Massachusetts DPH Clears the Air for For-Profit Conversion of Medical Marijuana Dispensaries
The Massachusetts Department of Public Health (DPH) has provided a much anticipated pathway to enable for-profit entities to operate Registered Marijuana Dispensaries (RMDs). DPH’s Medical Use of Marijuana Program (the “RMD Program”) has released Guidance for Registered Marijuana Dispensaries Regarding Corporate Conversion, pursuant to Section 72 of An Act to Ensure Safe Access to Marijuana (Chapter 55 of the Acts of 2017, or the “2017 Act”), which enables non-profit entities with a Provisional or Final Certificate of Registration to operate a RMD, or current applicants, to convert to a for-profit Massachusetts domestic corporate entity.
The guidance corrects a disconnect between the DPH requirement that RMDs operate as non-profit corporations and the 2017 Act, which, among other things, repeals the 2012 legislation that established the RMD Program effective as of the execution of a transfer agreement between DPH and the new Cannabis Control Commission (CCC) established pursuant to the 2017 Act. The 2017 Act legalizes marijuana for non-medical purposes and imposes no such non-profit organizational and operational requirements on marijuana establishments and marijuana product manufacturers licensed to cultivate, manufacturer, sell or otherwise conduct a marijuana business under the authority of the 2017 Act. Lifting the requirement that RMDs operate as non-profits may offer RMDs and applicants relief from the intricate corporate arrangements that were developed to allow for RMD development, management, and access to necessary capital while complying with DPH’s non-profit requirements.
Existing applicants or RMDs with either a Provisional or Final Certificate of Registration must complete the conversion documents provided by the Secretary of State, submit the completed conversion documents to the RMD Program for certification, and then file the certified documents with the Secretary of State. Following the conversion, the RMD registrant or applicant must file with DPH a Certificate of Good Standing reflecting its status as a domestic business corporation. The RMD registrant or applicant should notify DPH if any documentation or information submitted to DPH will be amended or modified as a result of the conversion. While the conversion process, itself, appears straightforward, entities should first consider and address tax, employment/benefits, and other potential operational consequences relating both to the non-profit entity undergoing a conversion and other persons or entities that may have contractual relationships with the non-profit entity.
The CCC and DPH are required to implement an agreement for the orderly transfer of the RMD Program, including personnel, assets, and liabilities, from DPH to the CCC by December 31, 2018.
Much has changed since Massachusetts legalized marijuana for humanitarian medical use in 2012. But the illegality of marijuana (cannabis) as a Schedule I controlled substance under the Controlled Substances Act continues to present challenges for medical and “recreational” marijuana business in a number of areas, especially banking and financial services. Absent an initiative to strictly enforce federal law, the industry seems on pace for rapid growth and opportunity.