ALC-Medical Marijuana Oversight Subcommittee

I'd like to call the meeting to order. We've got. Two items on the agenda for today I don't think my coach area has any comments and will just go in get dead moving on to adam see. Discussion of medical marijuana ownership first voting control and own owner tax liability versus profitability and i'd like to have bill pasco doorley chandler and trent minner uh come up with just have the all three come up once and make the. Make it easier. Senator chest film yes. Thank you mister chair good afternoon ladies and gentlemen welcome to the committee beal durally trant one of the concerns it has been raised over the last several weeks deals with ownership versus building control state law requires a sixty percent of the ownership if i'm not mistaken has to be by installed individuals is that correct. Yes ma'am well what is what has come to our duty needs that owner even though you may own sixty percent you don't have sixty percent of the boating rights. Within that within that entity is a matter of factor to see it that in some instance is sixty six percent of the voting rights belong to someone other than the owner can you speak to that police I cannot anybody out there II don't know what those contracts or between main- management agreements and ownership though they're all different they're all entered into my you know madorally you were in charge of this for long term could you speak to it. Send or what I can't say is that each one of these entities meets the application requirements of the sixty percent ownership and within that they are within their rights to contract the actual management of those companies and the rights within within the management itself of how the entities are going to operate to those I do not currently have any of those contracts to review to see what they're there contractual rights are but as far as ownership interest mim at ninety eight require sixty percent of the owner of the introduced whom the license is issued to be within arkansas residents well I guess was troubling to me and one of the reasons that I respond to this legislating you're talking about a new industry in this state. We're talking about an industry that is for the most part on regulated as far as what you're telling me is concerned because of part of any entity is who runs it and who runs it is the individual that controls the vote and microwave. Trip anybody the entity that controls the vote controls the business so even though I may own sixty percent it might only have sixty percent of the boating rights I don't really control my own business are you in my current. Now we're will I foolish out here we know that center the only thing I can say much like with the alcohol licenses the person's name who. Is on that piece of paper is the license is the one that's responsible for that business there so you don't know anything about management. Um those contracts are entered into among the owners on the front end those are contracts that those folks have to sign off on II don't know about individual management contracts per licensee as you know we have forty six licensees in the state and we have a twelve of those that have management contracts that are in state and we have seven bed or out of state management contract so out of forty eight we have nineteen total licensees have entered into a management contract and I have not seen any of those nineteen contracts. So there is no way to use to know ownership. And the ability to vote on issues that deal with that company the person who votes and has the voting power controls the industry. So if I have sixty percent ownership but I only have sixty percent of the boating rights in that industry I don't really control it. And nobody here knows anything about that. We're just sitting here looking like need in the first reader you never heard anything about it. I can't you talk about it because there's a lawsuit about it right now there is a lawsuit and and that's why you're not saying anything now i'm not trying to be advised if you're senator but there's as I mentioned to you there's nineteen uh management contracts and they may come in all shapes and silences at you know you just don't even know I don't I don't know about you know whose date tried to know I think about so when it comes to their management agreements if a license has a management agreement they are required to let us know about that and submit that either at the time of the initial application or at the time that that application. They applied for a renewal of their license and abc that as abc reviews that the medical marijuana commission reviews that and the attorney general's office reviews that. With that is smarter to copy the management agreement the management agreement is reviewed to ensure that. Sixty percent of the ownership is with arkansas residents to comply with the minimum ninety but it does not deal with who has the voting rates within the company that's correct center. In their seems to lie the ruth. Because I may on paper own sixty percent but if I don't control the vote in their company I know control that company. That's my concern. Nor leave while you were there to challenge and look at the yesterday way review the management agreements when they came in because I b c acts of the ministerial arm for the commission those agreements were provided to the commission for review and amendment ninety eight while it's highly regulated they're within memoriatives that private right to contract the minute does not speak to management agreements and so the regulations of a member ninety eight and those entities license under it it falls with the end the rules and rules that were drafted by the mmc and abc and so that deals with the day two day operations but not the company that in that is brought in and privately contracted with two manage that entity on a day to day basis and those are private contracts that were not investigated I don't think when the rules were created and the amendment not eight was drafted. When we're talking about ownership versus control and tax liability. Those individuals with whom I have spoken say that they have the tax liability but they aren't getting the profits. Could you speak to there. Airbags so saturday so once again that falls within their agreements there are management agreements and their contracts and those applicants those permit holders and ownership interest have that right to contract and to read those agreements and enter into those agreements of how they white the dividends distributed and so that is something that is contractual with the those entities and their ownerships to agree to and read and work with their council on one establishing there's a night something that is within amendment ninety eight control for the oversight so amendment ninety eight obviously did not envision. The ability of individuals to get around the perview of ninety eight it seems to me but it is very concerning when I hear that you can own sixty percent of a company but somebody else can have sixty six percent of the boating rights in that company and therefore control that company and we have no control whatsoever. Over any of it. That's particularly concerning and it's it's one of the things that I wanted to committee to look at because we have got to do a better job of monitoring and in a multi million dollar industry and we don't really have any answers thank you mister. The. As soon as you're sullivan you're recognized I share the concern but it's not unique I don't think I think in women a minority own businesses that minorities and women own businesses but then contract out the management and lose actual control over the business are you familiar with their. Courier in my courier there may they enter into a separate contract to manage it they are the official owner but they do not control the company so I share the concern but it's not unique to work what we do in and our bids and thanks thank you thank you mister chair. Mister minner I have a quick question. Once once this contracts are submitted to you is there anything that protects them from foyer. So. If if a request is made on the arkansas offering of information act for these are for these contracts they do they would qualify as a public record and be subject to foyer without an exemption so if the person whose agreement is a search and the exemption under. Let's see for its competitive competitive business records essentially that it would harm their competitive advantage then my understanding is that avcs historically honored that. Okay. Thanks for the clarification. Senator johnson your recognized thank you mister chair our concur was senator chesterfield frustration a II think this is not or getting the weeds are promise but any time we take something that ought to be in statute. And we put it in the constitution or shall I say special interests knowing exactly what they're doing put it in the constitution this is a car thing we're dealing with if if this was exactly the same program what were statutory and had been percentage of the voters as an initiated act we'd be able to deal with these kinds of problems right here and assession maybe even some ways in the rules but this is an example of what happens for your people out there when you put something in the constitution you get a lot of unintended consequences I agree with center gesture feel that the owners should be responsible that people we need to know exactly who is responsible party and I would recommend I would I would appreciate our brilliant staff and that all three of these people are people I have high respect for their knowledge to tell us exactly what we can fix and what sadly we can't because its insurance in the constitution that's really our head thank you mister chair. Representative dalby you're recognized. Thank you mister chair. What sorry trent it could be for you or anybody else can I just pick up the phone and call you and say can you tell me who is on the management contractor who are the parties for this abc company I mean is that I mean even without even four year can I just call yep and say can you give me the names of these folks so to be honest if you called me and asked me that I would call my lawyers. Over the turn in general's office and ask them well then let me ask. Don't just rung up treat and I said transit abc company over here and they've got a management agreement I just want to know the names of who is involved who were the owners and who are the partners are the members of the management agreement can I get that information and can I just call and this for it so you could call and request that that information but I can tell you that from the management agreements i've seen we do not have a list of the honors of those management agreements so there would not be any information be responsive to that request however if that request was in it yeah if we can tell if they contain that document then certainly that's a public record that you could disclose the information of that ownership but none of the management agreements that I have saying do we have the breakdown of the actual owners of that management company follow up mr chair yes go ahead it in regard to these management companies because this is new II was a quite sure what you know I was not aware of some of what server chesterfield has brought forward today and so are these management companies foreign companies license to do business in the state of arkansas. And so if their license to do business in the state of arkansas it would seem to me that they would have to be if there. Got this nexus connection to us. Then secretary state should have that somebody should have the list of there are four and cult corporation doing business of which a management company is doing business in the street of arkansas unless I forgotten it. Business law was way back when a is that not correct they would have to be registered correct so they would be right sure whether they're domestic or foreign and we would have they would have that regiration on such courier state what is not required as the breakdown being submitted to the medical marijuana on a commission there is a request for the management agreement but there is no request for the supporting documents for the entity that makes up the manage agreement so someone could probably get that from this sector state office for a request but that is not something that is required at the medical marijuana commission when we're followed if I may misread just brings up a lot of low questions to me sir the medical mirror on a commission are abc whoever's overseeing it they don't they're not required to have their information necessarily i'm looking at all three of the imbact can help me out but there ought to be some state energy I e the secretary of states offers or somebody like that that should have that information correct. Just some money out of here but somewhere is that right now you're telling me nobody in the state of arkansas has to have that information. But they're doing business in the state of arkansas. My understanding is the information required to be submitted to the secretary of state's office to register for an or domestic corporate entity would not require them to show no but it would at least find out who the registered agent ears and where they're businesses located and then maybe whoever was interested in that could go to that state in find out the information from that state I mean there's probably a way of doing it so my final question is our way to the point that we just need to redo the rules are have some legislation that says if you're going to be a management company of a medical marijuana facility or a growing facility or whatever then all the parties have to be identified is that really the bottom line that we need to get to. Answer this question to answer the questions that are being raised right to be honest this is my this my fifty six day on the job fifty six working day and to be honest and be honest with you trade I got a text from one of your buddies who said be nice to you so i'm being nice appreciate that i'm going to make sure he gets his check so i'm not sure he's worth it you might know who it in general though I mean if if you guys if they'll legislate a branch was to look at that then we would be happy to be part of that process. I hate to take up the time one quick question to doorley dorally you've kind of been in various positions longer than fifty six days fraternite. Would a rule change that care of this or is it need legislation and I know that's asking for an opinion but. It is as bad with that in a review you know the rules are confined to what is allowed through the statutes and through the constitutional member so if it's not contained in those two per views would be very difficult to have a just a raw change requiring a additional corporate requirements when it's not contained within the authority of the constitutional memories statutes thereafter thank you. Sooner just filled your missus share I would ask that the committee ask. Miscarried. To look at the initiated act. And give us some examples of what we can and can I do a sports modifying. The act. Because this doesn't make sense we don't know who's in our state they could be from china rush we don't know where they are nobody seems to know who they are but we do know that in this industry even though you all sixty percent of you don't own the boating rates of a company you don't run the company this state out of no who's running these companies in the state of arkansas so I am going to ask you the cheer that he request as guarantee to research it in tell us some areas where we might be able to amend the initiated actor I can current that it makes it more difficult when it's an issue but we've managed to take some initiated acts in the past. And we should be able to make some tweaks on this so that we have I am tariff people tell me that all who they are. Where they we don't know where there but they're doing business in the state of arkansas and it does as disservice not to even know who they are. Where they're from. Or any of them. So I won't ask the cheer if he would be so kind of to do that understood what will have been or see if they can work well we can change I know that the way that this was set up the. The actual initiated act allowed for lot of attitude for the legislature just to pass it instead you'd not have to make the constitution so I think I think we probably can thank you. Representative of ladyman you are recognized thank you miss chair well I thought I had to figure it out but the questions are really confused me I don't know of anybody else but so if someone has a license to operating growing facility. And they they can hire whoever they want to do whatever function of that business they want to and i'm not sure you can get any that information if they say that is intellectual property which gives them if they release that it might affect their administration the marketplace. Then they can get intellectual property protection i'll ask what is that right when the lawyers. If you eat you ask for you say this is an electoral property gives me an advantage of marketplace and I can't release that or would hurt my business that's protected. We can't get that information I don't believe. That true so many clarified with it being a highly regular industry we have access to some of the intellectual property. What some entities made deem is intellectual property that does not mean that those documents are released and as a public document they have rights and protections but that does not prohibit the regulators from obtaining and seeing some of the information just as when the abc goes in and does inspections they see the documents and and how different products are made a manufacturer that could be deemed an electoral property and but there are still loud to see those as a regulator over it but that doesn't mean that information is released as a public record. But I mean I believe even though this is a highly regulated industry that there are certain protections for a company. That can't be crossed so if I if I get a license to run a growing facility I don't have to touch there I can hire somebody. To run that for me I can even sell the voting rights if it's a value and I want to sell it to somebody I can sell that in I don't believe the state or the or any government any can stop me from selling something that at all. So I don't see how we can tweak this especially since it's in the constitution but I guess there's not a question in there but I believe it'd be very difficult to get that information if they say that it's an electoral properties. Thank you mister thank you. Representative rather you're yes thank you thank you mister chairman messages let's say that you do have a board and then you have the separate situation of the folks is actually growing the crop or whatever. If you go to court over there. Is the board not a part of the lawsuit. Are you asking if. If one of the entities were sued or given a violation by abc that would go to. The licensed entity the licensee whoever's name is on the license but nonsense management company okay but it is mischest field was saying. The board does not have the control over the people that's actually. Performing the work in all that but if you went to colored with the board not being involved in a losses. Yeah. I'm not sure to be honest. The. Speaker shepherd you are recognized. So there's been there's been a number of questions relate to the ownership and then I know there's been some discussion about what could be changed or what we could do but there is litigation that is that his actually there's been a circuit court decision and now that's up on appeal could somebody address specifically what that decision wise and then how that affects the legislature's ability one either to pass statutes related to the marijuana and to the legislature's ability to immend the amendment because I we were talking a believe there was a process set forth in the amendment for certain sections to be amended by the legislature. There is currently a pending state and plasky county circuit core regarding the authority of legislature to mandate men and id that matter has not yet gone up on appeal the order that was inner is not a final order we are still working on resolving the remaining issues in that litigation and so at this point in time it is not up on appeal until the final order is there and at that point the determination we made to appeal so there is no injunction in place at this point stopping those actions and so there is we're waiting for that final order. So the litigation at issue brought in challenged your ability to a manned mim at ninety eight and a challenge those minutes that were made to I think there's twenty three or some number of in the twenties of those amendments and so they were the challenge was to that you're authority to make those amendments to mim ninety eight. Representative now being recognized taking mr chair in one thing in this is probably asking for an opinion and I know that's not what you're necessarily here for but it appears to me that why could we not forget about medical marijuana and all of that why could we not just amend our visitor statutes regarding doing business in the state of arkansas at any buy that does business in the state of arkansas whether you if you're a foreign company. For and being outside the state for those who might not think of that nominature that way but and if you're a management company you have to register and you have to whether a management cut me a property what you're a management company of medical marijuana with your management company of. Tiddly links somewhere but you have to not only file that you have to identify your managing partners for those in there I mean is that how in the world would that valley. The amendment ninety eight. So I think I was negative that's the avenue that you all take we certainly the turn general's office big one work with you on navigating them that water way to make sure that we meet the desires that you want to meet and still remind within the authority of the constitutional limit in the laws of arkansas. Well but that would be broad that would be everybody I mean any business no matter what it is and maybe that's the way to. Work on this issue as well as I would think it might be issues for other businesses that may have somebody who's doing a management company but they're hiding behind the document whether they're managing I don't know some apartment complex that may be is not being managed well and they're an out of state actor but just a thought now I appreciate the fact that the ag's office would be willing to look at that business business legislation thank you. Thank you mister chair so just with regards to the lawsuit that depending out there the twenty three different changes that were made by the legislature set up the entire. Medical marijuana industry just as far as the framework and rules and all that kind of stuff. If this if that lawsuit does enjoy all those amendments with the ability for the legislature to make changes as that effectively shut down the entire medical marijuana industry in the state until that's resolved. Cause there's no framework at that point. For for farm to market I mean all the the rules that were put in place by the legislature were partners those changes so I would thank you just immediately stop the entire industry in the state. Without having the specific court order and final order in place I wouldn't want to speak to your at gas to that litigation in the actual results of the litigation it would still have a member ninety eight in its original passage in place at a minimum but it all depend on the order that comes down from the circuit court and the impact to be reviewed and what occurs in the appeal. Thank you. Are there any other questions on adam see. If not we will move to item d discussion or well along once again center just filled your recognized and among d with you okay err discussion rebates in state now state management contracts and responsibility for contract oversight you recognize for a question yes thank you message here in doing research with the will be all already at the research and said that in the state of arkansas rebates are illegal as it applies to medical mirror one is that correct. The. I can get misbeal here who was very very good at that. My understanding is that licensees all medical marijuana license ease **** required to update their compassionate care plans to account for rebates and discounts and that comes from the au an amendment from the general simply made to amendment ninety eight requiring rebates discounts to be included as part of the licensees compassionate care plan. So defined compassionate care plan for me and how does one qualify for it therefore getting everyday. So the compassionate care plans are put in place at it to encourage licensees to provide products special veterans are groups like that. Seniors that list less be a little bit more specific any veteran can get a compassionate care rebate. No ma'am each licensee gets to set up their own compassionate care program and they report that to the state they come in all shapes and sizes most of them and senator chesterfield have seniors veterans and the employees and the facility but they're. They're all different and not all of the lacencies have compassionate care programs. And jimmy had works. By they bay determined what they want to put in their program and they file it with state when they foul the renewal give me an example of how the rebate works if because i'm old and I need merit one it used to go give me a rebate if if you fall in one of the categories that they identify and they filed with the state if you are senior and you come in and you prove that you're senior yes you'll get the discount if you're if they identify veterans as one of the groups that they wanted in their compassionate care program and you come in and can show that you're a veteran you would get a discount in may I have a copy of their please because in doing the research. I was told that rebates were. Something that were especially forbidden in law so tell me where the change happened so I think it's a term of art there a senator i'm not aware of any rebate in the definition rebates i'm aware of discounts that folks get on the wholesale side the cultivators often get the discount to adjustment dispatch a volume by and on the retail side again the discounts can from the compassionate care program and does does this break in in in in the amount of money charge to the culture beta charges does that lead sometimes too the elimination of competition. I don't think seven you know that now I can I couldn't jump that forward to their advice I don't I don't think so you know we we see new entrance into the market we've had a couple new cultivators come on in there you know they're pretty much the low price leaders right now so we can but we can't price people out of business is that what you're saying because the back i'm in and I only charge you this amount of money. And the other gallery here's charging this amount of money we don't we don't have any price fixing in the state from the states that I know it's a it's a competitive market with but if i'm bigger and i've got more management control over all the rest of these little companies over here the rest of the cultivators and add is that then my price is going to be a hundred dollars and you're selling yours at two hundred dollars as a cultivated but I control four of those cultivation sites and all of them are going to charge a hundred you're just getting started in the business and you have to charge two hundred. You being shoved out of business in other words are you is that the whole port is at the whole purpose I can't I can speak to a purpose I can't say what is that not the effect because it's almost like the wall more than model you come in you under charge everybody else no offense to walmart your big enough you're bad enough you can charge less money. Then everybody else and then when all these other folks go out of business you can scrape up the business and then put the christmas is that what we're looking at that kind of. All I can tell you it's a competitive market there is no state. In engagement in fixing any prices that were state engagement but there certainly is not in a state oversight in fixing those prices that's another concern about that's correct the state does not have any control over pricing at the retail or the wholesale level so the little guy can get squeezed out if management controls four of the six conservation site and can charge a read of a hundred dollars and the other two people have to if they're going to say in business charge two hundred they're out of lock or they're going to have to find a product that separates them from the market and that's what i've seen in other states senator there you know they're they're not all ever going to be on the level playing field period in the story as they all have different levels of investment and different levels of business expertise so there's never going to be a straight level plainfield senator or so in its the same thing on the retail side you see some of the retailers that are doing quite well and some that aren't doing as well and some of that's location and some of that product mix and you know some of that how they separate themselves from the others and that that's part of it but as the the state law is is written there is no uh state engagement or involvement in the prices so we're not doing like cigarettes you can just in ourselves even though mere one is can be in cigarette form. Not not and be sold in a retail which we'd like to see changed by the way you can get into some taxation issues from the state saddam would make some of these smaller folks probably more viable going forward to that we have an address so if we won't have a conversation about taxation on the industry i'm i'm open to that and II do think that would help some smaller players be more competitive in survive well i'm concerned about them being squeezed out of this I understand understand where the little guy from what i'm hearing is being squeezed out of business. I understand capitalism very well but we put those people in place so that they can meet the needs of a community. And at the needs of those communities could be met with pricing that allow those people who needed the most to enjoy it. Or to benefit from it but if we have people who can squeeze everybody else out of business pretty soon we're going to have a market that is on affordable. That's my concern a legitimate concern I do believe and this body has got to take better control of their industry because I don't think most of us know what's going on one day to the next because it's not something that comes on a rate but when the little guy I keep saying i'm getting over tax liability but none of the money. There's a problem thank you mischief. Representative even your recognized me just a quick question kind of goes along with what senator chest filled was saying has ever been any case or if is it allowed to wear a cultivator offers a dispensery a percentage ownership in that cultivation facility if they only buy from that cultivator. Instead of all the others are anything that happened. Or is it allowed to happen. At acking speaker that I don't know what agreements that cultivators may have made with dispensers but there's nothing that would prevent that from happening in statute or in them initiated that a cultivator telling a dispenser if you will only buy from us you'll get will give you expercentage of our cultivation facility. Could my concern would be a pets allowed to happen that you can put everybody else out of business with one big cultivator letting everybody else get a percentage ownership in that get cultivator. Sure something that prevents that or a door do we know that that's happened or not happened or. Representative I don't have personal knowledge of that and my understanding is that's not prevented by amendment ninety eight or the rules of the medical marijuana commission beyond that i'm not sure can it in a nit of an individual own more than one cultivation facility. No sir that amendment ninety eight allows up someone to own an interest in one conservation facility license and one dispensary license one of each so that wouldn't necessarily prevent the situation that I describe. Correct thanks. Citizen just filled your recognized thank you they can't more than one. What they can manage more than one. Is that not correct. They're realised the rub say you may not all more than line which you can manage more than one and here she who manages the company dictates what's happening in the company that's where my area of concern is because we've been very explicit and state allow you can overwhelmed. But we have said absolutely nothing about who manages those companies and more than one manager. Can then a man as you can only can manage more than one entity. And we have some managers who manage a number of them and therefore control the interest in the voting. And the price setting and all of their microphone. I'm looking at by saying a whole lot is the true okay thank you yes senator wheat we do have a three companies that I can think of that have multiple interest three. Represent a w recognized per question thank you mister chable senator chesterfield was asking the very questions that I was curious about the you could be an owner of one in an amanagement company of. The other forty eight if you wanted to an effectively have control over all forty eight facilities correct it doesn't seem to make sense that owners of those ever forty eight would but she asked the question and I think someone answered it you can just make sense that that would play out that way that because they're competing and why would you want to give management control the same person that's going to be called a monopoly would it not. Just question thank you. And I did get clarification that. With a two third super majority though we can amend with legislation there are some parts of we can't and will get an answer for that but if these are things that we put into place more than likely we can modify the the previous legislation that we've done so. Are there are there any other questions. Anybody have any other business they would like to discuss today alright without seeing that will just go hidden called meeting adjourned.