Regulated Substances Update: April 13, 2016

April 13, 2016

UPDATE to House Version of Senate Bill 3 Senate Passed:

The PA House of Representatives, after only about 45 minutes of debate,  has just voted to concur in the Senate amendments to Senate Bill 3 by a vote of 149-46 

Representative Ron Marsico, Chair of the House Judiciary Committee, Rep. Joe Petrarca, Minority Chair of the House Judiciary Committee and Rep. Mark Cohen, a long-time supporter of medical marijuana,  spoke in favor of the bill. Rep. Russ Diamond spoke passionately to clarify various issues which were properly addressed by the Senate amendments.

Rep. Matt Baker, Chairman of the House Health Committee,  spoke at length against concurrence.  Rep. Cris Dush also argued against concurrence.

Rep. Scott Petri pointed out that insurance would likely deny benefits because of federal law.

The bill will next go to Governor Wolf, who has said he will sign the bill.

 

This update is provided by the Regulated Substances practice group at Eckert Seamans.

 

House Version of Senate Bill 3 Senate Passed New Version of Medical Marijuana Law

Makes Improvements but Still Contains Challenges to Successful Implementation

The Senate yesterday passed a modified version of SB 3 (PN 1690) that substantially amends the bill as passed by the House. That version will now have to go back to the House for concurrence. The House can concur, or make still more changes in this new version, which the Senate will again have to decide to accept or reject, if the Medical Marijuana Act is to become a reality. It appears that the House will consider the Senate version of SB 3 as early as later today. A copy of the current Bill can be found at this link: http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2015&sessInd=0&billBody=S&billTyp=B&billNbr=0003&pn=1690

As described by Senator Folmer in a statement, the SB 3/1690 version made a number of technical amendments including:

  • Ensuring dispensaries are clearly authorized to operate;
  • Establishing a clear certification renewal process, which is critical for patients after 60-days;
  • Providing free background checks for caregivers;
  • Strengthening oversight – including background checks for employees of medical marijuana organizations, stronger seed-to-sale tracking, and stronger seed-to-sale tracking for storage and new tracking requirements for transportation;
  • Clarifying required distances between dispensaries and schools and daycare centers, which is especially important in urban areas like Philadelphia – the amended SB 3 provides a dispensary waiver for cities like Philadelphia where 1,000 foot restrictions would otherwise preclude dispensaries in these urban areas;
  • Clarifying the term “registration,” which had been used for multiple purposes and entities – the amended SB 3 makes it clear practitioners are “registered,” medical marijuana organizations receive a “permit,” and identification cards for patients and caregivers are “certified” by the Department of Health;
  • Clarifying the certification of medical marijuana identification cards – while maintaining safeguards to protect against fraud; and
  • Making a number of other technical changes to ensure SB 3 will work as law – including reorganizing the bill to make it easier to implement without delay.”

But a key modification that was not highlighted is in the “price control” section of the bill (Section 705). Under the former version, the Department of Health was charged with setting the “maximum price” for medical marijuana that could be charged by grower/processors or by dispensaries. Neither were permitted to grant volume discounts or to otherwise charge different prices. The SB 3/1690 version now directs the Department of Health and the Department of Revenue to, apparently jointly, monitor prices of medical marijuana sold by growers/processors and by dispensaries. If both find that prices are “unreasonable or excessive” the Health Department may implement price caps on the industry for a period of six months.

While this provision raises a number of questions, the modification is certainly an improvement over the House attempt. Regulatory price caps would have created enormous uncertainty for the industry, creating real barriers to obtaining financing or investment. Once those price caps were set, it would have given growers, processors and dispensers an incentive to cut costs, and potentially quality, by finding the lowest cost means of producing their product, in order to be sure to stay under the price limit. The revised provision is focused on the right thing (price gouging) but remains concerning because the bill fails to provide any guidance as to how a price might be determined to be “unreasonable or excessive.”

It is interesting to note that Pennsylvania’s Price Gouging Law (73 P.S. §232.2, et. seq.), which applies to all products whenever the Governor declares a state of emergency, contains specific provisions detailing what constitutes charging an “unconsciously excessive” price and how a business can rebut any such characterization (i.e., by showing that the price increase was justified by actual increases in cost). Perhaps the state agencies charged with monitoring medical marijuana prices will craft a similar “cost justification” standard by regulation, in order to ensure that the industry will not suffer from the unjustified imposition of “price caps” that could destroy profit margins and business expectations.

Another major issue is the limited number of licenses (now called “permits) that can be issued by the Department. The SB 3/1690 version – like the House version – limits the number of certificates available to 25 combination growers/processers and 50 dispensaries (with each dispensary being able to open up to three locations.) There is real concern that this number of licenses simply is too small to serve the needs of a large and diverse state such as Pennsylvania. Also, many in the industry are concerned about the financial effect of limiting fully integrated licenses (grower/processer/dispensary) to five. The ability to be fully integrated was thought to be a key element in being able to produce, process and deliver marijuana to customers profitably and economically.

Another provision that was not changed and which could slow or restrict the receipt of medical marijuana by those in need is the physician certification requirement. Before a physician can certify a patient as eligible to receive medical marijuana the physician must apply for and receive a “certification” (after completing a four hour course). The concern is that, based on the experience in other states, very few physicians will take the time to become certified . Also, some doctors may be concerned that becoming certified in Pennsylvania could have a negative effect on their license or standing in other states where medical marijuana remains illegal.

Finally, while the Bill continues language on minority and female participation in the permitting process as well as in hiring by permittees, the section does not require minority set asides or preferences. The provision appears to be modeled after the provisions in the Gaming Act, that require equal access by minorities and women to licenses, employment and professional service contractual opportunities. Under the comparable provisions in the Gaming Act minority or women ownership was one factor (but by no means a controlling factor) in ranking competing applications for gaming licenses. A minority or woman-owned applicant could (and, in some cases, did) lose out to another applicant that had other attributes deemed more desirable by the Gaming Board. Similarly, under the Gaming Act, the minority and women hiring requirements have been deemed satisfied by the adoption of a “diversity plan” that detailed how the licensee intended to make sure that qualified minorities and women had an equal chance at jobs, with no quotas or hiring requirements imposed. Of course, it remains to be seen whether the Department, in crafting evaluation criteria for the awarding of permits (there are no evaluation standards in the legislation) will be able to successfully navigate the minority inclusion requirement with its concomitant mandate to get the industry up and running as soon as possible to help patients.

Conclusion

While one of the most troubling provisions of Pennsylvania’s attempt to permit medical marijuana in the Commonwealth has been changed for the better, other provisions will present challenges if a viable industry is to develop. However, the regulatory authority given to the Department of Health is fairly broad. If the Department promulgates its implementing regulations (it is authorized to issue “temporary” regulations, good for two years, within six months) with the goal of making the Act work, many of these issues may be handled. But first, the House must concur in the present draft, or resolve their differences so that medical marijuana can become a reality in Pennsylvania within this decade.

This update is provided by the Regulated Substances practice group at Eckert Seamans.

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