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 Cantafio & Song PLLC will be monitoring the progress of bills submitted to expand and/or change the current medical marijuana program in Texas.