Delaware prepares to expand medical marijuana industry

Delaware is expanding its medical marijuana industry by issuing four new licenses through an RFP process. | PHOTO COURTESY OF JEFF W/UNSPLASH.COM

With fewer than a million residents, federal law prohibiting sales between states and a continued prohibition on recreational use, Delaware may not seem like a hot market for marijuana. As the state considers a new crop of applicants for potentially lucrative medical marijuana licenses, however, its prospects are heating up.

This past summer, the Delaware Department of Health and Social Services’ Office of Medical Marijuana (OMM) opened a request for proposals (RFP) for companies seeking one of up to four new operational licenses. The state currently has only three operators running six locations across the state, including three in New Castle County, one in Kent County and two in Sussex County.

The number of medical marijuana patients in Delaware is growing, however, and they now number nearly 11,000 after the program opened five years ago. It’s hard to estimate a growth pattern with monthly fluctuating figures, but OMM’s benchmark sees patients topping 16,000 within the next year or two, according to Paul Hyland, OMM director.

Many in the industry believe that Delaware’s patient population will grow another 20,000 or 30,000 people – totaling about 3 to 4% of the state’s population, in line with participation rates of states with more mature medical marijuana industries.

Last year, the state’s operations sold more than $19 million in medical marijuana – a figure that 2020 sales have already surpassed. Together, the three companies grow 74 plant varieties and total 17,500 plants in production at any given time, but the COVID-19 pandemic has increased the market demand.

“The pandemic changed how patients consume medical marijuana products. Delaware patients want to purchase marijuana in greater amounts and want more varieties than the current supply allows,” Hyland told Delaware Business Times. “To satisfy the increased demand for marijuana during the COVID-19 era and to meet the anticipated demand of expansion, OMM will need more production capacity. Opening new vendors was in the plans for several months, however, many processes were disrupted during the pandemic. OMM estimates production will double over the next two years.”

Delaware’s vertically integrated licensing system – where a company is responsible for growing, processing, and selling its marijuana – is more restrictive than many other states though.

The state required that all-under-one-roof approach in order to cap production, ensuring that the market doesn’t become oversaturated and regulatory measures can enforce the market. In the RFP, state officials cited the example of Colorado, which had nearly 100 metric tons of unsold marijuana that it couldn’t account for in 2017, according to the Marijuana Policy Group.

“Delaware is very sensitive to the illicit supply of marijuana on the market and has worked to ensure none of the medical marijuana grown in Delaware contributes to the illicit market,” Hyland said of the need to limit production.

The new licenses won’t require vertical integration, but new retail locations will have to identify a contracted supplier from either established or proposed operations. Although the RFP doesn’t directly address the possibility of a grow-only operation that contracts with the state’s dispensaries, a more common proposition in larger states, Hyland said he is open to the idea. He noted that his office is “looking for innovative solutions to reaching Delaware patients throughout the state, not just in the densely populated areas.”

New faces enter fray

The first five years of Delaware’s medical marijuana industry has seen only three players in the market: First State Compassion, a local company with Wilmington and Lewes locations led by retired state trooper Mark Lally; Fresh Cannabis, which has a single Newark location and is operated by New Jersey-based Compassionate Care Research Institute; and the multi-state, publicly traded industry giant Columbia Care, which has locations in Wilmington, Smyrna and Rehoboth Beach.

Hyland was not sure how many applicants the process that closes Oct. 28 may see, noting that questions submitted in the pre-application process were anonymous. He added that previous RFPs yielded about 10 applicants per license.

Lally, who obtained the state’s first license in 2014, did not say whether he would seek a third license when asked by DBT, but said that “if the data points to a need to increase dispensaries, we recognize that. We look forward to continuing to pioneer and grow with the industry in service to our patients.”

With the gates to the industry now publicly open again for the first time in a few years, however, several new local ventures are known to be applying.

Second Chances Farm has already been piloting a hemp farm in Wilmington, but will now seek a medical marijuana license. | DBT PHOTO BY JACOB OWENS

Ajit George, managing partner at Second Chances Farm, a startup hydroponic vegetable farm in the city of Wilmington that has grown its profile due in part to its championing of formerly incarcerated workers, confirmed he is applying.

“Our team will probably be the only people who are focused on hiring people who have been penalized by the inequity in the drug laws,” he said, noting that their expertise in hydroponic growing will also help with the state’s pesticide-free grow requirements. “I think it’s a natural fit for us, so we’re hopeful.”

Having already obtained a state hemp license, Second Chances Farm has already been testing a pilot grow of the non-narcotic version of cannabis, producing promising results in its Southbridge warehouse. George was already eyeing a 72,000-square-foot hemp farm in Wilmington costing upward of $8 million but securing a medical marijuana license would likely make that fundraising far easier.

Another group that hopes to obtain one of the new licenses is a six-partner venture called Valor Craft Cannabis, which is proposing to build a 15,000-square-foot facility in New Castle County, if successful. The group includes notable locals, like former Kahunaville owner David Tuttleman who founded a successful marijuana grow operation in Las Vegas and former Delaware Division of Corporations Director William Freeborn, who lobbied to include research provisions in the state’s marijuana statute in 2015.

The partners of Valor Craft Cannabis hope to secure one of only four new licenses offered by the state. | DBT PHOTO BY JACOB OWENS

Valor Craft also includes James Brobyn, founder of American Fiber, a Wilmington-headquartered cannabis company that owns a vertically integrated operation in Michigan as well as a CBD oil importer and distributor. The other partners include Peter Murphy, a legal cannabis expert who previously led the Wilmington office of Eckert Seamans; Joey Norikane, a University of Delaware research scientist with years of experience in plant-based product manufacturing; and James S. Green Jr., a partner in the Wilmington law firm of Seitz, Van Ogtrop & Green, P.A.

The group has many personal stories of how medical marijuana eased the pain of dying family members and the effects of post-traumatic stress disorder in combat veterans – Brobyn is a wounded warrior and a retired U.S. Marine. Tuttleman, who co-owns and operates Matrix NV, a Las Vegas-based medical marijuana grow company, said it was his experience with his late sister’s fight against brain cancer that convinced him to enter the market.

“In some of her last days of life, she laughed and ate and found some solace because of medical marijuana,” he recalled. “I said then, ‘I’ve got to get into this because I want to help people.’”

The Valor Craft partners believe Delaware patients need greater variety in the products available to them as well as simply increasing production. Tuttleman and Brobyn noted that there’s a large veteran population in Delaware that they also feel they can better serve.

“I think really Delaware is positioned in a very unique way to be a dominant force in the industry. We’re a small state, but we can get things done here, which is exciting,” Brobyn said.

Part of the Valor Craft pitch is its inclusion of a supportive partnership with Delaware State University, which is already studying hemp in research projects. The partners hope to help the university with quality control of its cannabis for more reliable studies, both agricultural in focus as well as in biological science.

“From a research standpoint, we’d love to help with investigating potential drug interaction issues in children with cannabidiol (CBD) and the other drugs that are prescribed, among other issues,” Brobyn said.

By Jacob Owens

jowens@delawarebusinesstimes.com