Arkansas voters’ decision to approve state-legal medical marijuana evidences a shift in attitudes towards medical cannabis that transcends stereotypical red-state/blue-state division on progressive cannabis reform. Arkansas will soon join Florida and Louisiana as traditionally “southern” states to embrace some form of medical marijuana legalization.
The Arkansas Medical Marijuana Commission is developing rules and regulations that will shape the trajectory of medical cannabis in the state. Though medical marijuana is now enshrined in the Arkansas state constitution, the Commission’s implementation of the law will largely determine the character and viability of the system.
Investors and entrepreneurs looking to capitalize on Arkansas medical marijuana should consider several questions raised by the legalization amendment itself and by the actions the Medical Marijuana Commission has taken since the November vote. The Commission has yet to promulgate final rules, and it will not do so for at least a few more months. But the rules trickling in already shed some light on several challenges and opportunities facing early movers in Arkansas’ medical marijuana industry.
Do I have to be an Arkansas resident to enter the industry? Not necessarily. Issue 6 as passed requires an individual applying for a dispensary or cultivation license to have been a resident of Arkansas for the past seven consecutive years and a rule adopted by the Commission requires applicants establish residency through two forms of identification. However, Issue 6 requires only that 60% of the individuals owning an interest in a medical marijuana dispensary or cultivation operation meet the residency requirements. This means that even though the individual named as the applicant on the form must be a long-time, continuous resident of Arkansas, that individual can recruit non-resident investors if Arkansas residents make up 60% of the syndicate. Interestingly, Issue 6 states that 60% of owners must be Arkansas residents – not that 60% of the cannabis company must be owned by Arkansas residents. Accordingly, a group of six Arkansas residents could own a medical marijuana facility with as many as four non-residents even if the four non-residents own a disproportionate share of the ownership interest.
Residency rules are more and less restrictive for other medical marijuana stakeholders. For example, “visiting qualified patients” (defined as visitors and those who have lived in Arkansas for less than 30 days) may receive medical marijuana from Arkansas dispensaries if they present a valid medical marijuana registry identification card from another state. On the other hand, members of the Arkansas Medical Marijuana Commission must be residents for ten years.
Are there capital requirements to obtain an Arkansas cannabis license? Capital requirements are a big obstacle to entering the Arkansas medical marijuana market. The Commission recently approved a licensure and renewal fee of $100,000 for dispensaries and cultivation operations. This is in addition to the several thousand dollar –- and only partially refundable -– application fee. The fees are steep, especially considering the uncertainty surrounding the mostly unknowable and uncertain market and regulatory environment of the fledgling Arkansas medical marijuana industry. The Commission also required proof of assets or a surety bond of $1,000,000 and proof of $500,000 in liquid assets to obtain a license. We see these high financial barriers as likely to limit the growth of Arkansas’ cannabis industry, while at the same time leading to experienced and well-funded non-residents taking a large stake in it by providing necessary start-up capital. Our cannabis business lawyers are already getting a slew of calls and emails from cannabis industry veterans from outside Arkansas looking to get in and from Arkansas residents looking for experienced outside help and funding.
What else should I know before getting into an Arkansas cannabis business? In addition to the usual concerns about federal illegality of marijuana and obstacles to operating a marijuana business like lack of banking, investors in Arkansas should beware that the Arkansas Medical Marijuana Commission has yet to complete its work creating rules and much could change. Ultimately, the Commission’s final rules will not be finalized for a few months and all manner of restrictive local land use codes, ordinances, and other laws could result. Nonetheless, the potential for a vibrant medical marijuana industry in Arkansas is undeniable and investors and entrepreneurs should pay close attention. After all, Arkansas is famous for its diamonds in the rough.