By:
Lisa Pittman, Esq.
License application fees are now bigger in Texas. Specifically, the newly
proposed license application fee to participate in the State’s inaugural
medical marijuana program, under the Texas Compassionate Use Act (the
“Act”), has been raised from $6,000 to $1,300,000. The Act
is a statute that contemplates low THC–high CBD oil to treat certain
children with intractable epilepsy. The Texas Department of Safety (the
“DPS”) is the State agency charged with devising regulations
under which the Act operates. The regulations dictate every aspect of
the program from application & license qualification to operational
specifics to physician qualification and treatment guidelines. Although
the regulations generally provide for a free market system with fewer
legislated restrictions than are imposed by other states, the newly proposed
licensing and renewal fees will thin the herd for only the most well-backed
entrants to the market.
Initially, the DPS had set the license application fee at $6,000, and renewal
fees at $6,000 every two years. The DPS now proposes the license application
fee be raised to $1,300,000, and biennial renewal fees to $975,000. The
fees for registrants, the individuals who are employees, managers, and
directors of the licensed organizations, are proposed to increase from
$150 to $4,820 for applications, and from $150 to $2,875 for renewals
every two years. These fees are the highest by far in the nation and will
require a significant front load of capital to begin business. Additionally,
license applicants must demonstrate the financial ability to operate for
two years based on a variety of factors.
Other notable changes in this second round of proposed rules include the
announcement that only three (3) licenses rather than twelve (12) are
currently estimated for the State. Considering Texas spans the second
largest territory, the reduction in contemplated licenses serves as another
significant challenge to the market, both for providers and patients.
Moreover, another newly proposed rule allows the DPS extremely broad discretion
to summarily deny an application from an otherwise qualified applicant
based on the perceived need for low-THC products in the region.
The reason stated by the DPS for the changes and increase in fees is to
accommodate the costs of operation under the program, which are now projected
to be higher due to newly instituted insurance requirements, the necessity
of continual state trooper staffing at all dispensing locations, and the
cost for the DPS to administratively manage the online program. The proposed
rules recite that they are promulgated to be consistent with the health
and safety of the environmental and economic welfare of the State by providing
greater protection of the public against harm or damages arising from
industrial accidents or defective products. The insurance coverage requirements
reflect this concern and inject another layer of complication and expense
to qualify for a license.
The increased fees and requirements effectively narrow the playing field
to the most sophisticated and experienced applicants, much like the medical
marijuana programs in New York, Illinois, and Connecticut, which were
legislatively limited in the number of licenses granted and the financial
qualifications to apply. Although the Texas regulations envision a free
market economy for the future of medical marijuana, the bar to entering
the market has been raised substantially with these proposed rules. The
public is invited to comment on the rules for thirty days, and changes
could take place before they are finally ratified into law.
These proposed rules will be published for public comment for 30 days commencing
October 28, 2016. The proposed rules are on the
DPS website.
Texas does not have voter referendums to change the laws as will be seen
on election day this year in other states. Rather, new legislation must
be introduced and passed through the legislature, which meets every two
years. The next legislative session commences in January 2017, and the
attorneys at Feldmann Nagel Margulis will be monitoring the progress of bills
submitted to expand and/or change the current medical marijuana program in Texas.