Even though it has yet to record its first retail sale, Maine’s adult-use marijuana market appears to be taking a bite out of the state’s medical marijuana industry.

In 2017, the first year that Mainers could legally grow their own recreational pot, the number of medical marijuana patient certifications, dispensary sales and registered caregivers all declined, according to new state data. It is the first time that Maine’s medical marijuana industry has contracted since the first state-licensed dispensary opened in Frenchville almost seven years ago.

Some of the medical marijuana products that Linda Horan, a New Hampshire resident with end stage lung cancer, purchased at Wellness Connection in Portland in 2015. Staff file photo by Derek Davis

Mainers spent $24.5 million at the state’s medical marijuana dispensaries in 2017, or 8 percent less than the year before. That is not surprising, as the number of certified patients fell by a whopping 18.4 percent, to 41,858. The caregiver network – those certified by the state to grow and sell medical marijuana to up to five patients at any one time – shrank 9 percent.

Gov. Paul LePage claims the medical industry, especially the caregiver network, has grown significantly since legalization, citing it as cause for alarm. He referenced this growth in his veto letter for an adult-use market bill last November and reiterated his call to merge these two markets. Just this week, LePage told local public radio listeners that Maine has 4,100 caregivers, when the state Department of Health and Human Services says there are only 2,962.

“Everybody’s licensed themselves to become medical marijuana,” LePage said on “Maine Calling” Tuesday. “Nobody’s going to be recreational if you’re going to tax it.”

When asked about LePage’s description of the program’s growth, a DHHS spokesman pointed out that the program had seen double-digit growth in the recent past, and that the number of patient slots that caregivers can fill has remained relatively stable. She also noted that Maine is second only to California in the percentage of its population that uses medical marijuana.

In the wake of LePage’s criticism, lawmakers handling medical and adult-use marijuana rules have begun to consider at least some level of consolidation.

So, while the newest state data shows the industry is shrinking, it doesn’t answer the big question: Where are medical patients, caregivers and sales going?

THE RISE OF GIFTING

At least some of them are moving into an adult-use “gray market,” a murky pre-regulatory area that falls somewhere between legal commercial sales and outright drug dealing, according to caregivers and dispensary operators. Central to it is what’s called “gifting,” where someone can sell an overpriced item, like a T-shirt or colorful jar, that comes full of Sour Diesel or Lemon Haze cannabis. The quarter ounce of cannabis is free, the companies say; but the jar, shirt or delivery will cost $90.

Maine is seeing rapid growth in these gifting startups, which once operated in the dark but have now taken to advertising openly on the internet and even on the radio.

“People see that they don’t need to go to a doctor to get their hands on cannabis, so they wing it and try other avenues,” said Patricia Rosi, the chief executive officer for Wellness Connection, a Portland-based company that runs four dispensaries. “There is widespread gifting happening. People are growing their own and either ingesting it, selling it or giving it away. There are storefronts on many Main Streets, there are delivery services – you name it.”

This kind of gifting would have been prohibited in the adult-use bill that LePage vetoed last November. It remains in a new version of the bill that is under consideration by the Legislature’s Marijuana Legalization Implementation Committee now, but the fate of that bill is uncertain. Even if it were to survive a LePage veto, it would take another eight to 10 months for Maine regulators to begin licensing, although gifting prohibitions might go into effect immediately.

GROW YOUR OWN OPTIONS

Some patients have left the medical program accidentally, telling dispensaries and caregivers they didn’t need a medical card anymore because voters had legalized pot. Some have even tried to buy their medical products without a card and were shocked to learn they could no longer even walk into a store, and, because of delays in launching adult-use sales, they now had no legal way to buy marijuana, said Catherine Lewis, head of the Medical Marijuana Caregivers of Maine.

Others deliberately gave up their cards, forgoing the cost of annual renewal of their medical certifications with the expectation that adult-use sales would begin soon.

Dawson Julia, the owner of East Coast CBDs, a medical marijuana caregiver business in Unity, said that a lot of local patients have begun to grow their own medicine.

“I’m in rural Maine,” Julia said. “Most people out in Waldo County have some little bit of land to grow on. So they try their hand at growing cannabis.”

For those that like to smoke their medicine, and have a knack for farming, growing their own can be a satisfying path to wellness, Julia said. It’s also cheaper than buying it.

Julia helps patients who want to try it, giving them guidance on what strains they might need to grow for their particular qualifying condition. But for people who need to consume high doses, or prefer using tinctures, oils, salves or edibles, doing it themselves is not usually an option.

“That takes experience and equipment,” Julia said. “They won’t get what they need from gifting, recreational, even some dispensaries. Those people, they’re staying.”

PRIVACY CONCERNS

Some patients had left the medical program because of privacy concerns raised by new program rules proposed by the state Department of Health and Human Services, Lewis said. LePage delayed implementation of these rules Wednesday, a day before they were due to go into effect. They would have allowed DHHS to inspect any caregiver grow operation without reason or notice, and a patient’s grow with one day’s notice and a complaint.

These patients were not worried about getting caught doing anything wrong, but they didn’t want anyone to know they were a medical marijuana user, including the state.

“These are high-profile people worried about the stigma,” Lewis said. “They worried about losing a job, an election, a business deal. To them, it wasn’t worth the risk.”

Lewis and Julia were both surprised to learn the number of caregivers is declining, but upon reflection, they traced some of that back to the delay in adult-use licensing.

Both knew people who had recently become caregivers as a way to get into the adult-use business. The citizen initiative adopted in 2016 gave caregivers the first shot at what would have been a limited number of recreational business licenses, which made getting a caregiver license the first step in preparing for the rollout of the adult-use market. But that preference has since been stripped from the bill, so it doesn’t matter as much, Julia said.

Some people believed that establishing a successful caregiver business would give them the name recognition, business contacts, and track record needed to obtain the local licenses that would be required to set up a recreational business, build up capital needed for the license application process and establish a client base that would help them survive the early days of the market when competition could drive many of the smaller grows or shops out of business.

The details of Maine’s adult-use bill are being debated in the Legislature now, but lawmakers are still considering allowing medical growers to have a one-time transfer of product into the recreational market, which could give some medical operations that secure a recreational license a big jump when the adult-use market eventually opens, able to offer product for sale up to six months sooner than their recreational-only competitors.

But not all of these medical-into-recreational entrepreneurs survived the first phase of the business plan, Lewis said.

“We had people who’d taken our introduction to caregiving classes calling us up after a year asking if we knew anybody who wanted to buy their equipment,” Lewis said. “I’d ask them what happened. A lot of them thought they were going to make a ton of money and they quickly realized that wasn’t going to happen, not if they stayed within the program rules. They realized how tough it was to even pay your bills. It’s a lot of work. It’s obviously not for everybody.”

Some caregivers left when the state announced new medical program rules last year that allowed surprise inspections of caregiver grows, Lewis said. Although the rules have been put on hold, lawmakers plan to overhaul the program and may still include unannounced inspections. Some caregivers resent that level of state interference in their business, or their medical grows, when the new adult-use law allows them to grow up to six plants on their own relatively hassle free.

BATTLING FOR MARKET SHARE

Maine wouldn’t be the first state to see its medical cannabis program shrink after legalizing adult-use marijuana. Although adult-use legalization is definitely on a roll, the U.S. still has far more states with medical programs than adult-use programs – 29 compared to nine. Despite that, recreational profit in those nine states will overtake the medical profits in the 29 medical-only states in 2019, according to a 2017 report from Arcview Market Research.

The Arcview report notes that patients who are switching over from medical to recreational cannabis prefer buying marijuana without having to get a medical certification, despite the fact that in most states, recreational marijuana is taxed at a much higher rate than medical marijuana. For example, in Colorado, where medical customers do not have to pay a 10 percent marijuana tax on their purchases, recreational customers pay 15 to 20 percent more than medical patients do.

California’s $2 billion medical marijuana program, the oldest in the nation, is expected to lose almost 70 percent of its value in 2018, the first year of legal adult-use sales, according to a 2017 study the University of California Agricultural Issues Center did for California’s Bureau of Cannabis Control. The medical market had represented an estimated 25 percent of the total marijuana market there, but it is expected to fall to 7 percent this year, with profits of about $600 million.

In Washington, medical revenues fell by one-third after its 2012 adult-use legalization vote. In 2015, the state merged the two markets. In Oregon, the number of people with medical cards fell 13 percent in the year after legalization, according to state figures. Patient erosion there got so bad that many medical dispensaries tried to follow, with at least 80 percent of them applying to get a recreational license. Some that stayed medical have moved east, where many Oregon towns banned recreational sales.

However, the impact of impending legal recreational sales is not necessarily a bad thing for medical marijuana patients.

In other states, medical marijuana stores began operating medical-recreational stores, with separate cash registers to handle customers with different purchasing restrictions and tax rates separately.

That model is in the works in Maine under the pending adult-use implementation bill. In other states, that has meant bigger, brighter stores for medical patients.

Even though Maine has yet to record a single legal recreational sale, the surge in availability of gray-market cannabis has driven the price of medical marijuana products down. At Wellness, the volume of sales is actually up, but the dispensary chain has had to reduce its prices to keep customers from leaving for the gray or black market, Rosi said. Meanwhile, the cost of doing business in a legal marketplace has remained the same, she said, which means profits are down.

Wellness is not alone. Remedy Compassion Center in Auburn has cut its prices on some products in half to try to attract new patients and keep the ones they have, said Tim Smale, the dispensary’s co-founder and head of the Maine Dispensary Operators Association. He said dispensaries are seeing their revenues decline as the patient base shrinks, deciding to abandon their medical certification in favor of buying from a gifting company or a caregiver storefront.

“It is increasingly difficult when faced with these challenges,” Smale said. “Nonetheless, Remedy is committed to our members and community.”

Most of the state-licensed dispensaries want to follow their patient base into recreational, telling lawmakers during the adult-use planning stages that they plan to seek a recreational license once available and lobbying them to allow dispensaries to conduct pre-market recreational sales, a practice that some other states have allowed, as well as allowing them to abandon their nonprofit status, which is required of medical dispensaries but would hinder them in the adult-use market.

Penelope Overton can be contacted at 7891-6463 or at:

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