem kind of like clusters.

Kris: No I think you’re absolutely right, New Jersey in particular. If I had to sort of pick a poster child for dysfunctional or a practically non functioning market it would be New Jersey. They have, they have I believe only three dispensaries currently open. They have a limit on the number of products they can sell. They have a limit on the THC content that can exist in any flowers that they sell I believe it’s 10 percent maximum THC. And the state has been a real roadblock at sort of every step of the way for businesses to get up and running. This is largely political in New Jersey I mean you had a fairly restrictive bill that passed in the first place so some of this was unavoidable, but what happened in New Jersey was this bill was passed at the very end of previous Governor, Governor Corzine’s tenor in office. He was a Democrat in support of medical marijuana and he signed this into law literally on his last day in office. He got a whole bunch of bills his last day. He signed them all into law.

So Governor Chris Christie inherited this law when he took office but it hadn’t been implemented yet so implementation fell on Chris Christie who I think anybody who follows this issue knows is really terrible on the issue. He’s a huge opponent of cannabis of any kind medical or otherwise and he’s probably the worst of any of the Presidential Candidates in either party. And so he has basically set up this program for failure. He stonewalled efforts to move things forward at every turn. He’s not been open to additional qualifying conditions. So this was sort of by design that the program would be dysfunctional and that’s exactly what’s happened.

Connecticut is a little bit of a different story you know you don’t have as hostile of a government there. They have a fairly limited qualifying condition list so that is going to limit the number of patients and we typically see that more in states that pass these via the legislature rather than by ballot initiative. A lot of the legislature states have more restrictive qualifying conditions and then Connecticut has some pretty silly rules as well like you can only sell pre ground medicine. You’re not allowed to sell whole flowers you’ve got to grind it all up first and nobody can tell whether it’s good or not because that certainly prohibits folks or is a disincentive for folks to go and visit dispensaries. And there’s a fairly limited number of the licenses in the state although to be fair Connecticut is a pretty small state geographically and they are actually attempting to address this. They are currently holding I believe hearings or some process to add additional qualifying conditions in the state, and they are in the process of adding I believe three new dispensary licenses. I think there’s five currently in the state. So there’s some moves that are being made in Connecticut to start to expand the program and make it a little bit more functional whereas New Jersey I think is just sort of you know stuck in the mud until they’re able to get rid of Chris Christie.

Matthew: And how about Florida? What’s the story there?

Kris: So Florida is currently implementing a CBD only bill so they accepted applications about a month ago from companies that are looking to open cultivation dispensaries for CBD only medicine. Essentially it is something that’s going to have less than 1% THC and a substantial CBD content. This is the type of oils medicine that we hear about in sort of the Charlotte’s Web type reports that particularly helpful for children with Dravet syndrome and Epilepsy. And so those licenses will be granted sometime soon. I haven’t been following that one as closely because we’re not involved in that process, but I know the apps went in a couple months ago or a month ago and folks are waiting to find out who’s going to be granted those licenses, but that’s going to be an extremely limited program and very limited business opportunity.

The real thing to watch in Florida is going to be in the 2016 election. They are likely to have a legitimate medical marijuana initiative in that election. It will look pretty similar to what the ballot initiative that failed in 2014. “Failed” I should say with sort of quotation marks in that in Florida you need 60 percent to pass an initiative and they got 57 ½ percent. So it was probably the biggest or the best failure we’ve ever seen. It was a, in most elections that would be considered a landslide victory with 57 ½ percent, but in Florida that is considered a loss. But you know the fact that it’s being run a couple years later with a couple more years of support and being done in a Presidential Election where you’re going to have a much higher youth voter turnout and they tweaked some of the criticisms of the initiative the first time around. I think it provides a lot of hope that that initiative is going to pass and I think it probably will. If that’s the case, then we’ll see a real medical marijuana program with a robust qualifying condition list and real business opportunities in Florida to take shape after that 2016 election.

Matthew: Illinois is kind of a unique animal where the medical patients are kind of treated like they’re prisoners you know they’re getting fingerprinted, background checks and it’s really I would say it really adds a lot of friction to patients coming online. Is that your take on Illinois?

Kris: It is. That’s very much the case. You know Illinois’s program it’s pretty restrictive in terms of the qualifying condition list so there’s already a limited number of conditions that will qualify someone to become a patient. And then there are some restrictions around that that are actually pretty unique to Illinois and the Illinois’s program. You mentioned fingerprinting. That is one and anybody who wants to become a medical cannabis patient in Illinois needs to register with the state as is the case in most places, but they need to be fingerprinted and put their fingerprints on file with the state. Which you know you can imagine for folks that are a little bit paranoid about, already a little paranoid about being on a list of being a marijuana user to put your fingerprints on file it’s a big undertaking and probably a nonstarter for a lot of folks.

They also have a provision where anybody with a felony conviction is prohibited from being a patient in Illinois. That is also unique to Illinois and you know as we all know the war on drugs and the war on cannabis has certainly been implemented disproportionately within inner city communities and communities of color and sort of the irony there is that the folks that are the most likely to be victims of the drug war and to have been targeted by police for marijuana enforcements and marijuana enforcement offenses are now legally prohibited from not only being involved in the industry but legally prohibited from becoming a patient even if they have an ailment that would otherwise qualify and so the result has been there are virtually no patients in the state.

I believe at last count they were up to something like 800 in the state which for a state of, I think it’s a state of about 6 ½ million people or 8 million people is just, I mean it’s just paltry you know you have 51 dispensary license holders in the state and 19 I believe cultivation/production centers that are approved in the state and it’s just hard to imagine with the current, sort of the current climate there around patient access and becoming a patient that those are going to be viable businesses in the short term.

The good news in Illinois is that at least what we’re hearing I think the government seems to realize the problems with this, and so I think that we’re probably over the course of the next six months to a year likely to see some movement to ease some of these restrictions and allow this to become a more functional legitimate market. So hopefully that happens before most of these businesses get online so we can save this thing before it becomes dysfunctional because right now nobody is operational and I think there’s a realistic possibility that that actually happens.

Matthew: Wow talk about perverse incentives you’re sending felons, you’re convicting them again but this time to the black market that’s just and you’re saying well we just don’t care if you have a medicinal need for cannabis you can’t have it.

Kris: That’s right. I mean talk about the irony. Some of these folks they may have been arrested because they were medical cannabis patients in the first place. And so somebody who had to break the law in order to treat their medical condition now that that medicine is legal they are legally prohibited from using it because they, because they took that step of breaking the law to get it when they needed it before it was legal. It’s just absolutely absurd.

Matthew: Now going back to the Northeast to neighboring states Vermont and New Hampshire what’s going on there?

Kris: So two different programs although they actually look fairly similar. New Hampshire is just a few years behind. So Vermont has an existing medical cannabis market although it is very small and relatively restrictive. There is, it’s a pretty restrictive qualifying condition list and there aren’t a ton of patients in Vermont to begin with, and then there was I believe they actually got rid of this but there was a restriction on the number of members that any dispensary could actually have. So even if there were enough patients who were actually prohibited. You were actually prohibited if you were an operator from serving all of them. I believe they’ve expanded that over the last year or so.

So there are four dispensaries currently operating. They’re vertically integrated so similar to Massachusetts or Arizona and some other states. And I think we may see an expansion of that program over the next year or so but more likely what’s going to happen is I would predict that Vermont is either the first or the second state to adopt full adult use legalization through the legislature. To date they’ve all been ballot initiatives and it seems like Vermont and Rhode Island are kind of in a bit of a race, slow race but a bit of a race to become the first state to do it through their legislature, and I think one or both of those states will do so probably in 2016. So I think that’s where we look for the real market opportunity in Vermont is once adult use hits.

In New Hampshire they just went through licensing so they similarly have a vertically integrated program with a relatively restrictive qualifying condition list, not absurdly restrictive and so there’s expected to be a smallish patient population but enough to create a small market there and the state just a couple months ago granted four of those vertically integrated licenses to three different companies who are now in the process of seeking local zoning approval and building permits and getting ready to build those businesses. So we expect that the first dispensaries will come online in New Hampshire, if we’re lucky, the end of this year but more likely at the beginning of next year and into next spring.

Matthew: I just want to backup a little bit because there might be some new listeners to CannaInsider and they might not understand the context of what, how qualifying conditions can really impact the size and scope of the market. Can you just touch on that a little bit?

Kris: Sure so qualifying conditions means the, essentially the ailments or illnesses that would qualify somebody to become a patient under that state’s law. So some states are fairly restrictive in the qualifying conditions. So in the case of like a New Jersey I believe they only have I think it’s only five conditions that qualify unless they’ve expanded that which I don’t think they have. So it would be things like Cancer or Aids, Multiple Sclerosis, maybe Glaucoma and then there are states that have more open policies that have essentially allow doctors to determine whether or not the patients have a condition that would benefit from the use of medical cannabis. Typically the inclusion of chronic pain or chronic and debilitating pain as a qualifying condition list is sort of the linchpin for whether a market is a large and robust market versus a smaller, just a much smaller market in general but the majority of patients in most of these states become patients for chronic pain which makes sense.

It’s a condition that probably more people suffer from than just about anything else in the country. It affects people of basically all age groups, all demographics and cannabis is quite effective in treating pain. So we typically see that and so when you look at states that have larger patient populations states like California, Colorado certainly pre-adult use, Arizona, Massachusetts which is growing now. These are states that all have chronic pain or a catch all. Anything that your doctor thinks is beneficial for they can recommend as opposed to some of these states where we talk about more restrictive markets where they typically don’t include chronic pain and have a much more restrictive list of conditions that would qualify somebody to become a patient.

Matthew: Great overview. Now going out into the middle of the Pacific Ocean can you tell us what’s happening in Hawaii?

Kris: Sure. So Hawaii has also passed legislation allowing for dispensaries. Hawaii’s a little bit of a different case then some of those we mentioned in that Hawaii has had a medical marijuana law on the books for I believe over a decade. They were actually one of the earlier states to pass medical marijuana. They were actually the first state to pass medical marijuana through the legislature and not through ballot initiative. Similarly to what I mentioned I think it’ll be either Vermont or Rhode Island for adult use but there law never allowed for any licensed businesses. And so they early this year passed a new law or actually formerly just about a month and a half ago passed a new law that would allow for the licensing of vertically integrated dispensaries.

So they’re going to be accepting applications in Hawaii. I believe they started accepting those applications in late January so groups are gearing up to apply. There is a limited number of licenses per county which in Hawaii is basically per island essentially and those will be vertically integrated licenses where you get one cultivation/production facility I believe and two dispensaries for each one. There’s a limited number per county and that process will start happening here very soon. So folks are really sort of jockeying for position and nailing down real estate and local support and all the things that you need to do to apply for one of those licenses.

Matthew: Now how will reciprocation work or can you explain what that means and how it will work in Hawaii?

Kris: Sure so Hawaii’s law allows for reciprocity meaning that dispensaries there will be allowed to serve people who are approved patients in other states. That doesn’t go into effect until sometime in 2017 so for the first year or so of the program these businesses will be limited to serving Hawaiian patients only, but after about a year or so that will open up and they will then be allowed to serve patients who are qualified in their home state. Which is a really big deal in Hawaii because I mean it’s something like 30 percent of all tourists to Hawaii from California.

Matthew: Right.

Kris: Where you obviously have a very large patient population so that could be, that could really be a difference maker in terms of what the market in Hawaii ultimately looks like.

Matthew: Yeah great point. It does seem like its half Californians whenever you’re there so that does seem true. Probably it could double or triple its market just by allowing the reciprocity or once that gets going.

Kris: Yeah I think absolutely. It probably more than doubles the market there. If you allow the inclusion of, I mean if you just allow the inclusion of Californians let alone Washington, Oregon, the other western states where you have a lot more tourists I mean in mainland US. Like folks in the eastern part of the United States. Typically if you’re going to do a tropical vacation typically you go to the Caribbean. Western part of the United States you go to Hawaii and those are all medical marijuana states so that could be I mean I think that would actually makeup the majority of the market in Hawaii will be those tourists from the western part of the United States.

Matthew: How about Nevada? It seems like their state and local governments seems really welcoming to cannabis overall. How do you feel about Nevada in general and what’s your high level bullet points about what’s important there?

Kris: Sure so in Nevada and I would say Matt if you ever do business there its Nevada not Nevada. They’ll run you out of town.

Matthew: Oh no I’ve got to get this right. I’ve got to practice right now.

Kris: So yeah I learned that lesson pretty (37:19 unclear) when I first started working there. But no you’re right the government has been quite receptive to cannabis reform and the medical cannabis program in general. It’s been one of the fastest states we’ve seen to implement. They basically hit every deadline that they set at the beginning of the process. In their licensing process they moved things along quite nicely. You know the first dispensary just opened there up in Reno, and we now have one that just opened in Vegas. The vast majority won’t open until the end of this year into the beginning of next year because of the lack of product. I mean strangely the first one that opened up in Reno, actually in Sparks technically had to close I think the next day for another couple of months because they sold out of product immediately. I think they just wanted to be able to sell T-shirts saying they were the first dispensary in Nevada why they opened when they did before they were really ready. But the state has been very welcoming and Nevada also has right now the only real reciprocity program in the country until Hawaii comes online where patients from out of state are allowed to purchase in dispensaries in Nevada. In fact the standard for that currently is that you have to sign a sworn affidavit at the dispensary door that you’re attesting that you are a patient in another state and that’s all the proof that the dispensary needs in order to serve you.

Matthew: I love Nevada.

Kris: It’s great.

Matthew: Wow that’s crazy.

Kris: And you know it’s interesting that is an incredibly important piece for what this market is ultimately going to look like as we all know right and Vegas in particular I mean it’s as big a tourist city as we have in the United States and keep in mind that in California not only is that where the majority of the tourists come from similar to Hawaii although I would imagine Californians would probably be more comfortable you know driving with their medicine in Nevada and they will be flying with it into Hawaii, but in California you don’t need to be a California resident in order to be a California patient. You only need to be a California resident if you want to register with the state agency and get a state issued card which is optional. Generally you get a card from your doctor’s office and that qualifies you as a patient in California and you don’t have to be a resident in order to do that.

So what can happen in Nevada is somebody could fly in from anywhere in the world right. Someone could fly in from Tokyo and say that they’re a patient in California and in fact they could become a patient in California. In fact they could see a doctor in an office in Nevada who’s licensed to practice medicine in California or might even actually be on Skype in California. We see that plenty in some of the California evaluation centers. Get their medical cannabis card or recommendation from a California doctor, get a California recommendation and then use that to purchase in a store in Nevada. So we expect that that full reciprocity and the acceptance of California patients whether they’re a resident or not is going to lead to Nevada being potentially the most robust medical market in the country and that’s only for a couple years because there’s likely going to be an adult use initiative on the ballot in 2016 which we’re obviously very hopeful will pass and so Nevada may join in the ranks of the full legal adult use states here after the 2016 elections as well.

Matthew: How about Arizona where Forefront’s based? I don’t seem to hear that much about the Arizona cannabis market. What are kind of the high level bullet points there which we know about Arizona?

Kris: Sure so you know Arizona its interesting. It isn’t talked about nearly as much as a lot of these states but it’s actually the third largest cannabis market in the United States.

Matthew: Oh wow.

Kris: Right now behind, although it may be moving to fourth, but it has been as of last year it was the third largest market behind California and Colorado. Washington might overtake it because of its adult use law, but Arizona actually has a pretty good thriving industry. It’s a sort of a vertically integrated market although it’s more open than a Massachusetts or a New Hampshire, Vermont, or Colorado pre adult use in that you’ve got what’s called, what I would consider sort of a closed loop capitalist market in that it’s only one license. That license gives you the right to cultivate, process, and dispense cannabis, but you are allowed to wholesale amongst the existing license holders. So currently there’s about 97 license holders throughout the state. That are open throughout the state of Arizona and what you have is a system where you know some of the urban dispensaries who are serving a fairly large population and keep in mind there’s over 80,000 patients in Arizona currently so this is actually a real market but you may have a dispensary located in Phoenix, Tempe, Scottsdale.

A really densely packed urban population that’s serving a large patient base that may not be able to build out the cultivation and production capacity to meet 100 percent of their patient needs in which case they’re going to be purchasing a fairly large percentage of their inventory from the wholesale market. Largely from dispensaries that were licensed in rural areas of the state, but who have set up large scale cultivation facilities. Keep in mind in Arizona we rural. Rural Arizona means something very different than rural in most places in the East Coast. A rural town in Arizona is a little desert town that may have a couple hundred people and there may not be any other human beings for another 50 miles. So you know somebody who wins a license in one of those towns they’re not going to do any real business out of their dispensary, but they can set up a large scale cultivation facility, a large greenhouse and become a large scale wholesaler to the urban dispensaries that are much less likely to be able to meet their patient demand.

Matthew: Looking ahead to 2016. We’ve touched on a couple points but what are the big events on the horizon? I mean is this, I mean have we, is this when the bow wave becomes a tidal wave and if this totally sweeps the nation?

Kris: Well that’s certainly the hope. You know I think we’re going to see a little bit of a test here in 2015 with responsible Ohio and the initiative basically that would legalize medical and adult use in Ohio. That’s a much tougher election to win because it’s an off year election not even Congressional or Senate or Gubernatorial elections and those are typically really bad for our issue because typically the only people that turn out to vote in those elections are old people who are demographically not in support of our issue but 2016 is really the year to watch. I think we’ll see sort of the first shots across the bow through the legislature in one or both of Rhode Island and Vermont. So we are likely going to see legalization in one of those two states. They’ll be the first. Whoever does it will be the first in the eastern part of the country outside the District of Columbia. So say the first state to do so and certainly the first to do so through the state legislature. And then the 2016 election that could very well be the tipping point for this issue. You know we are going to have full adult use legalization on the ballot in at least five states. Those include California, Arizona, Nevada, Massachusetts, and Maine.

We may also see initiatives on some combination of Michigan and Missouri. Possibly even Ohio if things don’t pass this year so you might see some of those mid-western states run their own initiatives. You will definitely see a medical initiative on the ballot in Florida which I think is likely to pass and so that’s a huge amount of movement and there is a decent chance that all of these pass. I think our battlegrounds in 2016 are probably Arizona and Nevada. They are the most conservative of the states and we’re likely to be starting with the polling closer there then we are in some of those other states. But you know if we can win in four out of five legalization initiatives or five out of five legalization initiatives which I don’t think is impossible and I think it’s actually doable depending on how much money we’re able to raise and how much money the opposition is able to raise. You know if we can run the table in 2016 and go five for five in legalization and maybe tack on Florida for medical, it becomes really difficult for our opposition and even for establishment politicians to claim that this is a legitimate political debate.

Matthew: Right.

Kris: If every single time this is put to the voters the voters have voted for it including in what are now some conservative states. We already won Alaska. We may win in Nevada and Arizona the next time. I just think that that opens the floodgates for political support for this issue, for movement in state legislatures, for movement in Congress, for public support increasing even further than it already has and becomes really difficult regardless of who might win the Presidential Election in the same year. It becomes really difficult for the Federal Government to scale back the progress that we’ve made. I think at that point it becomes a matter of when and not if.

So really important for folks who are out there listening I mean to take this all the way back to where we started with the advocacy side of this and my motivation being ultimately ending prohibition and that being the case with folks like Troy Dayton and you know others in the industry who have that advocacy background. Folks are interested in this and would definitely recommend getting involved, donating money, donating time. If you live in one of those states volunteer your time, get in touch with the Marijuana Policy Projects with Students for Sensible Drug Policy who’s going to be running a lot of the ground game with the Drug Policy Alliance, who’s going to be heavily involved with California and you know donate time, donate money, spend some time phone banking and calling friends and family and folks that you know in the area encouraging them to get out and vote because if we can win these states then I think that is the real beginning of the end of marijuana prohibition nationwide.

Matthew: Kris as we close how can listeners learn more about 4Front Advisors?

Kris: Sure so I would suggest that you check out our website. I would go through 4Front Ventures which is our parent company and you can find out all about 4Front Advisors, 4Front Capital, 4Front Publishing, or the various ventures that we have here. You can go to www.4frontventures.com. That’s www.4frontventures.com and you can check out everything that we do at all those companies. Also just a really helpful quick resource that we provide to folks we have a daily email blast. It’s just one email a day that gives a breakdown of essentially all of the relevant headlines so all it is is a list of headlines organized by national and by state. So if somebody is interested in getting news on this rather than subscribing to 50 or more different Google Alerts they can just signup directly at 4Front Publishing and get this one daily digest in their inbox every morning with a really quick and clean digest of that day’s news in cannabis.

Matthew: What a helpful service you provide there. That’s a great idea. Kris well thanks so much for being on CannaInsider today we really appreciate it.

Kris: Absolutely very happy to be here.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www.cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at www.cannainsider.com/trends. Have a suggestion for an awesome guest on www.cannainsider.com, simply send us an email at feedback at cannainsider.com. We would love to hear from you.

Some quick disclosures and disclaimers, me your host works with the ArcView Group and promotional consideration may or may not be given to CannaInsider for the ads placed in the show. Also please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Lastly the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.

About Kris Krane:

Kris was recently nominated for CannAwards 2016 most influential person in the cannabis industry.

Having co-founded 4Front Advisors in 2011, Kris Krane serves as the Managing Partner of 4Front Advisors and President of 4Front Ventures.

Prior to forming 4Front, Kris served as Director of Client Services for CannBe, which was a pioneer in developing best practices within the marijuana industry. At CannBe, Kris, along with a few other on the 4Front Advisors team, worked with many of the top licensed dispensary operators in Northern California.

Kris has dedicated his career to reforming the nation’s failed and misguided drug policies, having served as associate director of NORML from 2000-2005 and executive director of Students for Sensible Drug Policy from 2006-2009. Kris earned a BA degree in political science from American University in 2000.

Kris currently serves on the national board of directors for the National Cannabis Industry Association (NCIA), Common Sense for Drug Policy and Marijuana Majority, as well as the national advisory council for Students for Sensible Drug Policy.

Learn more about Kris and 4 Front Advisors at: http://4frontventures.com/

Key Takeaways from This Interview
2:02 – What is 4Front Advisors
4:04 – Kris talks about how he got into the cannabis industry
9:30 – Kris talks about Maryland’s legalization
13:24 – Kris discusses Pennsylvania’s legalization
15:30 – Massachusetts’s legalization efforts
19:46 – Kris talks about New Jersey and Connecticut’s industry
22:50 – Florida’s cannabis industry
25:19 – Illinois’s cannabis industry
28:56 – Kris talks about Vermont and New Hampshire’s industry
31:31 – Kris explains how qualifying conditions can impact the market
33:29 – Hawaii’s cannabis market
37:04 – Nevada’s cannabis market
41:10 – Arizona’s cannabis industry
43:58 – Kris talks about the nation’s market in 2016
48:04 – 4Front Advisors’ contact information

Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback at cannainsider.com to get started. Now here’s your program.

More and more states are ending prohibition of cannabis, however how each state is ending prohibition varies dramatically. That is why I asked Kris Krane from 4Front Advisors to help us understand the changing landscape of cannabis markets across the United States. We’re going to try and put into context both the challenges and the opportunities for each state. Kris welcome to Cannabis Insider.

Kris: Thanks for having me on Matt.

Matthew: Sure thing. To give us a sense of geography can you tell us where you are in the world today?

Kris: I am in 4Front Ventures East Coast Headquarters in downtown Boston, Massachusetts.

Matthew: Oh great, great. What’s the weather like there today pretty good?

Kris: It is about as perfect a day as you could get. It’s about 80 degrees and abundant sunshine about as nice of a day as you could possibly ask for.

Matthew: Oh nice. Kris what is 4Front Advisors?

Kris: So Forefront Advisors is a management consulting company that is dedicated to working with aspiring operators in the cannabis space. Primarily dispensary operators but also some cultivation, production operators as well and helping them navigate this business opportunity. So from the start we help them navigate the very complex process of obtaining a license to operate a dispensary or cultivation facility. Meaning that we help them project manage through that whole process. Create a lot of the content that goes into these very robust and very complicated applications and help them win licenses and then we license them an operating model once their licensed to run a very professional high end medical cannabis dispensary that includes all of their policies and procedures and manuals, SOPs, job descriptions, assistance in hiring their management team, a weeklong training program where they learn our operating model and how to run their departments and how to hire entry level employees, things like floor planning. So it’s essentially a full operating model so that by the time our clients get up and running they are ready to basically hit the ground running and operate at peak efficiency very early while avoiding a lot of the pitfalls and mistakes that many operators make. So that’s largely what we do at 4Front Advisors.

We also have a couple of other companies under our sort of umbrella. 4Front Ventures being the parent company and then we have 4Front Capital which is dedicated to making strategic investments in the space and 4Front Publishing which is going through a huge revamp as we speak so you can check out the content on there now it’s really good but it will look extremely different by early next year and that is more of a sort of a news and information service about the industry.

Matthew: Kris how did you get into the cannabis industry?

Kris: Well that’s a long answer so I’ll try to be as brief as possible. I’ve been involved with this issue for about 20 years now. I was a founding member of Students for Sensible Drug Policy back in 1998. Before that I was actually a member of my colleges NORML Chapter. This was at American University in D.C. So I was an advocate and activist on this as a college student something that had sort of been with me from childhood really. My father was a medical cannabis patient when I was very young. He passed away when I was nine. So it’s something that I thought a lot about and got involved as an advocate in college. From there went on to work at NORML for six years at their National Headquarters. I was Associate Director of National Operation. By the time I left there I was then hired back at Students for Sensible Drug Policy which I had been involved with as a student and I was the Executive Director of that organization for four years from 2006 through about the end of 2009 and from there made the jump into the industry.

I got my start with Harborside Health Center in Oakland which was, they actually had been a donor of mine and Steve DeAngelo and Harborside had been a donor of mine at SSDTP. Helped Steve start a consulting business called CanBe which was sort of the precursor to what we do now at 4Front which helped people set up dispensaries that were very much in the mold or model of Harborside Health Center PC Medicine and sparked some of the more high end dispensaries in Northern California at the time. This was in 2010 and from the ashes of that that great experiment as a little ahead of its time came 4Front. I mean I could say my motivation in making the move from the advocacy world to the business world really was advocacy driven. As an advocate who had been working with some of these better dispensaries. At the time this was almost exclusively Northern California.

The scene in Colorado was just barely starting to develop then but you know I could see the places like Harborside and Berkeley Patients Group and some of these really professionally run dispensaries, I could see the impact they were having on their communities and on changing public perception and it became apparent that if we could demonstrate to the public that cannabis could be distributed in a way that is socially responsible and community focused that it would have as much of an impact on changing public opinion and ultimately ending prohibition as the work that we had been doing as advocates through nonprofit organizations in D.C. and the idea of being able to sort of patent, you know harvest the power of private enterprise and utilize that to help end prohibition I found to be extremely sort of fun and different and a novel approach to this and kind of jumped in with both feet and haven’t really looked back since.

Matthew: That’s really interesting. You know a lot of people ask me all the time how do they get into the cannabis space and I hear you and Troy Dayton and a lot of folks that Steve DeAngelo all have this advocacy background or they’re still advocates at heart in one way or another so people out there listening that’s a great way to get started in the cannabis industry.

Kris: Absolutely and I may even add to that particularly if there are any you know younger folks, college students in particular that are listening to this to get involved with a Students for Sensible Drug Policy Chapter on your campus is probably the number one way that you can go about getting involved with the cannabis industry after graduation. We certainly know that most of the businesses out there when they see an applicant with SSDP on their resume that resume generally gets put to the top of the pile because they know that’s somebody that is dedicated, is motivated, is trained on the issues and is likely going to be a highly motivated employee.

Matthew: Great points. Now switching gears a little bit how many states currently have legalized cannabis one way or another?

Kris: I believe we’re up to, I believe it’s about 36 states have some degree of cannabis or medical cannabis legalization, but it really varies wildly from, you know from your adult use states like your Washington, Colorado, Oregon, Alaska, and D.C., D.C. not being a state, to some extremely restrictive you know CBD only legislation that even prohibits the production of CBD medication within those states. So when we talk about having legalized in some form or another there are, there really are vast differences between those on the full legalization end of the spectrum and those on the sort of CBD only conceptual end of the spectrum and there’s sort of everything in between.

Matthew: Everybody talks about Colorado and Washington and now Oregon and Alaska quite a bit where adult cannabis use has been legalized, but let’s talk about some states that aren’t on the radar as much for people starting with Maryland. What’s going on there?

Kris: Sure so Maryland passed a medical bill, medical marijuana bill last year. I believe it was late last year. They have been going through the process of implementing that you know much to the chagrin of understandable chagrin of many patients. These laws take a while to implement and so it’s not like once a law passes you’re going to have dispensaries within a few months. It generally takes time because the state has to go through rule making. And so they’ve been engaged in that process of coming up with the rules that are going to govern the medical marijuana program. They are extremely close to being done with those rules. In fact they’re expected to be adopted next week. So once that happens the state will then open up an application process for people and companies who want to cultivate, process, and distribute through retail dispensaries medical cannabis to qualified patients in the state.

The way they’re going about this is they’re going to grant about I believe it’s 15 cultivation licenses for the state and up to 94 dispensary licenses. There’s a max of two per senatorial districts, state senatorial district so it’s unlikely that they give out all 94 licenses the first time. There’s a lot of really rural districts in the western part of the state where I think it’s unlikely that you have two applicants, but they’ll have the ability to grant up to 94 and those no defined number of licenses for production of infused products. They’re going to grant as many as they think the market needs and that process will happen over the later part of this year potentially into early next year. We expect that by the next fall of, sorry next Spring of 2016 that winners will have been announced. Hopefully a little before then and you will start to see the beginnings of an industry take shape with likely the first dispensaries opening in Maryland by if we’re lucky late in 2016.

Matthew: So allowing as many processing licenses as the market will bear is that kind of a new approach or is that a little bit more liberal where they’re trying to say that we don’t know so we just want to see what happens?

Kris: Well you know I’m not sure where exactly that came from. It’s not a novel approach. Other states have done something similar, Colorado being the biggest example. Colorado had no, even under the medical program, had no cap on the number of any kind of licenses and that’s the case under adult use as well. It’s in some ways on the processing side it’s probably most similar to what we saw in Nevada where they had a cap on the number of dispensary licenses but no cap on the number of cultivation and production licenses. They said that they would grant as many as were qualified and could meet the demands of the market and they’re taking a similar approach in Maryland although they’re only doing it on processing, not on cultivation. In fact they’ve gone the opposite way that Nevada went on the cultivation licenses in having a more restrictive number.

So I think on the cultivation end it actually looks a lot more like Illinois which has a pretty restrictive number of cultivation licenses to serve a larger population of dispensaries and more like Nevada on processing where there is no cap and they’ll grant as many as they see fit. My guess though is that they are probably going to be stricter in what they consider to be a minimum standard for licensure in Maryland then they were in Nevada where they, essentially in Nevada they granted them to everybody that applied. I think that you’ll see a lot more, you’re likely to see a lot more get rejected for not being up to par in Maryland than we saw in Nevada where like I said they basically gave them to anyone who filled out a complete application.

Matthew: Staying on the East Coast here how about Pennsylvania can you give us a little synopsis of what’s going on there?

Kris: Sure so in Pennsylvania we don’t have law yet. There are two bills currently pending in the legislature one in the House, one in the Senate, with two very different visions for how medical cannabis will look in the state. One of the bills I believe the Senate bill is more of a traditional medical cannabis bill which would allow for I believe it’s a 125 dispensaries and 60 cultivation facilities with a fairly wide ranging list of qualifying conditions. Whereas the House bill, and forgive me if I’m flipping those two I haven’t gone back and double checked my research on this, but the other bill I believe the House bill would look a lot more like New York’s program with a very restrictive number, a small restrictive number of licenses both in cultivation and dispensary or cultivation, production, and dispensary a much more limited qualifying condition list so there would be a much smaller patient base and a ban on any smokable products which is the case in New York and Minnesota. So you would only be able to sell vaporized oils or vap pen cartridges or different kinds of edibles but nothing that could actually be smoked.

So we don’t know what’s going to happen exactly in Pennsylvania. My guess based on some intel that we hear from behind the scenes is that the final bill will likely look like a compromise between the two and that’s likely going to pass sometime this year. So we will see them then getting into rule making so they’re basically about a year behind Maryland or a little less than a year behind Maryland but if this does pass then we’ll begin to see the formation of a market late this year and into sometime next year when they’ll start accepting applications.

Matthew: And on to Massachusetts where you are currently what are some of the unique aspects of legalization in Massachusetts because I believe it started out one way. The governor got involved or a new governor and that it changed is that right?

Kris: That’s absolutely right. So what’s happened in Mass, my current home state, I’ve bounced around quite a bit in the last few years, but here in Massachusetts the first round of the program by statute they had a limit of 35 total licenses. Now in Massachusetts these are vertically integrated licenses so the license gives you the right to cultivate, process, and dispense and you essentially have to vertically integrate. There’s a small, the potential for a small wholesale market amongst those license holders but it’s more like Colorado’s old 70-30 rule with actually more restrictions. You have to demonstrate a need in order to buy something wholesale. So if for all intensive purposes it’s a vertically integrated market where everybody has to produce everything that they sell within their dispensaries.

So by statute when they first granted the licenses the state was limited to a maximum of 35 licenses with a minimum of one in every county and a maximum of five in any county, and so in a process like that you had to have a really competitive licensing process. And so there was a competitive application process for those up to 35 licenses. It was, it wound up being rife with controversy. They initially granted about 28 licenses just under half of those were then kicked out of the process for allegations of having lied on their application or misstated support from locals or having set up you know improper management or funding structure. There were a whole bunch of different reasons and a lot of it frankly was just very political. There was controversy over political cronyism you know that the top scored applicant in the state happened to be a former congressman and district attorney with no operating experience but very close ties to the Head of the Department of Public Health at the time. And so there was some media controversy around that, and what ended up happening is essentially you had only 15 licenses that made it through after that first round. They didn’t come anywhere close to the 35 that were necessary. To date only one of those is actually open and we’re now over two years into the program so it’s been a real slow go here in Massachusetts.

So what wound up happening was I mentioned by statute you had a limit of 35 but that limit expired two years into the program. So we’re now passed the two years. There is a new Governor. Governor Charlie Baker who came into office this January took a look at the program and decided to lift the cap which the state had the right to do after two years so there is no longer a cap on the number of licenses, and they’re approaching this current round which is actually ongoing this licensing ground as if it’s or similarly to the way they’d handle a pharmacy licensing process. So it’s a rolling application basis. You have to go through a few different steps of applications, a few different phases of applications to demonstrate your competency and financial wherewithal and to demonstrate that you’re in a community that is comfortable having you there so you have to demonstrate support from the community and everybody that meets those criteria is supposed to be granted a license.

So that’s ongoing. It’s early in the process. Nobody has gotten a license yet in this second phase. It’s too early for that, but by the end of this year and through the course of next year we’re likely to see a whole number of businesses get license in this state. And so I think we will see that number rise from 15 to I would guess it will be anywhere between 75 and 200 by the middle to end of next year. And then of course in Mass we at that point we start dealing with the potential for adult use and there will be an adult use initiative on the ballot in November 2016 which will obviously create a whole new market opportunity for both these existing license holders and potential new entrance into the market.

Matthew: Wow a lot of changes there and opportunity in Massachusetts. Now what about the dysfunctional markets as I like to call them I mean can we call New Jersey and Connecticut dysfunctional markets where there’s just not enough business owners able to do the right thing and there’s not enough patients that are able to get access in a geographically dispersed way. Am I wrong about that? They just seem kind of like clusters.

Kris: No I think you’re absolutely right, New Jersey in particular. If I had to sort of pick a poster child for dysfunctional or a practically non functioning market it would be New Jersey. They have, they have I believe only three dispensaries currently open. They have a limit on the number of products they can sell. They have a limit on the THC content that can exist in any flowers that they sell I believe it’s 10 percent maximum THC. And the state has been a real roadblock at sort of every step of the way for businesses to get up and running. This is largely political in New Jersey I mean you had a fairly restrictive bill that passed in the first place so some of this was unavoidable, but what happened in New Jersey was this bill was passed at the very end of previous Governor, Governor Corzine’s tenor in office. He was a Democrat in support of medical marijuana and he signed this into law literally on his last day in office. He got a whole bunch of bills his last day. He signed them all into law.

So Governor Chris Christie inherited this law when he took office but it hadn’t been implemented yet so implementation fell on Chris Christie who I think anybody who follows this issue knows is really terrible on the issue. He’s a huge opponent of cannabis of any kind medical or otherwise and he’s probably the worst of any of the Presidential Candidates in either party. And so he has basically set up this program for failure. He stonewalled efforts to move things forward at every turn. He’s not been open to additional qualifying conditions. So this was sort of by design that the program would be dysfunctional and that’s exactly what’s happened.

Connecticut is a little bit of a different story you know you don’t have as hostile of a government there. They have a fairly limited qualifying condition list so that is going to limit the number of patients and we typically see that more in states that pass these via the legislature rather than by ballot initiative. A lot of the legislature states have more restrictive qualifying conditions and then Connecticut has some pretty silly rules as well like you can only sell pre ground medicine. You’re not allowed to sell whole flowers you’ve got to grind it all up first and nobody can tell whether it’s good or not because that certainly prohibits folks or is a disincentive for folks to go and visit dispensaries. And there’s a fairly limited number of the licenses in the state although to be fair Connecticut is a pretty small state geographically and they are actually attempting to address this. They are currently holding I believe hearings or some process to add additional qualifying conditions in the state, and they are in the process of adding I believe three new dispensary licenses. I think there’s five currently in the state. So there’s some moves that are being made in Connecticut to start to expand the program and make it a little bit more functional whereas New Jersey I think is just sort of you know stuck in the mud until they’re able to get rid of Chris Christie.

Matthew: And how about Florida? What’s the story there?

Kris: So Florida is currently implementing a CBD only bill so they accepted applications about a month ago from companies that are looking to open cultivation dispensaries for CBD only medicine. Essentially it is something that’s going to have less than 1% THC and a substantial CBD content. This is the type of oils medicine that we hear about in sort of the Charlotte’s Web type reports that particularly helpful for children with Dravet syndrome and Epilepsy. And so those licenses will be granted sometime soon. I haven’t been following that one as closely because we’re not involved in that process, but I know the apps went in a couple months ago or a month ago and folks are waiting to find out who’s going to be granted those licenses, but that’s going to be an extremely limited program and very limited business opportunity.

The real thing to watch in Florida is going to be in the 2016 election. They are likely to have a legitimate medical marijuana initiative in that election. It will look pretty similar to what the ballot initiative that failed in 2014. “Failed” I should say with sort of quotation marks in that in Florida you need 60 percent to pass an initiative and they got 57 ½ percent. So it was probably the biggest or the best failure we’ve ever seen. It was a, in most elections that would be considered a landslide victory with 57 ½ percent, but in Florida that is considered a loss. But you know the fact that it’s being run a couple years later with a couple more years of support and being done in a Presidential Election where you’re going to have a much higher youth voter turnout and they tweaked some of the criticisms of the initiative the first time around. I think it provides a lot of hope that that initiative is going to pass and I think it probably will. If that’s the case, then we’ll see a real medical marijuana program with a robust qualifying condition list and real business opportunities in Florida to take shape after that 2016 election.

Matthew: Illinois is kind of a unique animal where the medical patients are kind of treated like they’re prisoners you know they’re getting fingerprinted, background checks and it’s really I would say it really adds a lot of friction to patients coming online. Is that your take on Illinois?

Kris: It is. That’s very much the case. You know Illinois’s program it’s pretty restrictive in terms of the qualifying condition list so there’s already a limited number of conditions that will qualify someone to become a patient. And then there are some restrictions around that that are actually pretty unique to Illinois and the Illinois’s program. You mentioned fingerprinting. That is one and anybody who wants to become a medical cannabis patient in Illinois needs to register with the state as is the case in most places, but they need to be fingerprinted and put their fingerprints on file with the state. Which you know you can imagine for folks that are a little bit paranoid about, already a little paranoid about being on a list of being a marijuana user to put your fingerprints on file it’s a big undertaking and probably a nonstarter for a lot of folks.

They also have a provision where anybody with a felony conviction is prohibited from being a patient in Illinois. That is also unique to Illinois and you know as we all know the war on drugs and the war on cannabis has certainly been implemented disproportionately within inner city communities and communities of color and sort of the irony there is that the folks that are the most likely to be victims of the drug war and to have been targeted by police for marijuana enforcements and marijuana enforcement offenses are now legally prohibited from not only being involved in the industry but legally prohibited from becoming a patient even if they have an ailment that would otherwise qualify and so the result has been there are virtually no patients in the state.

I believe at last count they were up to something like 800 in the state which for a state of, I think it’s a state of about 6 ½ million people or 8 million people is just, I mean it’s just paltry you know you have 51 dispensary license holders in the state and 19 I believe cultivation/production centers that are approved in the state and it’s just hard to imagine with the current, sort of the current climate there around patient access and becoming a patient that those are going to be viable businesses in the short term.

The good news in Illinois is that at least what we’re hearing I think the government seems to realize the problems with this, and so I think that we’re probably over the course of the next six months to a year likely to see some movement to ease some of these restrictions and allow this to become a more functional legitimate market. So hopefully that happens before most of these businesses get online so we can save this thing before it becomes dysfunctional because right now nobody is operational and I think there’s a realistic possibility that that actually happens.

Matthew: Wow talk about perverse incentives you’re sending felons, you’re convicting them again but this time to the black market that’s just and you’re saying well we just don’t care if you have a medicinal need for cannabis you can’t have it.

Kris: That’s right. I mean talk about the irony. Some of these folks they may have been arrested because they were medical cannabis patients in the first place. And so somebody who had to break the law in order to treat their medical condition now that that medicine is legal they are legally prohibited from using it because they, because they took that step of breaking the law to get it when they needed it before it was legal. It’s just absolutely absurd.

Matthew: Now going back to the Northeast to neighboring states Vermont and New Hampshire what’s going on there?

Kris: So two different programs although they actually look fairly similar. New Hampshire is just a few years behind. So Vermont has an existing medical cannabis market although it is very small and relatively restrictive. There is, it’s a pretty restrictive qualifying condition list and there aren’t a ton of patients in Vermont to begin with, and then there was I believe they actually got rid of this but there was a restriction on the number of members that any dispensary could actually have. So even if there were enough patients who were actually prohibited. You were actually prohibited if you were an operator from serving all of them. I believe they’ve expanded that over the last year or so.

So there are four dispensaries currently operating. They’re vertically integrated so similar to Massachusetts or Arizona and some other states. And I think we may see an expansion of that program over the next year or so but more likely what’s going to happen is I would predict that Vermont is either the first or the second state to adopt full adult use legalization through the legislature. To date they’ve all been ballot initiatives and it seems like Vermont and Rhode Island are kind of in a bit of a race, slow race but a bit of a race to become the first state to do it through their legislature, and I think one or both of those states will do so probably in 2016. So I think that’s where we look for the real market opportunity in Vermont is once adult use hits.

In New Hampshire they just went through licensing so they similarly have a vertically integrated program with a relatively restrictive qualifying condition list, not absurdly restrictive and so there’s expected to be a smallish patient population but enough to create a small market there and the state just a couple months ago granted four of those vertically integrated licenses to three different companies who are now in the process of seeking local zoning approval and building permits and getting ready to build those businesses. So we expect that the first dispensaries will come online in New Hampshire, if we’re lucky, the end of this year but more likely at the beginning of next year and into next spring.

Matthew: I just want to backup a little bit because there might be some new listeners to CannaInsider and they might not understand the context of what, how qualifying conditions can really impact the size and scope of the market. Can you just touch on that a little bit?

Kris: Sure so qualifying conditions means the, essentially the ailments or illnesses that would qualify somebody to become a patient under that state’s law. So some states are fairly restrictive in the qualifying conditions. So in the case of like a New Jersey I believe they only have I think it’s only five conditions that qualify unless they’ve expanded that which I don’t think they have. So it would be things like Cancer or Aids, Multiple Sclerosis, maybe Glaucoma and then there are states that have more open policies that have essentially allow doctors to determine whether or not the patients have a condition that would benefit from the use of medical cannabis. Typically the inclusion of chronic pain or chronic and debilitating pain as a qualifying condition list is sort of the linchpin for whether a market is a large and robust market versus a smaller, just a much smaller market in general but the majority of patients in most of these states become patients for chronic pain which makes sense.

It’s a condition that probably more people suffer from than just about anything else in the country. It affects people of basically all age groups, all demographics and cannabis is quite effective in treating pain. So we typically see that and so when you look at states that have larger patient populations states like California, Colorado certainly pre-adult use, Arizona, Massachusetts which is growing now. These are states that all have chronic pain or a catch all. Anything that your doctor thinks is beneficial for they can recommend as opposed to some of these states where we talk about more restrictive markets where they typically don’t include chronic pain and have a much more restrictive list of conditions that would qualify somebody to become a patient.

Matthew: Great overview. Now going out into the middle of the Pacific Ocean can you tell us what’s happening in Hawaii?

Kris: Sure. So Hawaii has also passed legislation allowing for dispensaries. Hawaii’s a little bit of a different case then some of those we mentioned in that Hawaii has had a medical marijuana law on the books for I believe over a decade. They were actually one of the earlier states to pass medical marijuana. They were actually the first state to pass medical marijuana through the legislature and not through ballot initiative. Similarly to what I mentioned I think it’ll be either Vermont or Rhode Island for adult use but there law never allowed for any licensed businesses. And so they early this year passed a new law or actually formerly just about a month and a half ago passed a new law that would allow for the licensing of vertically integrated dispensaries.

So they’re going to be accepting applications in Hawaii. I believe they started accepting those applications in late January so groups are gearing up to apply. There is a limited number of licenses per county which in Hawaii is basically per island essentially and those will be vertically integrated licenses where you get one cultivation/production facility I believe and two dispensaries for each one. There’s a limited number per county and that process will start happening here very soon. So folks are really sort of jockeying for position and nailing down real estate and local support and all the things that you need to do to apply for one of those licenses.

Matthew: Now how will reciprocation work or can you explain what that means and how it will work in Hawaii?

Kris: Sure so Hawaii’s law allows for reciprocity meaning that dispensaries there will be allowed to serve people who are approved patients in other states. That doesn’t go into effect until sometime in 2017 so for the first year or so of the program these businesses will be limited to serving Hawaiian patients only, but after about a year or so that will open up and they will then be allowed to serve patients who are qualified in their home state. Which is a really big deal in Hawaii because I mean it’s something like 30 percent of all tourists to Hawaii from California.

Matthew: Right.

Kris: Where you obviously have a very large patient population so that could be, that could really be a difference maker in terms of what the market in Hawaii ultimately looks like.

Matthew: Yeah great point. It does seem like its half Californians whenever you’re there so that does seem true. Probably it could double or triple its market just by allowing the reciprocity or once that gets going.

Kris: Yeah I think absolutely. It probably more than doubles the market there. If you allow the inclusion of, I mean if you just allow the inclusion of Californians let alone Washington, Oregon, the other western states where you have a lot more tourists I mean in mainland US. Like folks in the eastern part of the United States. Typically if you’re going to do a tropical vacation typically you go to the Caribbean. Western part of the United States you go to Hawaii and those are all medical marijuana states so that could be I mean I think that would actually makeup the majority of the market in Hawaii will be those tourists from the western part of the United States.

Matthew: How about Nevada? It seems like their state and local governments seems really welcoming to cannabis overall. How do you feel about Nevada in general and what’s your high level bullet points about what’s important there?

Kris: Sure so in Nevada and I would say Matt if you ever do business there its Nevada not Nevada. They’ll run you out of town.

Matthew: Oh no I’ve got to get this right. I’ve got to practice right now.

Kris: So yeah I learned that lesson pretty (37:19 unclear) when I first started working there. But no you’re right the government has been quite receptive to cannabis reform and the medical cannabis program in general. It’s been one of the fastest states we’ve seen to implement. They basically hit every deadline that they set at the beginning of the process. In their licensing process they moved things along quite nicely. You know the first dispensary just opened there up in Reno, and we now have one that just opened in Vegas. The vast majority won’t open until the end of this year into the beginning of next year because of the lack of product. I mean strangely the first one that opened up in Reno, actually in Sparks technically had to close I think the next day for another couple of months because they sold out of product immediately. I think they just wanted to be able to sell T-shirts saying they were the first dispensary in Nevada why they opened when they did before they were really ready. But the state has been very welcoming and Nevada also has right now the only real reciprocity program in the country until Hawaii comes online where patients from out of state are allowed to purchase in dispensaries in Nevada. In fact the standard for that currently is that you have to sign a sworn affidavit at the dispensary door that you’re attesting that you are a patient in another state and that’s all the proof that the dispensary needs in order to serve you.

Matthew: I love Nevada.

Kris: It’s great.

Matthew: Wow that’s crazy.

Kris: And you know it’s interesting that is an incredibly important piece for what this market is ultimately going to look like as we all know right and Vegas in particular I mean it’s as big a tourist city as we have in the United States and keep in mind that in California not only is that where the majority of the tourists come from similar to Hawaii although I would imagine Californians would probably be more comfortable you know driving with their medicine in Nevada and they will be flying with it into Hawaii, but in California you don’t need to be a California resident in order to be a California patient. You only need to be a California resident if you want to register with the state agency and get a state issued card which is optional. Generally you get a card from your doctor’s office and that qualifies you as a patient in California and you don’t have to be a resident in order to do that.

So what can happen in Nevada is somebody could fly in from anywhere in the world right. Someone could fly in from Tokyo and say that they’re a patient in California and in fact they could become a patient in California. In fact they could see a doctor in an office in Nevada who’s licensed to practice medicine in California or might even actually be on Skype in California. We see that plenty in some of the California evaluation centers. Get their medical cannabis card or recommendation from a California doctor, get a California recommendation and then use that to purchase in a store in Nevada. So we expect that that full reciprocity and the acceptance of California patients whether they’re a resident or not is going to lead to Nevada being potentially the most robust medical market in the country and that’s only for a couple years because there’s likely going to be an adult use initiative on the ballot in 2016 which we’re obviously very hopeful will pass and so Nevada may join in the ranks of the full legal adult use states here after the 2016 elections as well.

Matthew: How about Arizona where Forefront’s based? I don’t seem to hear that much about the Arizona cannabis market. What are kind of the high level bullet points there which we know about Arizona?

Kris: Sure so you know Arizona its interesting. It isn’t talked about nearly as much as a lot of these states but it’s actually the third largest cannabis market in the United States.

Matthew: Oh wow.

Kris: Right now behind, although it may be moving to fourth, but it has been as of last year it was the third largest market behind California and Colorado. Washington might overtake it because of its adult use law, but Arizona actually has a pretty good thriving industry. It’s a sort of a vertically integrated market although it’s more open than a Massachusetts or a New Hampshire, Vermont, or Colorado pre adult use in that you’ve got what’s called, what I would consider sort of a closed loop capitalist market in that it’s only one license. That license gives you the right to cultivate, process, and dispense cannabis, but you are allowed to wholesale amongst the existing license holders. So currently there’s about 97 license holders throughout the state. That are open throughout the state of Arizona and what you have is a system where you know some of the urban dispensaries who are serving a fairly large population and keep in mind there’s over 80,000 patients in Arizona currently so this is actually a real market but you may have a dispensary located in Phoenix, Tempe, Scottsdale.

A really densely packed urban population that’s serving a large patient base that may not be able to build out the cultivation and production capacity to meet 100 percent of their patient needs in which case they’re going to be purchasing a fairly large percentage of their inventory from the wholesale market. Largely from dispensaries that were licensed in rural areas of the state, but who have set up large scale cultivation facilities. Keep in mind in Arizona we rural. Rural Arizona means something very different than rural in most places in the East Coast. A rural town in Arizona is a little desert town that may have a couple hundred people and there may not be any other human beings for another 50 miles. So you know somebody who wins a license in one of those towns they’re not going to do any real business out of their dispensary, but they can set up a large scale cultivation facility, a large greenhouse and become a large scale wholesaler to the urban dispensaries that are much less likely to be able to meet their patient demand.

Matthew: Looking ahead to 2016. We’ve touched on a couple points but what are the big events on the horizon? I mean is this, I mean have we, is this when the bow wave becomes a tidal wave and if this totally sweeps the nation?

Kris: Well that’s certainly the hope. You know I think we’re going to see a little bit of a test here in 2015 with responsible Ohio and the initiative basically that would legalize medical and adult use in Ohio. That’s a much tougher election to win because it’s an off year election not even Congressional or Senate or Gubernatorial elections and those are typically really bad for our issue because typically the only people that turn out to vote in those elections are old people who are demographically not in support of our issue but 2016 is really the year to watch. I think we’ll see sort of the first shots across the bow through the legislature in one or both of Rhode Island and Vermont. So we are likely going to see legalization in one of those two states. They’ll be the first. Whoever does it will be the first in the eastern part of the country outside the District of Columbia. So say the first state to do so and certainly the first to do so through the state legislature. And then the 2016 election that could very well be the tipping point for this issue. You know we are going to have full adult use legalization on the ballot in at least five states. Those include California, Arizona, Nevada, Massachusetts, and Maine.

We may also see initiatives on some combination of Michigan and Missouri. Possibly even Ohio if things don’t pass this year so you might see some of those mid-western states run their own initiatives. You will definitely see a medical initiative on the ballot in Florida which I think is likely to pass and so that’s a huge amount of movement and there is a decent chance that all of these pass. I think our battlegrounds in 2016 are probably Arizona and Nevada. They are the most conservative of the states and we’re likely to be starting with the polling closer there then we are in some of those other states. But you know if we can win in four out of five legalization initiatives or five out of five legalization initiatives which I don’t think is impossible and I think it’s actually doable depending on how much money we’re able to raise and how much money the opposition is able to raise. You know if we can run the table in 2016 and go five for five in legalization and maybe tack on Florida for medical, it becomes really difficult for our opposition and even for establishment politicians to claim that this is a legitimate political debate.

Matthew: Right.

Kris: If every single time this is put to the voters the voters have voted for it including in what are now some conservative states. We already won Alaska. We may win in Nevada and Arizona the next time. I just think that that opens the floodgates for political support for this issue, for movement in state legislatures, for movement in Congress, for public support increasing even further than it already has and becomes really difficult regardless of who might win the Presidential Election in the same year. It becomes really difficult for the Federal Government to scale back the progress that we’ve made. I think at that point it becomes a matter of when and not if.

So really important for folks who are out there listening I mean to take this all the way back to where we started with the advocacy side of this and my motivation being ultimately ending prohibition and that being the case with folks like Troy Dayton and you know others in the industry who have that advocacy background. Folks are interested in this and would definitely recommend getting involved, donating money, donating time. If you live in one of those states volunteer your time, get in touch with the Marijuana Policy Projects with Students for Sensible Drug Policy who’s going to be running a lot of the ground game with the Drug Policy Alliance, who’s going to be heavily involved with California and you know donate time, donate money, spend some time phone banking and calling friends and family and folks that you know in the area encouraging them to get out and vote because if we can win these states then I think that is the real beginning of the end of marijuana prohibition nationwide.

Matthew: Kris as we close how can listeners learn more about 4Front Advisors?

Kris: Sure so I would suggest that you check out our website. I would go through 4Front Ventures which is our parent company and you can find out all about 4Front Advisors, 4Front Capital, 4Front Publishing, or the various ventures that we have here. You can go to www.4frontventures.com. That’s www.4frontventures.com and you can check out everything that we do at all those companies. Also just a really helpful quick resource that we provide to folks we have a daily email blast. It’s just one email a day that gives a breakdown of essentially all of the relevant headlines so all it is is a list of headlines organized by national and by state. So if somebody is interested in getting news on this rather than subscribing to 50 or more different Google Alerts they can just signup directly at 4Front Publishing and get this one daily digest in their inbox every morning with a really quick and clean digest of that day’s news in cannabis.

Matthew: What a helpful service you provide there. That’s a great idea. Kris well thanks so much for being on CannaInsider today we really appreciate it.

Kris: Absolutely very happy to be here.

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