Gov. Ron DeSantis' office asked the Supreme Court to take up the case, which would address the frameworks of Florida's vertical integration requirement for cannabis companies. (Photo: Shutterstock)
The cannabis industry is budding as some sales projections are expected to exceed $1.7 billion by 2022. Licenses to sell medical marijuana in Florida repeatedly fetch a price tag of over $40 million. The catch: Florida tightly regulates the amount of licenses it issues for the sale of medical marijuana. Therefore, companies that desire to enter the market resort to purchasing the license from an existing license holder. However, that may soon change.
On Oct. 16, the Florida Supreme Court accepted review of a case that involves a key component of Florida's regulatory structure for medical marijuana licenses. Gov. Ron DeSantis' office asked the Supreme Court to take up the case, which would address the frameworks of Florida's vertical integration requirement for cannabis companies.
As of 2019, Florida issued just 14 licenses to produce and sell medical cannabis in the state of Florida. These licenses, also known as a MMTC license (formerly a dispensing organization license), allow the license holder, to own and operate up to 25 to 30 individual — dispensary locations and deliver the product directly to customers' homes. Florida law tightly regulates the licensed medical marijuana treatment clinics (MMTCs). Specifically, Florida statute requires each MMTC license holder to be vertically integrated, which requires the license holder to control all aspects of the operations from "seed to sale."
In short, the statute requires a medical marijuana treatment clinic to cultivate, process, transport and dispense marijuana for medical use. However, the recent ruling from the Florida's First District Court of Appeal determined that the vertical integration requirement conflicted with the Florida Constitution. Art. X Section 29(b)(5). The Florida Constitution permits MMTCs to cultivate, process, transport, sell, distribute, dispense or administer marijuana for medical use. Since the statutory language conflicts with constitutional amendment regarding vertical integration, the statutory cap on the number of facilities is subsequently rendered unreasonable.
Despite the billion-dollar market projections, insurance premiums remain a significant expense for the cannabis industry. Vertical integration necessitates that companies insure all aspects of the supply chain. Insuring the cannabis industry from seed to sale encompasses a variety of risks. First-party risks include fire, theft, product recall, workers' compensation and equipment breakdown. Third-party risks may include products liability and DUI. Thus, the gamut of insurance cannabis companies must consider encompasses property insurance, commercial automobile insurance, workers' compensation, product liability, business interruption, government actions, inland marine (cargo), professional liability and commercial general liability, among others.
A potential ruling against seed-to-sale requirements may have indirect impacts on the cannabis insurance market. Instead of requiring a MMTC to take on all the responsibilities in the supply chain, a MMTC could just focus on a particular aspect of the supply chain. In essence, MMTCs that are not vertically integrated could focus on the cultivation and processing rather than the administration and distribution aspects of the industry, which lowers the exposure to risk. Subsequently, more insurance carriers may consider the cannabis market if MMTCs are not vertically integrated.
The Supreme Court's potential ruling against vertical integration could also result in the long-term increase of MMTC Licenses issued by the state. If the vertical integration is upheld as unconstitutional, Florida will have to reconsider its current cap on MMTCs. Further, if MMTCs may focus on only one aspect of the cannabis industry such processing or dispensing, it may require the issuance of additional MMTC licenses to service the other facets of the cannabis industry. An increase in the MMTC licenses issued would inevitably lead to an increased need for cannabis insurance products.
For now, the cannabis industry awaits the outcome of Florida Department of Health Office of Medical Marijuana Use v. Florigrown, in the Florida Supreme Court. The ruling may greatly impact Florida's cannabis industry as well as the cannabis insurance market. In the near future, cannabis insurance in Florida's billion-dollar industry could become a true cash crop for insurance providers.
Nicolas R. Bixler is a Fort Lauderdale attorney with the law firm of Hinshaw & Culbertson where he provides strategic counsel for a wide range of civil litigation cases, focusing on insurance-related matters. He may be reached at [email protected].
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