Business

Medical marijuana in Texas: An uphill battle

By Alex Halperin
Jan 15, 2021

Everything’s big in Texas, except the cannabis market. 

While industry operators salivate at the prospect of finding a foothold in the country’s second most populous state, there are many reasons why the Lone Star state could be a tough business climate for years to come. 

Texas Gov. Greg Abbott (R) signed legal MED into law in 2015, but six years later, the state only has what Entourage Effect Capital managing partner (and Dallas native) Matt Hawkins called a “sliver of legality.” 

It may be the country’s most restrictive program: 

  • Products can’t contain more than 0.5% THC.
  • Flower isn’t allowed. 
  • MED access is limited to a few serious conditions.
  • As of December there were 3,811 enrolled patients out of a population of nearly 30M.
  • The state has issued three licenses, which are required to be vertically integrated.

Polls consistently show Americans of all political views favor legalization. Some conservative states have legalized more expansive MED programs through ballot initiatives, a way to sidestep hesitant lawmakers and take the issue to voters. But Texas makes this form of direct democracy exceptionally difficult. In Texas, both chambers of the state legislature must approve ballot initiatives with a two-thirds support before they go to voters.

Passing bills through the legislature isn’t easy either. The state legislature meets every other year for about five months. A session just began and while numerous cannabis bills have been filed, and there’s a bit of hype that the state could at least substantially expand its program, advocates have limited expectations.

Among other discouraging factors, Hawkins of Entourage Effect, said Lt. Gov. Dan Patrick is not interested. (In a recent article, Hawkins argued Texas can avoid California’s mistakes in regulating cannabis.)

Morris Denton, CEO of Texas Original Compassionate Cultivation, the state’s largest MED company, said his top priorities for this years session are eliminating the THC cap and giving doctors the ability to prescribe MED for whatever condition they think is appropriate. For now, Texans with terminal cancer can access cannabis, but it’s prohibited to those whose prognosis isn’t terminal.

Texas doesn’t make it easy to run a cannabis business, even with Compassionate Cultivation’s 80% market share. On its web site it promotes a short menu of lozenges, mouth spray and tinctures. The Austin-area company has a fleet of Priuses to make deliveries across the massive state. (Out of state MSOs hold Texas’ other two licenses.)

Denton said one change he’d like, which doesn’t need approval from the legislature, would be permission to store product in locations other than the company’s headquarters. This would save him the expense of sending drivers on, say, the nine hour drive to El Paso every time a patient there needs a refill. (It’s difficult to imagine cannabis containing 0.5% THC would attract much malfeasance.) 

Difficult circumstances

In many states, budget shortfalls resulting from the pandemic could catalyze legalization. But, this factor also appears to matter less in Texas: The state comptroller just released an unexpectedly optimistic financial forecast.

Officials understand that a bigger cannabis market could deliver substantial tax revenues to the state. But if that’s going to happen in Texas, Denton said legislators need to start thinking more pro-actively. After a state legalizes, it typically takes a few years to regulate the market and start delivering substantial revenue.

One factor that helps and will likely continue to help Texas cannabis activists is the ever escalating air of inevitability surrounding national legalization. This is happening nationwide, but also in Texas’ neighborhood. 

Conservative Arkansas has a MED sector. And when Lt. Gov. Patrick expresses some openness to MED but adds, “We’re not going to turn this into California,” he could be speaking about deep red Oklahoma, which boasts one of the country’s most freewheeling MED industries, a short drive from Dallas.   

“The unfortunate reality is that we’ve got a bunch of Texans that are forced to be medical refugees from their own state,” Denton said.

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