Medical cannabis in North Carolina
What you need to know about the recent amendments and its significance for your business. I’m Morgan Davis. I’m an attorney practicing cannabis in business in North Carolina. Let’s talk about how to keep your business protected and thriving. So last year we talked about SB 711, also known as the North Carolina Compassionate Care Act, or North Carolina Medical Cannabis Act. SB 711 didn’t make it through last year, made it to the Senate, never made it through the House, so died at the end of the 2022 session. It had to be reintroduced the beginning of the 2023 session, which it was and is now SB-3. Same name, pretty much the same bill, though there have been a few amendments so far already in quarter one.
Let’s talk about what those amendments mean for you.
So let’s talk about the provisions that remain the same and just get a little refresher. One, though, it limits access to debilitating medical conditions so people who can apply for medical cannabis under SB-3 in its current iteration are limited to a specific pool of patients that suffer from certain debilitating conditions.
Some of these are cancer, epilepsy, HIV AIDS, sickle cell, Crohn’s, M.S., Parkinson’s, PTSD. Though PTSD has to be proven with one or more traumatic events. Terminal patients with less than six months to live and people in hospice care.
Some things you will notice are not included: anxiety, pain management, and addiction. These three categories of illnesses are not contemplated and is part of the one of the biggest issues that people have with SB-3 is that they are not considered as debilitating conditions. They also happen to be three of the main reasons that people use medical cannabis across the United States.
Authority to Regulate
The statute gives the North Carolina Department of Health and Human Services the authority to regulate. It also gives the Department of Health and Human Services the authority to choose the 20 applicants that will be referred to the commission that will hand out the ten licenses. So how that works is everybody will apply to the North Carolina Department of Health and Human Services. Who wants to apply for a license? Only 20 of that large pool will then be referred to the commission that will hand out ten licenses, very small amount of licenses, very small pool that those licenses are going to be awarded from.
Other things to note there, the original license fee is $50,000 plus $5,000 for each additional facility. Every applicant who’s going to be awarded a license has to have their own grow facility, their own distribution facility, their own retail facility. It basically it encourages vertical integration. You’ve got to own every single part of the supply chain, which makes this a very expensive license.
The license is only valid for one year.
It does allow for home delivery. It has zero social equity parts to it for the North Carolina Medical Cannabis Act. New amendments that we’ve seen already so far as it’s making its way through the House in committees. In addition to the $50,000 plus $5,000 for each of your facilities, suppliers will have to pay a monthly fee of 10% of their gross revenue derived from the sale of cannabis products.
So that means you’re paying 10% of your profit off the top back in the state every month. This is a lot of money.
Every applicant must have one distribution center in a tier one county. Tier one counties are economically distressed counties. So they’re basically saying that you’re going to have to put at least one of your distribution centers in a tier one county where these are not large population counties.
The fear is those dispensaries, those distribution centers aren’t going to make a lot of money and they’re probably going to have to drop their prices compared to, let’s say, their distribution center in Charlotte, because these communities don’t have as much money running through them as, say, Charlotte or the Raleigh area.
What is the significance of SB-3 and the amendments as they currently stand?
One, the business opportunity that is created by SB-3 is small. As I already said, the pool of applicants who get referred from DHHS to the Commission who ultimately hands out the ten licenses is only 20. There’s nothing in the statute that plans for an expansion of that number. So if you’re hoping five years from now, that’s going to change from 20 or 10 to 30, 40. There’s nothing that requires that. Licenses are only good for one year. So you’re going to spend a lot of money to get one of these licenses, and then you’re going to have to do it all over again a year later, which means you need to be sure that when you get one of these licenses, you’re going to keep it.
So any new regulation that comes out, anything you’re going to have to do to keep that license, you’re going to jump through that hoop, which means that your compliance cost as time goes on could be quite high. The placement of dispensaries is difficult, but I think does aim to help North Carolinians. The the preference of Tier one counties are not being population centers in North Carolina makes it very hard for a business because that means at least one of their distribution centers isn’t going to be making as much money potentially as their other distribution centers. So they need to factor that in in their cost, in their other placements.
That being said, it helps communities that are economically distressed, that generally wouldn’t have access to these kinds of facilities and have people who are in need of them. Failure to comply is a criminal act. So SB-3 has teeth that SB 711 didn’t have.
Several different criminal charges have been rolled into the bill this year. Most of them say that manufacturing, selling, possessing medical cannabis without complying with these regulations, results in criminal charges can result in criminal charges, and they range anywhere from a class to misdemeanor to a Class I felony. So not not small criminal action. There is also what we call an enhancement where if you are charged with certain offenses, specifically trafficking in marijuana, so large amounts of marijuana on medical distribution center grounds that has an an enhancement level that now comes with it in sentencing, which means you could be looking at many, many years in prison if convicted of it, if convicted of one of these crimes with that enhancement. So all that to say your liability for noncompliance isn’t just civil. It’s not just a slap on the wrist or revocation of your very expensive license. It could also be criminal action.
The application process to become a recommended applicant is not outlined in the statute. The authority of the Department of Health and Human Services to pick those 20 preferred applicants who then get referred to the Commission and are eligible for the ten licenses. That process is not outlined and the authority is pretty much absolute. So the Department of Health and Human Services can come up with sort of any rubric. They want to decide who’s going to get those 20 preferred spots. That means it’s really difficult for you as an applicant to know what do I have to do to to be in the running.
What’s Next for SB-3
SB-3 has passed the Senate already and is moving through the House in committees. We anticipate some more amendments as it goes. We’ll be watching and updating you along the way so you know what those amendments are and how they’re going to affect you. If you’re interested in applying or exploring the option, give us a call. We’ll talk to you about what the application requirements currently are and what kind of preparations you should be looking at for when medical cannabis in North Carolina does in fact, pass.