ResponsibleOhio's MJ Legalization Ballot Initiative 'A Bad Deal' Says Ohio-Based MJ-Extraction Co. Pres.

ResponsibleOhio's MJ Legalization Ballot Initiative 'A Bad Deal' Says Ohio-Based MJ-Extraction Co. Pres.

October 29, 2015
Noelle Skodzinski

By Noelle Skodzinski

Andy Joseph grew up in Ohio. He's now president of Johnstown, Ohio-based Apeks Supercritical, which sells cannabis extraction systems to cannabis businesses throughout the country. For him, the Ohio marijuana-legalization measure that is on Tuesday's ballot hits home, and despite his business's reliance on the continuing move to legalization, he says the measure is "a bad deal."

"It's a detriment for not only Ohio, but to ending prohibition," says Joseph.

Issue 3 would "add a new section 12 to Article XV of the Ohio Constitution to provide for the legalization of the use of medical marijuana by patients with debilitating medical conditions if a medical marijuana certification has been provided by the patient’s treating physician, and the use of marijuana and marijuana-infused products for personal use in amounts of one ounce or less by individuals 21 years of age or older." It also would establish "the Ohio Marijuana Control Commission (“Commission”) to regulate the acquisition, growth, cultivation, extraction, production, processing, manufacture, testing, distribution, retail sales, licensing, and taxation of medical marijuana, marijuana and marijuana-infused products and the operations of marijuana establishments, and the growth and cultivation of homegrown marijuana."

The legalization initiative, organized by a group called ResponsibleOhio, has faced significant controversy—including opposition from pro-marijuana-legalization groups and individuals—throughout its campaign to get on the ballot.

Among the imbroglio was a special investigation by the office of the Ohio Secretary of State over "disparities ... between the number of petitions and signatures ResponsibleOhio claimed to have collected and the number the group actually submitted to the Secretary of State’s Office,” explained a press release from the Secretary of State's office in July.

According to a report in Cannabis Business Times about the investigation, "In response to the announcement regarding the investigation from the Secretary of State’s office, ResponsibleOhio Legal Counsel Larry James issued the following statement: 'No good deed goes unpunished. We found discrepancies between the number of part petitions we turned in and the number the County Boards of Elections reported that we turned in. We brought these very discrepancies to Secretary Husted, and now he’s trying to punish us for pointing them out publicly. In doing so, we were merely exercising our first amendment right to raise legitimate challenges and concerns.'”

Also, the Ohio chapter of NORML, a national marijuana-legalization organization, ousted its president for supporting the ResponsibleOhio initiative.

Well-known national marijuana-enthusiast media brand High Times went head-to-head with ResponsibleOhio Executive Director Ian James in a piece by High Times contributor Jon Gettman titled “Irresponsible Ohio: Group Aims to Monopolize Legal Marijuana Market.”

In July, a supporter and activist for Ohioans to End Prohibition, penned an op-ed saying, "Despite its attempts to circumvent [Merriam-]Webster, ResponsibleOhio is a cartel." He expressed other concerns about the initiative as well, including what he cited as vagueness over permissible conditions for medical marijuana and penalties for anyone caught operating outside of this new regulated marketplace.

In August, ResponsibleOhio raised its own concerns over the ballot initiative's progress. It challenged the initiative's ballot summary language in the Supreme Court, saying it included prejudicial language and omits key facts about the proposed constitutional amendment.

Ohio Secretary of State Jon Husted "has sole authority to decide ballot issue titles. Husted's chosen title [for the ballot item]: 'Grants a monopoly for the commercial production and sale of marijuana for recreational and medicinal purposes,'" reported Cleveland.com. The Ohio Supreme Court ruled "that the Ohio Ballot Board crafted misleading language for the Nov. 3 marijuana-legalization constitutional amendment and ordered the board to redo it," reported The Columbus Dispatch.

And just yesterday, the WCPO Insider reported that ResponsibleOhio's leaders said they were the "target of death threats and cyber crimes that forced them to spend more than $165,000 on private security," for threats made from May through August,  They attributed the threats to drug cartels, according to the article.

The Question of a Monopoly

Most of the concerns over ResponsibleOhio's initiative are centered on the specification—in the amendment's language—of 10 grow sites. But the perceived problem is not only in the initial, limited number of grow sites, but also that it is the only proposed legislation to date to name the locations for the sites, and those sites would be owned and operated by campaign investors. The amendment language states that it would allow for:

 

"Providing ten site-specific locations for Commission licensed Marijuana Growth, Cultivation and Extraction (“MGCE”) facilities. Setting forth conditions under which the Commission may relocate a MGCE facility or issue a license for a MGCE facility at a site other than the ten designated sites. Providing that marijuana and medical marijuana may be grown, cultivated and extracted for sale and medical use only at these state regulated and licensed facilities. One of each of the ten specified sites is in the following counties: Butler, Clermont, Franklin, Hamilton, Licking, Lorain, Lucas, Delaware, Stark, and Summit."

 

State legislators specifically addressed their own concerns over the perceived monopoly that Issue 3 would create by pushing through legislation known as "the anti-monopoly amendment," which "protects the initiative process from being used for personal economic benefit." The amendment, Issue 2, also will be on Tuesday's ballot.

In Issue 2's text, it states that it would: "Prohibit from taking effect any proposed constitutional amendment appearing on the November 3, 2015 General Election ballot that creates a monopoly, oligopoly, or cartel for the sale, distribution, or other use of any federal Schedule I controlled substance," and specifies that "The Ohio Supreme Court has original, exclusive jurisdiction in any action related to the proposal."

Should both Issues 2 and 3 be passed by voters, in theory, Issue 2 would negate Issue 3; however the issue would likely be brought to the state Supreme Court.

ResponsibleOhio attorney Andy Douglas commented in the Cleveland.com article regarding the ballot summary language that a monopoly is defined as "control or advantage of one supplier or producer over a commercial market or market condition existing when only one economic entity produces a particular product or provides a particular service." The article continued, "Douglas argued ResponsibleOhio's model is not a monopoly because while 10 companies are part of the commercial marijuana growing market, there is no limit on marijuana product manufacturers and no specific number of retail marijuana stores."

But here is where Apek's Joseph voices a major concern. It's not just that those 10 sites will be owned and operated by campaign investors—a concern that has been front and center for many—but those 10 sites, given control of growth/cultivation and extraction, along with the fact that there is no language prohibiting vertical integration (where growers also can operate dispensaries), would enable those 10 growers to "control the entire supply chain," says Joseph. (The "no limit on marijuana product manufacturers" refers to companies that would produce products like tinctures and edibles, not grow marijuana.)

"That's the definition of monopoly—or at least an oligopoly, since there are 10 of them," he says. "If these 10 growers operate their own dispensaries, they could give their own dispensaries preferential price treatment, making it very difficult for anyone else to compete."

Joseph calls this a "monopoly tax" that dispensaries not owned by the 10 cultivators would have to pay. Add in the challenges presented by the Section 280E of the Internal Revenue code, banking issues and other challenges, dispensaries are almost doomed to failure, he says. "Dispensary failure rates are already high," he says. "The MGCE operations are the most profitable of all marijuana businesses. There's a reason [ResponsibleOhio] did that."

If Joseph's fears are proven true, a result of this monopoly, or oligopoly, marijuana prices would likely remain high, opening the door for the black market to retain market share by consumers seeking lower prices. "Free trade is supposed to drive prices down," says Joseph. "This is not what would happen."

In response to these concerns, Faith Oltman, a spokesperon for ResponsibleOhio, tells Cannabis Business Times, "We crafted this amendment to give Ohioans a wide variety of opportunities to be involved in this industry. Also, the Marijuana Control Commission, which will be state/governor-appointed, will oversee the entire process," she adds. "They're going to be the ones to approve every person who wants to be involved at the retail level. It's probably pretty likely that the Commission would not award [the 10 MGCEs] licenses."

Oltman also notes that "it's also not in the growers' best interest to be involved in multiple segments of the industry." She says she has heard some investors say they are not interested in other aspects of the industry. "They're going to be competing against each other, and they want to focus on quality. They want to focus on their first venture, which is the grow side," Oltman says.

While Joseph is obviously not alone in his concerns about a potential monopoly/oligopoly, he says, "It's fairly risky for me to publicly speak out on this," due to potential backlash from his public opposition to the measure and its impact on his business, "but I felt it was important."

Apeks' business as an extraction company would be hindered in the state with the passage of Issue 3, as all extraction would be done by the 10 MGCEs, but Joseph says its impact on his business, which recently built a new $2 million manufacturing facility in Johnstown, would likely be negligible.

He notes, "Our legislature has failed us," referring to the failure to end marijuana prohibition, "and I applaud ResponsibleOhio for bringing this conversation to the forefront. But it's a terrible deal, a miserable deal. [ResponsibleOhio] knows that Ohioans want legalization, enough to possibly be willing to allow a group of wealthy individuals to profit from it to the detriment of the state and Ohioans. Taking legalization at any cost is not a good policy," he stresses.

"It can be done better for Ohio. Such an aggressive and greedy approach is a recipe for disaster," he says. "There are good models already in place in other states that we can model [Ohio] efforts after. We are already meeting with state legislators to discuss the plan towards legalization in 2016."