Pennsylvania Medical Marijuana: No Good Deed

Authored By: William F. McDevitt, Esq.
 
The Commonwealth of Pennsylvania wants medical researchers to study cannabis at Pennsylvania medical schools, eight of which have been certified as Academic Clinical Research Centers (ACRCs). ACRCs can contract with Clinical Registrants (CRs), entities that the Commonwealth will license to cultivate, package and dispense cannabis for medical research. An entire set of regulations, commonly referred to as “Chapter 20,” has been drafted, redrafted and amended to make medical research of cannabis a reality in the Commonwealth.
But there are no CRs, so there is no cannabis research. As we enter 2019 it is unclear if any medical research will be conducted by or through ACRCs in the near future.
What’s happening?
Last year, the Pennsylvania Commonwealth Court issued an injunction preventing Pennsylvania’s Department of Health (DOH) from issuing sing CRs. As explained in AES Compassionate Care, LLC v. Rachel L. Levine, 233 MD 2018, the Commonwealth Court had concerns that the selection of CRs was too dependent on the selection of potential partners by the ACRCs. A CR applicant must have a contract with an ACRC in order to apply for a license to cultivate and dispense cannabis for research studies. The Commonwealth Court also had concerns that the CR “super license.” Under the regulations in place at that time, CRs would have been permitted to operate up to six dispensaries to compete with “commercial” dispensaries (which are limited to three dispensaries) to sell their cultivated product in other dispensaries, and to sell other growers’ product at their dispensaries.
 
To address these concerns, the Pennsylvania Legislature quickly issued new proposed regulations aimed at assuring that the DOH exercised greater oversight over the CR selection process. The competition issues between CRs and “commercial” dispensaries were not addressed. The ACRC certifications were reissued and the DOH released CR applications.
 
Eight entities, each holding a valid contract with an ACRC, applied. On December 5, 2018, it was announced that all eight applications were rejected.
 
The DOH denied that AES Compassionate Care, LLC played a role in the rejections. There is anecdotal evidence that many of the applications for grower-processor and dispensary licenses also were rejected by the DOH during the second phase of the licensure process in 2018. It is unknown what role the September 27, 2018, Commonwealth Court decision in Pennsylvania Department of Health v. McKelvey, 1372 C.D. 2017, has played in the cannabis licensure review process. Under McKelvey, the names of the individuals who are assigned to score cannabis applications may be disclosed to the public.
 
Whether the CR applicants failed because of process transparency or poor planning is unclear. The DOH stated that none of the applicants met the minimum scoring standards for each section of the CR application.
 
Proposed Regulations
In response to this setback, the Pennsylvania Legislature again, and very promptly, issued new proposed regulations for CRs. Published for public comment on December 22, 2018, the new proposed regulations would allow ACRCs to enter into letters of intent with multiple proposed CRs. However, the number of CR licenses will not increase and each ACRC may only execute a research contract with a single approved CR.
 
The proposed regulations explicitly state the minimum acceptable scores that CRs must attain for both grower-processor and dispensary applications. A CR applicant must score a minimum of 336 out of 800 on its grower-processor application and 331 out of 800 on its dispensary application. By contrast, in the second phase of cannabis licensing, all successful commercial grower/processors scored no less than 680 out of 1,000 (with the majority scoring above 725) and successful commercial dispensary license applicants scored no less than 650 out of 1,000 (with the majority scoring above 700).
 
Clinical registrant license applications also will be weighted and given preferences based on their current licensure standing. Applicants that satisfy the minimum scoring requirements and already possess both grower-processor and dispensary licenses and operational facilities (1st ranking) will be ranked higher than entities possessing an operational licensed cultivation facility (2nd ranking), followed by operational licensed dispensary CR applicants (3rd ranking), non-operational grower-processor licensee CR applicants (4th ranking), non-operational dispensary licensee CR applicants (5th ranking) and all other CR applicants (6th ranking).
 
The Commonwealth’s proposed CR regulations seek to advance medical cannabis research by involving both the ACRCs (which will be soliciting additional letters of intent) and existing commercial licensees (which will receive preferences if they elect to seek CR licenses). In addition, any commercial licensee that conducts medical research as a CR will maintain their ability under the CR license to maintain commercial operations (and will be able to operate twice the number of dispensaries as standard commercial cannabis dispensaries).
 
This effort to integrate “commercial” medical cannabis and medical research stands in stark contrast to the recommendations set forth in the recent report of New York City Mayor’s Task Force on Cannabis Legalization, A Fair Approach to Marijuana. The New York Task Force report suggests that medical research and commercial (adult use) sales be strictly separated to encourage small, specialized businesses and prevent vertical integration and monopolization of the cannabis industry. The report focused on a different landscape: a future state-wide legalized adult-use market and not the limited medical cannabis market currently in place in Pennsylvania.
 
The Commonwealth continues its strenuous effort to provide CR applicants with protected, guaranteed medical research contracts and commercial opportunities, while assuring that commercial licensees (and their investors) are not unduly impacted. At some point, the Commonwealth may need to consider following New York City’s recommended path of separating potentially lucrative medical research from non-research-based medical cannabis activity.  
About the Author
William F. McDevitt is a partner in the Philadelphia office of national law firm Wilson Elser, where he is a member of the firm’s Cannabis Law practice. He can be reached at william.mcdevitt@wilsonelser.com.


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