Oklahoma House Passes Bill to Limit Medical Cannabis Licenses

Introduction

On May 18, 2021, Governor Kevin Stitt signed House Bill 2272 (the “Act”), assigning new protective procedures in the medical marijuana industry in Oklahoma. The Act (1) creates an attestation requirement disclosing any foreign interests a licensee holds in the medical marijuana industry, (2) authorizes the Oklahoma Medical Marijuana Authority (OMMA) to conduct on-site compliance checks, and (3) mandates inspections to certify that certain licensees are actively operating. This is a step forward for Oklahoma’s medical marijuana industry, as it eliminates the involvement of certain bad actors and creates fairer competition among business licensees.

Original form of the Act

The version of the Act passed by the House in March was markedly different from its final form. Included was more stringent oversight like artificial caps on the number of business licenses issuable by OMMA and monetary benchmarks required to maintain licenses. Designed to limit oversaturation of the market and weed out malcontents in the industry, these restrictions would have improperly disrupted the free market and certain areas, especially rural Oklahoma, undoubtedly would have been left underserved. The procedures adopted by the Act will accomplish the same end results but in a more natural way, less as a constraint on capitalism and more as a safeguard to the industry.

Final version of the Act

Effective July 1, 2021, the final version of the Act introduces focused procedures which avoid placing additional financial burdens on licensees. Further, there are no direct barriers to entry established by the Act, so applicants meeting OMMA standards should be able to obtain a license through the same methods and at the same pace as before the Act. By altering the methods of its administration, the Act sidesteps the unintended consequences included in previous versions.

• Disclosure of foreign interests in the medical marijuana industry
  All business licensees are required to submit an attestation disclosing the existence and identity of any foreign (non-Oklahoma) financial interests held in the medical marijuana industry. The attestation is made under the penalty of perjury and is implemented to block foreign influence in the Oklahoma medical marijuana market, especially by certain drug cartels. This will curb the illegal import and export of medical marijuana to and from Oklahoma from neighboring states and countries. This protects patients and proprietors by further ensuring that businesses are complying with OMMA rules and regulations and are not manipulated by foreign influences.

  OMMA focuses on whether licensees have an equity ownership in a foreign medical marijuana business, such as a stake as shareholder, partner, or member. The full statutory definition of “owner” is found here. A foreign interest is not automatically disqualifying for a licensee, but noncompliance with this provision will result in immediate revocation of a business license. Current licensees have 60 days from July 1 to submit an attestation to the Oklahoma Bureau of Narcotics and Dangerous Drugs (OBNDD), and new licensees have 60 days to submit an attestation after license approval. A form of attestation will be provided by OBNDD on its website.

• On-site compliance inspections
  The Act transforms the on-site compliance inspection procedures set forth in the Oklahoma Medical Marijuana and Patient Protection Act, as OMMA and its designees may perform the checks. The remaining inspection procedures, such as the requirement of notice before a check and the limitation to two inspections per year, remain the same.

  The existing disciplinary actions and penalties were unchanged by the Act, so licensees may face repercussions for violating OMMA rules and regulations, including application denial, license suspension, and revocation. Additionally, noncomplying parties can face monetary penalties for reasons such as sales to unlicensed businesses or individuals. Any disciplinary action or penalty is contestable by the licensee pursuant to the Oklahoma Administrative Procedures Act.

• On-site operation status inspections
  Beginning September 1, 2021, the Act authorizes OMMA to perform on-site compliance inspections for licensed grows, processors, and dispensaries at which the licensee must verify that it is actively operating its business or is working toward operational status. A recently proposed amendment to Section 310:681-1-2 the OMMA rules defines “actively operating” as “a commercial licensee that possesses, sells, purchases or transfers medical marijuana and/or medical marijuana products to or from its licensed premises in a regular or seasonal capacity.” This system is designed to determine whether licenses are not being held as “shelf licenses,” which are empty and inactive licenses held by a licensee to avoid the licensing process for future business use. The legislature intends for this new process to lower bad actor involvement in Oklahoma’s medical marijuana industry, as shelf licenses are used to obtain assets from a suspended or revoked license held by the same individual or entity, effectively bypassing the disciplinary action.

  The Act requires that these inspections occur within the first 180 days after the business license is issued. A grace period is authorized if the licensee does not show active status upon its inspection, in which the licensee receives an additional 180 days to work toward active status. Upon the expiration of the 180-day grace period, a follow-up inspection is performed, at which time the licensee is required to show that it is active and working toward operational status. If the licensee still does not show such steps, the Act permits OMMA the discretion to grant a second 180-day grace period, at the end of which a final inspection is conducted. If, upon the final inspection, the licensee cannot show active operational status, the medical marijuana license is revoked.