ALC - Medical Marijuana Oversight subcommittee
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Senator Ronald Caldwell
Unverified
4:00
Members, if you would please take a seat. It's already 933 and we will get started. I call this subcommittee of the ALC Medical Marijuana Subcommittee to order. My co-chair, Representative Hawks, has called and he's running a little bit late and I'm assuming he had to stop at Bucky's on his way up here. Since I have no comment, he's not here for a comment, we'll move to item C and rules
governing the application for issuance and renewal of license, medical marijuana cultivation facilities, blah, blah, blah. Chrissy, are you here? I know. That's all right. Well, my co-chair is here. I will ask if he has any comments. He does not. thank you all for being here if you would please identify yourself for the record
Speaker 8
5:20
and you're recognize good morning i'm christy lorigan i am the regulatory administrator for the regulatory division
Speaker 10
5:26
which is abc mmc atc and the racing commission
Speaker 12
5:34
and I'm Katie in a house I'm the assistant administrator head of legal
Speaker 19
5:48
over the same industries there we go Brandon
Speaker 21
5:56
Crawford staff attorney for ABC thank you Chris you recognize there we
Speaker 8
6:09
go good morning so we are here with rules today what we colloquially referring to as the management rules the whole point of these rules which did go through several versions and at least two public comments is to make sure that our Arkansans have control over the companies that they have licensed here within the medical
marijuana industry. When the, which was before our time, but when the first medical marijuana licenses were issued, obviously there was law that said 60% of the ownership needed to be with Arkansans, but they didn't necessarily know how to run a marijuana business because it was brand new. So there were a lot of management companies that were coming in from out of state and they were called management companies, but what they actually were doing was every single thing that the license allows an Arkansas owner to do. So
Speaker 24
6:55
the point of these rules was to make sure that
the control lies with the licensed entity and not with any out-of-state actor who might come in and end up seeing all the profits or controlling all the day-to-day operations
Senator Ronald Caldwell
Unverified
7:19
beyond general management. that's the extent of your comment i'm i'm i'm just asking okay i saw your head shake yes okay committee uh any questions
Representative RJ Hawk
Unverified
7:32
representative thank you mr chairman um so i know as you mentioned that there's been multiple of these rules that have gone through and much before your time uh my question is so Have the rules changed at all from what previously? Because I know there was some discussions on people that got an application in the last go-round, and they think that they may still have some rights to that application, or are these rules putting in place so where if somebody applies now,
it's a new fresh slate of applicants for a new dispensary or a grower or whatever that
Speaker 24
8:14
might be? What I believe you are actually referring to our licensing rules, which is a taming the application We are here on management rules today Which is simply giving the medical marijuana commission the ability
Speaker 8
8:27
to review management contracts that our current license holders enter in without of state We are not here today on licensing rules Licensing rules would be what gets out any remaining licenses if the medical marijuana commission decides to open up
Representative RJ Hawk
Unverified
8:41
okay so just and i'm glad you clarified that so these are just the management side
there isn't just so nobody we're getting emails or anything this has nothing to do with the applications themselves
Speaker 8
8:51
yes and we appreciate that distinction too this is this is about management companies licensing rules are something totally different there will have to be a set of licensing rules that is passed in order to get any of those additional licenses out the agency is
Speaker 24
9:03
not quite there yet but that is in the works and in some respect awesome thank you thank
Representative Jack Ladyman
Unverified
9:15
you representative lademan thank you mr chairman i'm over here uh you said you had two public
comment periods i think you said that um you know there's been a lot of uh merging and buyouts and that sort of thing in this business since it started uh did you get any public comments was there any concerns and could you kind of summarize some of
the more prevalent comments? Sure and I think we'll have
Speaker 8
9:41
some comments here today as well which are pretty similar to comments we've heard in the past. There was a general argument that what we experienced in the beginning with these
out-of-state management companies coming in and showing everybody how to do the job that that's not really happening anymore because now as the industry has matured each individual license is now being run more efficiently and they don't need those out of state companies anymore. So I think the general argument from the other side of things was this is not a problem anymore so we don't need these rules to solve it. I do believe we also had some public comments that had to do with commercially reasonable. That is a legal term of art that is used very frequently to make sure that we know
what makes sense for that industry so what may be commercially reasonable for a medical marijuana dispensary may not be the same for a liquor store which abc also regulates so what we did was instead of giving finite rules of the management company cannot contract over x amount of dollars instead we said the management company cannot contract in an amount that's not commercially reasonable so that way we can hear from the industry what is the standard so that way it's not just the medical marijuana commission we're actually looking at the
Speaker 24
10:56
industry as a whole to try
to determine what makes sense and what's
Representative Jack Ladyman
Unverified
11:03
reasonable another question if I might and you may not be able to answer this maybe it's not related to what we're talking about here but there's a lot of movement especially in Jonesboro where I live people moving across town or moving out in the county or whatever uh so has there been a lot of movement from certain parts of the state with these growers or these people
in this business or are they concentrated in a certain area
Speaker 45
11:31
i'm going to say there is frequently movement but in that area specifically i hope
Speaker 24
11:37
i'm not putting him on the spot but brandon is our staff attorney who works in receiving those applications for transfers of location so maybe he would have a
Speaker 20
11:46
little bit of insight brandon sure just for clarity are you talking about the facilities moving or are you talking about people moving the facilities right okay yeah we have had I'm trying to think of the last transfer application or location change for a cultivator yeah it was definitely in Pine Bluff we have one county that
has two cultivators a couple of counties a few counties with one outside of that obviously it's mostly zero but there hasn't been a lot of movement since inception of you know the market so these facilities are expensive to build and so once they build them out they generally stay put can you address that for the distributors distributors are they moving around from state and from well so so we have cultivation facilities we have dispensaries dispensaries i'm sorry oh dispensaries move frequently i mean they're tied to their zone but they have bounced around not you
I don't know that there's necessarily any method to that but as long as they stay within their zone They're entitled to move. So they several of them have yes, but they've stayed within
Representative Tracy Steele
Unverified
13:05
that zone. Yes, sir. Thank you Representative Steele Thank you, mr. Chairman not not quite sure what I can and ask cannot so you guys ring me in if I'm not within the agenda and i probably should ask representative cozar about this but do we still have a cultivation
facility that is taking applications in the hot springs area that we what happened with that and does that have to stay
Speaker 56
13:30
while you're asking in the hot springs area so what
Speaker 24
13:35
i believe you're referring to um is there was a revocation of a dispensary license in the hot springs area there also was a dispensary license in that zone that was never issued. So hypothetically, there could be two dispensary licenses within that zone if we pass those licensing rules that I was talking
about earlier, which is a separate set of rules. Once those licensing rules are passed, it will give us information on what do we do, one of the licenses we revoked, and what happens when that reverts back to the state how that gets issued so that was not addressed in the previous rules which is part of the reason why we need these licensing rules to clear that up but right now that lawsuit is not completely resolved it was a two-pronged lawsuit there was a revocation that the permit holder was fighting and there was a non-renewal that the permit holder was fighting
the state has been successful and the AG's office helped us out make sure that we did the right thing on the revocation but it is not yet decided on the non-renewal we expect we will be successful and that license will revert back to the state but until we have those licensing rules there's nothing at play in hot springs right
Speaker 57
14:47
now and if it reverts back to the state then what's the
Speaker 24
14:51
next step is it the next step is getting those licensing rules passed which will provide a mechanism for the medical marijuana commission to get that license so in the past it was a scored application
and there were some issues with how that the scoring was done by an outside third party. This time there's probably going to be a different mechanism for that. One
Representative Tracy Steele
Unverified
15:14
quick follow-up, Mr. Chairman, if I could. Just in general, how has the federal rescheduling impacted our medical marijuana system here? I'll let Katie and a host to take that one. She is our head of legal and
Speaker 24
15:26
she also came to us from the federal prosecutor's office, so she has a little bit of insight.
Speaker 12
15:33
Well, and I don't have a lot of information because there hasn't been a lot of changes on the state end. We are still regulating in the same mechanism that we were. I think most of the dispensaries and cultivators are registering with the DEA and having those inspections done, but they have not affected our state regulatory
Senator Jim Petty
Unverified
15:55
agency. Thank you, Mr. Chair. Thank you. Senator Petty. Thank you, Mr. Chair. I'm hoping that maybe it's just me, but could you clarify, as I was preparing for this and reading the rules, it said, I got the feeling that this was new, but then something was said earlier about when it first rolled out, maybe there were some rules, maybe they just weren't formalized.
Is this the first swipe at official rules
Speaker 66
16:21
for this subject? To make it to ALC, yes, sir. Okay. I think there was a
Speaker 24
16:26
lack of rules before, and that's what I think I was getting at was we didn't know that management companies were going to come in and start taking control because we were brand, the state was brand new to the industry. Now that we've realized they did come in and start taking control, we found the need for these rules. I think the counter argument is, well, that issue is not here anymore because we know what we're doing now. Okay, and one follow-up, Mr. Chair.
Senator Jim Petty
Unverified
16:51
And so with these rules, if they go into effect, how many of our participants, Arkansas participants, that have contracted out to outside parties are going to now have to immediately take over themselves versus they're already doing it now anyway. They've already terminated those contracts early on. Do you have a feel for that? So that is a good
Speaker 24
17:16
question. i don't have an exact number for you but it's not that these rules kick the management companies out
these rules just require that we see the medical marijuana commission sees the contract so that way we see if there is a term that's not commercially reasonable which gives undue control to an outside entity and not the license holder gotcha all right thank you i have
Senator Ronald Caldwell
Unverified
17:40
a question uh are these contracts used both in the dispensaries and the growers or just in the growers I believe they're used in both in both okay any other questions if not thank you
for your time we have some others to come to speak and I may call you back we'll be here thank you mr. Pascal if both of those not on punch a button if you would introduce yourself for the record and
Speaker 75
18:24
you're recognized good good morning I'm bill Pascal I'm here before you this morning as the executive
director of the Arkansas Cannabis Industry Association, which represents the growers, processors, the retailers, and all
Speaker 76
18:35
the ancillary support businesses. And I'll let Mr. Bauer introduce himself. Good morning, you all. Eli Bauer. I'm an attorney
Speaker 78
18:45
at Wright Lindsay and Jennings. I'm here today as counsel for ACIA.
Speaker 80
18:53
So thank you for allowing us to talk to
Speaker 76
18:57
you today about this proposed rule.
As Director Lorgan mentioned, it has gone through a few revisions. We will tell you it is in a much better place today than where it once started, and we very much appreciate Director Lorgan and her staff and their willingness to work with us. They've been great to do that. However, we haven't gotten to the point yet where our industry is comfortable. We think there are still some issues that need to be resolved or clarified.
Before we get into the specifics, I want to give you a brief history of the industry, which I think has relevance to this management contract rule. So most of you know the industry cranked up in 2018. And when it started, as Director Lorgan mentioned, the Arkansas licensees did not have institutional knowledge. The rules and laws called for 60% ownership by Arkansans.
So a lot of these folks won licenses, and they have never been in the marijuana business before. So they did contract with out-of-state firms to help them learn and help them get an understanding how to operate a medical marijuana business effectively and efficiently. Since 2018, the industry's grown. We now employ somewhere between 2,000 and 2,500 people.
Average annual sales are just at $300 million annually, and we generate about $35 million a year in state taxes. And most importantly, we have just fewer than 120,000 patients that are now participating in the program. As the industry has learned and grown, we've become less and less dependent on out-of-state management companies.
And today, to my knowledge, there is not one out-of-state management contract in Arkansas. Not one. So, as Director Lorigan made my speech for me, we, I guess, are questioning whether this rule is needed or necessary. The industry has matured, and the folks that have the licenses here in Arkansas have learned how to run and operate their businesses. And in doing so, they've pushed those out-of-state management companies back home.
So in an era of less government and fewer regulations, this seems to kind of fly in the face of that, given where we stand now and that Arkansans seem to be doing a really good job of managing this industry. Those are my overarching thoughts. I'm going to turn it over to my legal counsel here to let him tell you about some specific concerns we have about the language. Thank you, Bill,
Speaker 77
22:15
and good morning to you all. Appreciate your time this morning. Bill touched on it briefly,
Speaker 78
22:21
but before I get into the substantive legal issues that I see with these rules, The operational concerns that these rules are likely to cause is enormous. These management contracts, the definition of management contract is fairly broad in these rules. So there is some uncertainty for the industry of really what contracts have to be submitted for consideration. You all may know this, but the commission meets once a month. The agenda is set a month before that. These rules require that a management contract be submitted
and that its effective date be after the Commission approves the contract so you know these contracts oftentimes are pivotal for day-to-day operations and we're looking at a two-month lag time for Commission approval for some of these contracts which is is enormous for an industry and almost certain to impact patient care at some point but but I'd like to spend most of my time this morning discussing the the legal issues that I see with these rules of which I think are material and would subject these rules to pretty serious review by
court if someone chose to argue that these were unconstitutional so the primary issue and what the framework with these rules is commercial the term commercially reasonable so the Commission will look at these management contracts and determine whether or not they believe that the terms of the contractor commercially reasonable you all probably know that's a term that's used all the time when private parties are contracting it's used daily courts often look at that at the term commercially reasonable and determine whether or not a contract should be upheld based on that standard the
problem here is not whether or not we know what commercially reasonable means but it's who is making that decision and based on what standard the Arkansas courts have frequently said that the General Assembly can delegate administrative authority to agencies as long as that that authority is not absolute, unregulated, or undefined. Here, the term commercially reasonable by its very nature is ambiguous. It's vague and ambiguous and allows the commission to bake in their own personal feelings and opinions about whether a
contract should be upheld because it's not a concrete standard. This is an issue for the industry, frankly, because of uncertainty, but also not just the industry but the people that they're contracting with as well. In practical terms, two applicants can submit a contract with substantially similar terms in it, and one can be upheld based on, you know, subjective based on opinions and feelings of the contract by the commissioners, while the other one is struck down resulting in a discriminatory impact. That is just compounded by
commissioners rolling off over the life of a commission. Those opinions and feelings change over time. ABC staff may change, interpretations within the within the agency may change, only resulting in further uncertainty for the industry. The two, from a very high level, the two primary constitutional issues that I see with these rules are an unconstitutional delegation of power to the ABC agency or to the MMC. So in this case, Amendment 98 grants no authority whatsoever for the commission
to review private contracts and to determine whether or not they are reasonable and whether or not they should be upheld. An agency does not have the ability to create these standards wholesale without a concrete standard set in place by statute. Here, Amendment 98 does not give that there is no no framework for this second is the fair notice and arbitrary enforcement concerns businesses industry in the state has the right to know based on fact a concrete standard whether or not a contract that's
submitted for Commission review will be approved or not as I mentioned there's going to be quite a bit of lag time between negotiating a contract and it becoming enforceable and effective based on the Commission's approval and at this point because of the arbitrary the the subjective standard baked into commercially reasonable frankly industry can't know whether or not a contract will be acceptable and enforceable or not and won't for a couple of months until the Commission rules on on that because of those things we would ask that at the
very least a final rule have some sort of concrete standard if these rules do move forward as bill mentioned you know this is already if not the most highly regulated industry in the state one of the most highly regulated industries in the state adding additional red tape where frankly the problem doesn't exist anymore is is troubling to the industry and of course is likely to result in operational concerns so one final brief brief point is these rules do require
that certain provisions be included in every contract. For example, both parties must have the right to terminate at any time with notice. Another example is both parties must have the right to renegotiate terms of contract, terms of the contract at any time at arm's length. These are not terms of any contract in any industry that I would consider standard, and certainly the commission does not have the authority to impose those requirements on private contracting parties.
Speaker 77
27:56
So I appreciate you all's time and your consideration this morning. Members,
Senator Ricky Hill
Unverified
28:08
Senator Ricky Hill. You gave a broad overview on that. You said it was unconstitutional and stuff. Can you go back in here and show us and tell us what page and where you think this is that's unconstitutional instead of just a broad overview? Because if we're going to say it's unconstitutional, Are we saying everything is that's here, or let's be specific on that?
Speaker 78
28:27
So on page two, the definition of commercially reasonable, that is the industry's primary concern with these rules because the commission does not, in our opinion, have the authority to determine whether a contract is commercially reasonable. So that's page two, 20 CAR 800-102, the new subsection four. And then beyond that, the entire, let's see what section that is. Kind of goes slow for us. I'm trying to find it as we're going through here. Sure, sure, sure.
The primary concerns are with the commercially reasonable standard. As Director Lorgan noted, management contracts are already provided to the commission, to ABC staff. They already see those. The concern at this point is the commission does not have the authority to determine whether or not those contracts are reasonable and then decide whether or not those contracts should be enforceable or not. Do you have a better word to use there besides commercially reasonable?
Well, frankly, I am of the opinion that the commission doesn't have the ability to determine whether these contracts are enforceable or not anyways. That simply doesn't exist in Amendment 98. okay thank you
Senator Jim Petty
Unverified
29:48
sir to pity thank you mr. chair just following up from what senator Hill was saying so we started out you and Bill talking about the industry being mature it's grown and and quite frankly I think if I'm using the
words right the problem just doesn't exist and it's basically not needed and And then you get into the unconstitutional, which I might argue, I'm an attorney, I might argue that we're going through exactly what 98 allows us to do, which is you don't want me determining what commercially reasonable is. We're going to delegate it to those that are in that daily. But if it's a problem that doesn't exist and it's a mature industry and, quite frankly, I don't know that I necessarily agree with a commercially reasonable comment that you made because it is used every day in virtually every kind of contract that I've ever seen dealing with these types of issues across multiple industries.
And so I think if it's a mature industry, you probably do have, you know, commercially reasonable and easily determinable what those terms are. But if the bottom line is this, if all of the Arkansas companies are already doing it themselves anyway, then why are they concerned? I mean, my concern would be, yes, it's not a problem today, but with venture capital and private equity and all of that, they could come in and own half of the state or all of the state before we had a time to react to that situation occurring.
So do you have any comments about, I mean, you heard
Speaker 75
31:34
my comments. I guess my answer is a simple one. Why do we need
Speaker 76
31:40
a new regulation if it's not needed? Why are we adding another regulation, another hurdle on? And to your perspective question, you know, there's a lot going on on the federal level right now with rescheduling. There's a current public comment period open on rescheduling marijuana. Medical marijuana has been rescheduled to Schedule 3.
But if marijuana becomes rescheduled, there's some question as what that does to interstate commerce and how, you know, states are going to deal with marijuana flowing between borders. And this may be all moot if that were to happen. Senator Love.
Senator Fredrick J. Love
Unverified
32:27
Thank you, Mr. Chair. And I want to continue with what my two colleagues are saying, Because I hear you say that the agency doesn't have the authority, but then who should or who does have the authority?
Speaker 87
32:42
I'm trying to catch up with this. So at this point, Amendment 98 does not give the authority
Speaker 78
32:49
to the commission to review these contracts and determine whether or not they should be enforceable. At this point, no one has that authority. It's not been vested in any statutory authority. The agency is limited to the power that is given to them under the vesting statutes. Okay, so does the General Assembly
Senator Fredrick J. Love
Unverified
33:04
have the authority? You're saying nobody has authority? The two parties. The two parties have the authority.
Speaker 87
33:13
Correct. So at this point, if two contracting parties, one of them felt that the terms
Speaker 78
33:19
of the agreement was not fair, they would, of course, have the ability to bring a lawsuit in whatever county they are in and ask a court to make a determination that the contract is unenforceable based on commercially unreasonable standards.
Speaker 77
33:32
At this point, we are now asking for the state to be involved in that where the two parties are operating without
Senator Fredrick J. Love
Unverified
33:40
a complaint. Okay. All right. That clears up some things.
Senator Fredrick J. Love
Unverified
33:47
of those lawsuits in the state. Okay. So we've
Speaker 103
33:50
had some of those lawsuits? Yes, sir. And they've all, to
Senator Fredrick J. Love
Unverified
33:55
my knowledge, all been resolved, But we have had those to clarify. All right. Good deal. Thank you. Now, let's go back up to your commercially reasonable standard, right? And I'll listen to it. How long has that, I guess, how long have we utilized or how long has that term been around? Not just as it relates to this situation, but commercially reasonable.
Speaker 78
34:18
How long has that term been around? So I don't know the exact, you know, the creation in Arkansas law or anything, but that is a term that is used frequently. Courts have upheld, have used commercially reasonable standard to determine, to look at contracts. It's been a long time. Does that answer the question? Yeah, it
Senator Fredrick J. Love
Unverified
34:39
does, but I'm just trying to. So, Senator
Speaker 107
34:41
Love, let me add on to that from the non-law you're here. Generally, commercially reasonable is determined by a court of law, correct?
Senator Fredrick J. Love
Unverified
34:49
Correct. Not an administrative body. Okay, and so the objection here is the use of
the term being inserted, like I'm trying to figure
out your argument so that I can kind
Speaker 78
35:09
crux of the argument is commercially reasonable is a subjective standard. It's not based on a concrete set of facts of if this, then unreasonable and unenforceable.
commercially reasonable allows will allow the commission under these rules to look at any number of things not a set number of six factors and say if these if three of six exist then it's unenforceable it's simply if it feels unfair to the commission then it will be commercially unreasonable the the problem with that for the industry is without knowing what the set concrete standard is they will never know whether or not a contract is unenforceable or why it's not frankly so and uh let me add on by saying these rules they do at times lay out a couple of concrete
examples of this is when if this exists then it will be unenforceable which i think is great for the industry and if if these rules are going to proceed that's very helpful the problem is it says that the commission may consider these list of concrete factors among other things the The, among other things, allows the commission to consider factors that, who knows? I mean, I think we know what they are today, but the commission could change, interpretation in the agency could change, and then who knows?
So the issue is the uncertainty of what is, in fact, reasonable. Okay. All right. Thank you.
Speaker 111
36:33
Thank you, Mr. Chair. Representative Hall. Thank you, Mr. Chair. Thank you, guys. I've
Representative RJ Hawk
Unverified
36:38
got a couple questions, and, Mr. Chair, when we get done, If we could have Christy come back to the table, I'd like to
ask her a few questions. First, Bill, you said earlier that right now there's no management companies in the state. No out-of-state. So there are – because then I heard you say that they review management contracts. So what you said, there's no out-of-state management companies.
Speaker 114
37:02
I was aware of was with the dispensary in El Dorado, and they're now run
Representative RJ Hawk
Unverified
37:07
by an Arkansas company. Okay, so I guess if there are in-state management companies, would these rules apply,
in your opinion, to the in-state ones as well as
Speaker 78
37:17
this just for out-of-state management companies? It is all, and in fact, it's not even just management, quote-unquote management companies. Part of the issue is the management contract definition is much broader than just who's running the store. It's who's doing payroll, who's buying.
It's very broad, but yes, it would also apply to in-state operators.
Speaker 75
37:39
tag on to that and, again, thank Director Lorgan and our staff because when this was first drafted, the definition of contract was wide open, and it
Speaker 76
37:48
was really, really scary and horrendous. But they worked with us to narrow that definition and make this better. We are still pretty much just hung up on the commercially reasonable language. you. And I completely understand
Representative RJ Hawk
Unverified
38:01
that. As somebody that deals with contracts every day in the real
estate world, I understand that. What I would say, though, that when we talk about commercially reasonable, in subsection I on that page, page two that you talked about, you go I and then goes A, B. It kind of defines commercially reasonable in the rules right there, doesn't it? Like when it says the commission may determine whether a term is commercially reasonable or consistent with fair market value generally applicable to the current valuation of similar interest service or product in the arkansas medical marijuana market and then goes to b talks about the current valuation of
similar interest like to me i'm no lawyer so i'm not trying to i didn't play one on tv but i will say
that um it to me seems like they have defined commercially reasonable in in the in the rule is it
Speaker 78
38:51
not so they have they have and we again appreciate staff and the commission's efforts to do so um the problem is in in my opinion it still bakes in enough uncertainty for the commission to to consider other factors rather than just these okay thank you senator petty
Senator Jim Petty
Unverified
39:11
thank you mr chair i i i think that's what i'm hearing from those that are not attorneys that didn't play one on TV last night. Uh, I think commercially reasonable is not as subjective as, as, as maybe the concern that you're expressing. We'll, we'll just agree to disagree on that. But, um, I would be interested in your comment on the reason when we passed the medical marijuana, there were reasons behind limiting, uh, the number of, of facilities or dispensaries
one individual could own we have that same thing in my real estate profession but i understand i think the concern is well i can only have eight but i can wink wink have eight more over here because i'm doing everything and then you know representative hawk doesn't have to do anything and he gets you know five percent or whatever i'm just making this up so i think there is also a protection of the integrity of of what we passed that's at play here too and so
i i am an anti as much as possible regulation but if if what i was reading this morning i wish i could quote it but if we were all honorable we wouldn't need you know any regulations so and i'm not saying anybody in your industry is not honorable i know a number of them and they all are uh but but any comment on on that aspect of it from from the industry perspective and guarding against monopoly disguised through management contracts yeah i i know where you're
Speaker 107
40:55
coming from there uh and as uh eli's mentioned
Speaker 76
40:59
and director lorgan mentioned the management contracts have to be filed with the state now so we know who's out there and has those um it's it's not
Speaker 75
41:13
a secret. We think we've covered it and that the current law is taking care of itself
Speaker 76
41:20
because they're already filed. This just seems to be piling on again at a time when this body
and federal congresses seem to be moving the other direction and less regulation, smaller government this seems to be flying in the face of that and adding regulation where again the industry seems to have corrected itself over time as it has grown and there's been more institutional knowledge and that's why you don't see out-of-state folks here which was the concern and this conversation about management contracts has been going on for years and that's where this
bubbled up frankly and there were some lawsuits back in the day where some folks sued dispensaries that were being managed by out-of-state contractors and
Speaker 75
42:11
that's not going on in Arkansas any longer our folks have learned how to
Speaker 76
42:16
run these into this industry and the licensees are do a great job day-to-day in managing that and we're you know we're concerned that this opens could open a window uh definitely uh create some uncertainty there and and it goes beyond just those management
contracts how does this you know affect other uh broader contracts and is it the state's role the administrative body's role to determine whether those contracts are legit and viable i have one
Senator Ronald Caldwell
Unverified
42:52
question on the uh contracts right now are they uh confidential if you sign a contract for instance with your payroll people uh you meant you brought that up a while ago with
are those confidential contracts are they made public no you you could they're subject for you Okay. That's it. So it's not going to, if we present that same contract to the commission where it would be made public there, we're not going from a confidentiality issue to a public
Speaker 78
43:29
knowledge issue. The one thing I'm not sure about that we may need the director's opinion on or her staff's thoughts on,
I'm not sure if some of the financial aspects of it may be confidential. If you're calling Director Lorigan back up here, you may confirm that. I know the contracts themselves would be subject to FOIA, but there may be some aspects of it that are kept confidential. I'm not sure from that perspective.
Senator Ricky Hill
Unverified
43:58
Senator Ricky Hill. I've heard y'all talk about rule change and told us all the things you agreed with and what you disagreed with. Tell me how, if this rule passes, it will be detrimental to your industry.
Will it be detrimental? Is it going to be henny-penny? Is the sky falling?
Speaker 75
44:16
What's the scenario? That's a big question, Senator. It's uncertain. We don't know
Speaker 76
44:20
who might be making those decisions and determining if a contract is commercially reasonable or not. Do I have faith and confidence in the current administration and the folks running? Yeah, they're great. They're great to work with. But, you know, I'm guessing Director Lorgan won't be here 40 years from now or 20 years from now. And, you know,
Speaker 75
44:40
who knows who will be on the Medical Marijuana Commission?
You may be the chair. I don't know. You know, somewhere down the road. I can promise you I won't be. I represent Hawk
Speaker 76
44:52
in his next life. So, you know, it's the uncertainty there for us that it really raises questions. And then the lag time in, you know, having one of these contracts reviewed and approved by the Medical Marijuana Commission, which could cause some operational issues. That uncertainty
Senator Ricky Hill
Unverified
45:10
that you talk about, is that not the same type of uncertainty that when your cultivators first applied for a license and were awarded the license,
did they not have uncertainty at that point as well yes
Speaker 103
45:21
sir and that's why they brought in people that had knowledge and that that's why now that they've learned how to run those they've pushed those people out of the state thank you okay seeing no other questions thank you all
Senator Ronald Caldwell
Unverified
45:32
very much for your time for your comments thanks everyone crack your whip and get them up here
Speaker 24
45:49
if we're making too detailed. Okay. You're on. Well, I appreciate the conversation. I think it's hard for me to reconcile that it's no longer a problem and it's also pivotal to day-to-day operations. That's a little tough for me to get around. Also, as far as commercially reasonable, To a lot of your point, it has been used for decades in a lot of different contracts.
And like I mentioned earlier, it's commercially reasonable within that industry. What may be commercially reasonable in the
Speaker 8
46:30
alcohol industry is not the same as the medical marijuana industry. And the Medical Marijuana Commission hears month in and month out from these industry members. So I do think as the regulator, this makes sense because they know exactly what would be unreasonable in that industry. And we also, I'm sure they would attest, are always open to hearing comments from the industry at our meetings. There would not always be just the commission sitting up there, five people saying yes or no.
There's often public comment and people weighing in on what is standard practice. Another thing I think I just wanted to clear up a little bit, too, was the unconstitutionality. Amendment 98 provides guideposts for what we could do to regulate a safe and effective industry. What it doesn't do is everything that the rulebook does, which is defined specifically what you can and cannot do within Amendment 98. So I understand
Speaker 24
47:26
that the industry may want certainty, but like I mentioned earlier,
if we had a rule that said the management company cannot contract over $50,000 on behalf of the licensee, That could be argued
Speaker 8
47:38
unconstitutional because what gives us the right to set up that arbitrary number and tell them that they can't go over it? So commercially reasonable gives us gray area, which is where lawyers operate, to make sure that depending on circumstances, we're doing what makes sense. So I think that's all that was kind of swimming through my mind through that argument, but I believe some people may have some more questions.
Representative RJ Hawk
Unverified
48:02
Thank you for that. Just some notes that I wrote down. And so I own a real estate
company that does property management, right? And so I'm trying to relate this in those terms. I go get an owner, and they don't have to get it approved by the Real Estate Commission for me to manage their property, right? What is the need? And once, I don't know, why is the need to have the management contract
reviewed by the commission when the private owner is making the decision to get a management company?
Speaker 24
48:35
It all seeds back to control. We have to have the licensees. There is
Speaker 8
48:41
one individual person's name on the license. It isn't even a business. It is one individual permit holder. That is the person who is ultimately responsible for any violation, whether that's a suspension or revocation or a fine payment. So when you have a management company coming in and running day-to-day operations, we cannot hold that permit holder responsible because they've now lost control. So it basically makes the whole licensing system a sham because that individual permit holder does not have control over what is happening in that location.
Representative RJ Hawk
Unverified
49:12
And that makes sense because like if I'm managing your rental property and something goes nefarious, I
get called before the real estate commission for anything that was done. Not you, it would be me for our management company. So that, I'm glad you said that. Last question,
all these rules have been reviewed and approved by the commission currently, correct? Yes. Okay, cool. Thank you Rep. Steele
Representative Tracy Steele
Unverified
49:39
Thank You mr. Chairman, I'm glad you mentioned something about numbers and I'm just curious on page six
Where it says the Commission sale issue at least four But not more than eight cultivation facilities How did you get that to my understanding or memory i think it started out as five and then it went to eight and is it currently now what seven i believe we have eight cultivation sites don't we
Speaker 24
50:16
i think that number came from amendment amendment 98 i'm not sure that it is referenced in our management rules
Speaker 131
50:22
you may be referring to licensing rules originally i
Speaker 24
50:28
think it was five was it five there are five dispensary licenses no no cultivation there are eight cultivation licenses across the state but we do have a five limit on per zone i believe so i'm not sure if maybe there was a little confusion
Speaker 24
50:45
dispensary i think correct so for cultivators was
Speaker 136
50:49
it ever five no amendment 98 calls for
Speaker 24
50:53
eight but only five were issued at this time there are eight
Speaker 131
50:57
okay that's my question it called for eight but there's only five initially that were licensed but at
Senator Ronald Caldwell
Unverified
51:05
this point eight yes sir thank you mr chairman thank you i do have a question that going from running a day-to-day operation of the business in the contract that came out that y'all have to approve it may take up to 60 days or or maybe longer to approve the contract and it goes back that they have the right to terminate and the right to renegotiate I used payroll for an example a while ago.
What happens if a payroll company terminates his contract and they have to hire a new payroll agency? Do they have to come back and get a contract approved from the commission? You see what I'm saying? Are we putting potholes out there that are really not going to work in a day-to-day operation of the business? No, I don't believe so. first off i think
Speaker 8
51:50
payroll is a little more detailed than than the intent of the law so i am going to toss it over
Senator Ronald Caldwell
Unverified
51:58
to i know but just if they hired a management contract for payroll
that's what i'm asking now and and something went haywire with that contract and they have to contract with a new payroll company do they have to bring this contract back before the commission to get it approved before they can engage
Speaker 20
52:20
in that contract i'm going to ask my attorneys Well, there is a specific exception for accounting services. I would assume payroll services would fall under
Senator Ronald Caldwell
Unverified
52:29
that. That's just my common sense asking because we've not talked about it. But, you know, on the day-to-day operation, how does this function?
How does government regulation function in day-to-day operation of the business is what I'm trying to determine on that. So go
Speaker 20
52:44
ahead. Well, what I was going to say is the spirit of the rules is not to create impediments. It's to prevent the parties from including provisions in these contracts that manipulate and circumvent ownership requirements and cause market manipulation. And so built into the rules is an indefinite period for review. But part of the justification for that was that the parties could just submit a thousand page contract and make it so that we have to rubber stamp something within 30 days that can't adequately be.
Senator Ronald Caldwell
Unverified
53:15
I'm not arguing that, but you see, the testimony before us, what I mentioned about the payroll, could happen, and now you're clearing that up. That's why I'm asking. I don't want to impede business and day-to-day operation, put them in a bind over red tape. And we certainly do
Speaker 24
53:32
not either, to mirror what Brandon just said, this was not designed to create obstacles for them to jump over. it is just designed so that we know that the control is with the license holder and the control
Senator Ronald Caldwell
Unverified
53:46
is here in arkansas under amendment 98 are you limited in how many times you can meet can you have emergency meetings if something drastic came up we can have emergency meetings we are not limited that's fine i mean i'm just trying to
Senator Jim Petty
Unverified
54:00
clear there sure yep okay senator petty thank you mr chair i promise this is the last one but just just to clarify the the you could in theory and this is what i want to understand you could in theory have a management contract but you could also have a contract separate from the management contract to do your payroll to do
your lawn to do accounting to do other things and those aren't what is subject to your review it's just the management contract of the medical operations actual operations yes and and i'm glad brought up lawn care that was something that opponents to the first draft
Speaker 24
54:32
came in and brought up i do stand by the language of our first draft that it did not touch lawn care but that was kind of one of the scenarios that they came up with if i want to change our lawn care service we got to come to the commission absolutely not any other questions seeing none we thank you very much thank
Senator Ronald Caldwell
Unverified
55:01
you okay you want to have a comment anyone do not okay without objection this
rule is reviewed with no other business we're adjourned
Agenda
A. Call to Order
B. Comments by Co-Chairs
C. Rules Governing the Application for, Issuance, and Renewal of Licenses for Medical Marijuana Cultivation Facilities, Dispensaries, and Processors in Arkansas [Exhibit C]
D. Other Business
E. Adjournment
Documents
No documents posted.
Speakers
Senator Ronald Caldwell
Unverified
Speaker 8
Speaker 10
Speaker 12
Speaker 15
Speaker 19
Speaker 21
Speaker 24
Representative RJ Hawk
Unverified
Representative Jack Ladyman
Unverified
Speaker 45
Speaker 20
Representative Tracy Steele
Unverified
Speaker 56
Speaker 57
Senator Jim Petty
Unverified
Speaker 66
Speaker 75
Speaker 76
Speaker 78
Speaker 80
Speaker 77
Senator Ricky Hill
Unverified
Senator Fredrick J. Love
Unverified
Speaker 87
Speaker 103
Speaker 107
Speaker 83
Speaker 111
Speaker 114
Speaker 106
Speaker 32
Speaker 131
Speaker 135
Speaker 136