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State marijuana industry set to expand, slowly

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State law permits a total of three medical marijuana dispensaries. The First State Compassion Center is located in New Castle County. Eleven applications for Kent and Sussex counties are under review.

State law permits a total of three medical marijuana dispensaries. The First State Compassion Center is located in New Castle County. Eleven applications for Kent and Sussex counties are under review.


by Alex Vuocolo
Special to Delaware Business Times 

A former Delaware State Trooper, Mark Lally has long considered himself a skeptic when it came to legalizing medical marijuana. He spent much of his career hunting down meth labs and uncovering drug networks as part of a special investigations unit. Marijuana wasn’t his top priority, he admitted, but it was still an illegal drug.

But, after retiring from law enforcement, he became a lobbyist and began to see the issue from a policy angle. 

“I didn’t realize the medial benefits,” he said. “And as a lobbyist and Delawarean, I’m very interested in good policy.”

Lally now manages the First State Compassion Center, a medical marijuana dispensary on the outskirts of Wilmington and the only legal vendor of the drug in the state.

When Gov. Markell signed the bill legalizing medical marijuana in 2011, Delaware was one of just a handful of states on the East Coast to embrace the idea. Now the landscape looks very different. Nearby states such as Ohio, Maryland and Pennsylvania have all passed laws allowing the drug for medicinal purposes.

Nationally, a total of 25 states permit medical marijuana. Four states have legalized it for recreational use, including Oregon, Washington, Colorado and Alaska, and at least 16 have decriminalized possession of small amounts, according to the lobbying group Marijuana Policy Project.

With the marijuana industry set to expand throughout the region – and indeed the country – where does Delaware’s program stand one year after opening its first dispensary and five years since legalization?

In the near term, at least, the number of dispensaries is set to triple with plans for new centers in Kent and Sussex counties. The Office of Medical Marijuana, which regulates the marijuana program, is currently considering 11 applications for the two sites.

Beyond the upcoming expansion, however, Delaware could end up a bit player in an industry that’s grown far beyond its humble beginnings in backyards and basements.

“Delaware’s industry is going to be small, and always will be small, I imagine, just because of the state itself and its relatively low population,” said Chris Walsh, editor of Marijuana Business Daily, a trade publication that tracks the burgeoning industry.

But size isn’t the only factor limiting growth, according to Walsh. State law only permits a total of three dispensaries, one for each county in the state. It also requires that all dispensaries be organized as nonprofits. Walsh said a nonprofit requirement was common in 2011, but less so today.

Pennsylvania, for example, has no such restriction, and since passing its law in June, a number of industry gatherings have taken place in the state. Experts anticipate hundreds of applications.

Putting a cap on the number of dispensaries, according to Walsh, could also limit the industry’s growth potential in the state. But some kind of cap is becoming the norm nationally. “There are good reasons to put caps on these licenses, as well,” he said. “This is a brand new industry, still, and it’s uncertain how things are going to play out in the long run.”

Walsh points out that Delaware’s current regulations are partially due to the fact that the state entered the scene at a difficult time for marijuana policy. In June 2011, one month after Delaware legalized medical marijuana, federal Deputy Attorney General James M. Cole issued a legal memo that left many state officials scratching their heads.   

“Essentially the feds were saying that although the states feel they have this right to open these medical marijuana programs, we don’t recognize it federally,” said Paul Hyland, director of the state’s Office of Medical Marijuana.

He added that state officials feared the Justice Department would take legal action against them if they moved forward with their programs.

In response, Gov. Markell issued a moratorium on opening dispensaries until the law was clarified. Instead, the state instead issued cards to eligible patients to provide legal cover for their marijuana use until the state opened its own dispensary.

“That was a time of a lot of uncertainty in the industry,” Walsh said. “No one really knew where it was going to go.”

Then, in 2013, the Justice Department issued another memo clarifying that it would not actively go after state medical marijuana programs. Soon after, Delaware’s program finally kicked into gear. Within a year, the state issued a Request for Proposal for its first center. First State Compassion won the bid and set up shop in early 2015.

It was a long process, Hyland admitted, but in his view the best approach. “I’m very thankful that our leadership and the administration decided that we’re going to take a very slow, methodical and measured approach on this,” he said.

There are now 1,500 cardholders in the state, including patients, caregivers and authorized agents.

Hyland said that the industry in Delaware has already matured substantially since the RFP for the first center was issued. That pool of applicants was much less experienced than the current stock, he said. The state is now looking at companies with more experience and with professional business plans. First State Compassion is among the bidders, according to Lally.

For the state’s only existing center, which is not subsidized by the state and sustains itself through sales, the new centers in Kent and Sussex do represent competition. But in Lally’s view, they are necessary competition.

“Competition is a great thing, because it helps you improve what you do,” he said. “The bottom line benefit is that patients experience the best part of our having competition.”

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