DPS draws fire on medical marijuana licensing

Originally posted by Ileana Najarro on May 13, 2017 for Houston Chronicle here

Shortly after the Texas Legislature authorized limited use of medical marijuana in 2015 to treat people with intractable epilepsy, the Department of Public Safety’s chief financial officer projected the agency would need to license 12 dispensaries to meet the needs of some 150,000 people across the state who suffer from the condition.

Two weeks ago, DPS granted conditional approval for just three, frustrating families that were counting on easy access to the low-THC strain of cannabis as well as several Texas companies looking to enter the industry.

Patty Bates-Ballard, who lives near Dallas, worries the state just made it more difficult for her 14-year-old son to get the drugs that could soothe his daily seizures. She was speechless when she learned that neither of the state’s largest cities, Houston and Dallas, will have a dispensary. Two were approved in Austin and one in the small town of Schulenburg 80 miles away.

“They are negligent in what they are doing,” Bates-Ballard said. “They are blocking us from getting the medication we need for our son.”

Forty other companies, including one in Houston with ties to the Texas Medical Center, were denied licenses. Several of those say they are looking at ways to fight back. They claim DPS is barring patients’ access to needed medicine and question the integrity of the licensing process.

Critics, including nonprofit groups representing the medical cannabis industry, worry DPS is undermining the state’s fledgling efforts to provide medical marijuana.

“This program should never have gone to a law-enforcement agency,” said Keith Oakley, CEO of the Medical Cannabis Association of Texas. “This should have been given to the Department of Health.”

The Compassionate Use Act, signed into law in 2015, mandated that DPS license at least three companies that would cultivate and dispense low-THC cannabis for patients with intractable epilepsy. It granted rule-making authority of the Compassionate Use Program to DPS.

Taylor West, deputy director of the National Cannabis Industry Association, called that approach unusual.

“Most other states either regulate through a public health agency, a specially created commission, or some combo of agencies like public health, pharmacy and agriculture,” West wrote in an email. “Colorado is a little different, in that it houses marijuana regulation within the Department of Revenue, but it still isn’t law-enforcement-regulated.”

Ranking system a surprise

DPS declined to be interviewed for this story, saying the licensing process is ongoing. Final approvals must be granted by Sept. 1.

In emailed responses to questions, an agency spokesman cited a “statutory requirement that the department license no more than the number necessary to provide reasonable statewide access and availability.”

The spokesman also said DPS had reviewed compassionate-use programs in other states and determined three dispensaries would be sufficient.

Eight DPS employees ranked applicant companies on specific factors, including technological capacity, security measures and cover letters. Should any of the currently approved licensees fail upcoming site inspections, DPS will replace them with the applicant that ranked next on the list.

“Rules were developed through research on other states’ programs and input from legislators, state agencies, stakeholders, and the general public,” DPS said in the email.

Patrick Moran, founder of Texas Cannabis and the nonprofit Texas Cannabis Industry Association, said he and others who were denied a license did not know about the ranking system when they applied. He said they first heard of the rankings when DPS released its list of approved licenses.

Initially, Moran said, DPS had informed companies their applications would be reviewed as a whole, not in discrete sections assessed individually. As applications started coming in, the agency said representatives from other state agencies with expertise in agriculture and health would assist in the review process.

Moran and others complain that after all the applications were filed, DPS reverted back to an in-house-only review.

Members of the review panel have expertise in finance, security, fire safety, information technology and laboratory analysis, the DPS spokesman said. The agency also said rule changes were implemented as required by law, with comment periods and publication in the Texas Register.

It was in a September 2015 Texas Register entry that DPS Chief Financial Officer Suzy Whittenton said the state would likely issue 12 licenses, all to small businesses, including “four micro businesses.”

Regarding patient access, DPS said it would allow the dispensing organizations to set prices and determine how their employees would deliver the medication.

That, too, raised concerns.

“What we have is a system that will inevitably mean higher prices,” said Franklin Snyder, a Texas A&M University law professor who studies the legal marijuana industry.

Snyder applauded DPS for allowing out-of-state companies to apply, but many frown upon that decision. While 37 Texas-based companies applied, two of the three licenses went to companies based in Georgia and Florida. The other was granted to a company called Compassionate Cultivation.

A pair of Austin-based personal injury lawyers are listed as having an ownership stake in Compassionate Cultivation, but a company spokesman declined to provide information on the rest of the company’s leadership including details on the group’s chief medical officer.

Texas firms at a disadvantage

Scott Bier, CEO of Houston-based applicant Green Well, said many Texas companies were at a disadvantage competing against groups from states that already have legalized medical marijuana.

“They have punished small business in Texas,” Bier said.

Moran said that disadvantage could worsen if Texas doesn’t expand the Compassionate Use Program. Nationally, the industry is projected to be worth $7.7 billion in 2021. Delay will help only established national brands, what Moran calls “big marijuana.”

Even Texas applicants with experience abroad lost out. Houston-based Indoor Harvest has for years provided infrastructure for a Canadian medical marijuana company. For its Texas license application, the Houston group noted its current joint venture with Alamo CBD in San Antonio and Vyripharm Biopharmaceuticals housed in the Texas Medical Center.

The group scored a 76.9 out of a possible 100, ranking No. 16 on the DPS list. The top three companies scored between 89.6 and 93.6.

“We are moving into Colorado now,” said Chad Sykes, chief innovation officer for Indoor Harvest.

Other shut-out companies, including Green Well, indicated they, too, would cross state lines. They may be joined by more patients and families.

“There’s nothing much we can do except perhaps break the law if we stay in Texas,” Bates-Ballard said.

Michael Knight from Conroe has a 21-year-old son who was diagnosed with epilepsy three years ago. Although he doesn’t qualify under the current Texas program, his family had hoped the state program would be expanded this legislative session to include patients with conditions other than intractable epilepsy.

After a House bill to do that just failed, Knight decided he may move his family to Colorado, perhaps over the objections of his son.

“He doesn’t want to leave,” Knight said. “He’s got friends here.”

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