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COVID-19 delays medical marijuana, but for how long?

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The state’s medical marijuana program can’t officially kick off until plants are put in the ground.

But those in the budding industry say the coronavirus pandemic and its economic impact is delaying the arrival of medical marijuana in Missouri.

“With the lack of mobility and things being shut down, there’s a lot that can’t be done,” said Grant Wistrom, owner of Revival 98 LLC.

Wistrom and other medical marijuana entrepreneurs worry the pandemic will cause their timeline to shift dangerously close to the state-mandated deadline to have their facilities operational one year after getting the green light. The Missouri Department of Health and Senior Services announced the winning facilities over the course of last December and January.

“Hopefully, there will be some grace issued by the state so we don’t have to be running in a year,” Wistrom said. “Cultivators are going to be late getting product in the ground, which will be late getting to us.”

The former NFL player and co-owner of CrossFit Springfield was awarded licenses for an infused-product manufacturing facility and a dispensary in Springfield. Wistrom initially applied for a vertically integrated operation to be housed at 2860 S. Austin Ave. but was denied a cultivator license. That’s led him to an ongoing search for a new facility for his smaller operation.

State officials, however, consider business to be operating as usual. DHSS spokeswoman Lisa Cox said the department had heard of facilities experiencing challenges related to COVID-19 but said many were still on schedule.

“It is too soon to determine whether COVID-19 will have a significant impact on the medical marijuana industry’s rollout,” she said.

Investors
With the expected delays, many medical marijuana businesspeople are concerned of a potential funding impact.

Chip Sheppard, a Springfield attorney who helped write the medical marijuana legislation approved in Missouri, said many investors may feel an economic hit amid COVID-19.

“Many, if not most, that have committed significant financial resources … are financially strapped due to the impact on their industry or the sharp drop in value of their investment portfolios,” he said.

Paula Givens, co-owner and in-house counsel of infused-product manufacturing facility Happy Days LLC, said the state’s capital requirements also have put cultivation facilities behind. According to the state application, cultivation facility applicants needed to have $300,000 in liquid capital to finance their proposed business model. However, Givens said build-out for a cultivation center can cost millions of dollars.

“They had to have $300,000, which doesn’t get a cultivator through the design-build, breaking ground, install of subfloor or infill. Because of that, there are people who got licenses who are having to go fundraise,” said Givens, who has practiced as a medical marijuana compliance attorney in Michigan and Missouri since 2014.

This will put cultivators largely behind on build-out and getting product in the ground, Givens said. In the application, the required capital for dispensary, infused-product manufacturing and transportation facilities was $150,000. Testing facility applicants were required to have $200,000.

Agreeing with Sheppard, Givens said investors are likely to pull out with current economic uncertainties.

“A lot of people make their financial plan based on diversified investments, and when your value of those have dropped 20%-25%, people reconsider what is not a core investment,” Givens said. “There’s no one investing in cannabis who’s investing as their core wealth.”

An article in March by Marijuana Business Daily reported that many marijuana businesses may not survive the economic downturn – both medicinal and recreational. Industry experts were quoted as saying capital in the industry already was scarce because of tall orders promised to investors and underperformance by many publicly traded marijuana businesses over the last few years.

Sheppard, who works with medical marijuana clients at Carnahan, Evans, Cantwell & Brown PC, said facility owners shouldn’t be quick to forfeit their license if investors back out, but they may have to if funds aren’t collected to match goals outlined in their state applications.

To make matters worse, economic disaster recovery loans from the U.S. Small Business Administration are out of reach for medical marijuana business owners because the product is federally illegal.

“We are hoping the next [stimulus] package will allow it,” Sheppard said.

“This industry will employ thousands in Missouri, at better than average wages, and it has been impacted just like any other industry and should be entitled to the same benefits. This industry pays the highest taxes of any industry and contributes to the economy just like any other.”

Construction and infill
Givens said Happy Days, like most facility operators, was about to start construction, but has seen a halt in the process.

Though construction may be deemed essential by city and state leaders, the building of a medical marijuana facility is not seen as such. Givens said it’ll likely delay commencement inspections by the state, which are required before a facility can be operational.

“People have been at home and construction has stopped and site surveys have stopped,” Givens said. “But now that there’s a state [stay-at-home] order, I would think the department would be at least forced in some way to … extend the deadline.”

Kim Andrews, owner of Ozarx Botanicals I LLC, said she’s put infill work on hold for a store set to open in Springfield Plaza on the city’s northwest side.

“If we’re not going to get product until the fourth quarter, we don’t want to have an empty storefront just sitting there for months,” Andrews said, noting she also was experiencing delays in infill work with an undisclosed contractor.

Andrews said her investors haven’t wavered yet, but she knows unnamed industry partners who are feeling the heat. One of her concerns is being able to get the proper security equipment and supplies needed to eventually infill the store, she said, noting some equipment would likely ship from China.

“The current economic situation has everyone concerned,” she said. “We’re experiencing the same issues that any industry has, but we’re still trying to create this industry. It’s tough.”

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