Seeing green: Medical marijuana could be lucrative for area growers and sellers

News-DemocratFebruary 15, 2014 

The metro-east region can have two dispensaries and one cultivation center under regulations that have been proposed for the state's new medical marijuana program.

Among those hoping to land a dispensary permit for the region is a former nurse, Carla Cruzen, of O'Fallon. Her husband, Dr. William Cruzen, a retired emergency room physician, confirmed that his wife is assembling a team of investors and experts.

"My wife is very interested," William Cruzen said. "But it's so early in the process, and the way the regulations read now, it's so expensive to open one. The regulations are tough -- they're very tough."

He added, "She has all sorts of expertise lined up, but whether she actually goes through with it or not is still very much up in the air. The cost is tremendous, and there's no guarantee the program would continue after four years. Whether you can get your investment back is kind of unknown."

William Cruzen said his wife, having been a nurse, has medical expertise, and she helped establish his doctor practice, so she has experience as an entrepreneur. William Cruzen said he personally is "on the fence" about the medical use of marijuana, but he said his wife "certainly is a compassionate person."

The metro-east is allowed two marijuana dispensaries and possibly one cultivation center, under rules that have been proposed by the state agencies overseeing Illinois' new medical marijuana law. The proposed rules call for most areas of the state to have one or two dispensaries and one cultivation center per Illinois State Police district. ISP District 11, which covers St. Clair, Madison, Bond, Clinton and Monroe counties, gets two dispensaries and one cultivation center under the draft rules.

To help with the application, Cruzen has hired DispensaryPermits.com, a consulting firm that helps individuals and investors obtain growing and selling permits in states which have legalized medical marijuana.

Sara Gullickson is the Illinois market representative for DispensaryPermits.com. She said the firm has another client interested in operating a cultivation center, based in St. Clair County. She declined to name the hopeful grower, citing confidentiality agreements with her clients.

But she said the grower group "has somebody that's involved in the medical field, and someone they'd call on for agricultural issues. They have the real estate, the finances, everything it takes to pull this together."

Gullickson said Cruzen's group is "a great fit for the dispensary model. It's a group that has the experience that they need, they have the financial legs to stand on, they have the real estate. They have all the components needed to be successful in this industry."

Gullickson said her firm accepts only one hopeful dispensary client and one hopeful cultivation center client per permit area.

She said she couldn't provide any information about specific sites in St. Clair County being considered by the clients. She said a cultivation center would need to be 10,000 to 20,000 square feet, and likely would be in an industrial area.

Investors wanting to open growing centers and dispensaries have run the gamut.

"Lawyers, pharmacists, people who have invested in real estate, hedge-fund guys, celebrities, rappers, you name it," Gullickson said.

She estimates that for every dispensary or growing permit available, there will be roughly five applicants.

State Sen. Bill Haine, D-Alton, who was a sponsor of the state's medical marijuana law, said he's been contacted by about half a dozen people expressing interest in opening a dispensary or cultivation center in the metro-east. One was a doctor, and one was a lawyer.

"They were people who have legitimate, professional backgrounds. One of them had a medical background -- she was a doctor, an M.D. -- and one of them actually has a legal background," Haine said. "They're legitimate and successful people with professional backgrounds. They seem to be people of means."

They'll for sure need financial means.

Under the proposed rules, a hopeful dispensary operator will have to pay a $5,000 nonrefundable application, provide proof of $400,000 in assets and pay a $30,000 permit fee. There would be a yearly renewal fee of $25,000 for the permit.

For hopeful growers, the proposed rules call for a $25,000 nonrefundable application fee, proof of $250,000 in liquid assets, and a $200,000 fee if granted a permit. The yearly renewal fee would be $100,000.

Tbe costs are a concern for Chris Lindsey, legislative analyst for the Marijuana Policy Project, an advocacy group.

"The bottom line here is, we really would want the best qualified applicants. We don't want the applicants who have the most money. That's a serious problem, I think," Lindsey said.

Costs for the growers and dispensaries will only get passed along to the patients, Lindsey said.

The proposed rules for the program were developed by four state departments: health, agriculture, revenue and professional regulation. A comment period, during which the public can express concerns about the proposed rules, is currently open. The rules ultimately will get approved by a committee of state legislators.

Haine said the four state agencies will have to explain to legislators how they came up with the fee structure.

"Pardon the pun here, but it may be the state's attempt to weed out people who are maybe not up to this process," Haine said.

When the marijuana bill was before the legislature, many lawmakers wanted assurances that the program would not eat up state funds or be a cost to taxpayers.

"We assured them that no money would come out of general revenues to pay for this," Haine said. "This would all have to be generated from the confines of the people who cultivate and dispense the substance, and use it. Maybe that's what they're doing -- setting fees that assure they cover all the costs."

Costs will be substantial to monitor and police the program, Haine said.

DispensaryPermits.com gets so many inquiries from hopeful growers and dispensary operators that the firm asks potential clients to first participate in an hour-long webinar, prior to having a face-to-face consultation.

Gullickson said she typically meets with 50 hopeful growers or dispensary operators per week.

"I guess maybe 10 of them are willing to move forward," she said. "Obviously, the financial element of it is kind of a barrier to entry."

She added, "We typically tell clients they need $250,000 for a dispensary and $500,000 for a cultivation center. And tack on another $100,000 for each for certificate fees."

PATIENT COSTS

The proposed rules also spell out fees for the patient. They would have to pay $150 yearly to get a special photo ID for buying marijuana.

Lindsey said that seems excessive. He said Colorado, for example, charges a $15 fee and manages to operate with a revenue surplus.

"We think Illinois' fee is a little steep. They're on the high end for what we see around the country. And every state's program operates at a revenue surplus," Lindsey said.

Patients receiving Social Security disability income could pay a lower fee of $75 a year.

Caregivers of qualified patients could also apply for a card for $125 a year. Caregivers with cards could obtain marijuana from a licensed dispensary on behalf of a patient.

A spokeswoman for the Department of Health said the patient fees are in line with those of other states. Oregon and New Jersey charge $200, while Arizona charges $150. Some states have lower fees.

LACK OF COMPETITION?

The proposed rules call for 60 dispensaries across the state. While much of the state would get one per State Police district, the Chicago area would get 38 dispensaries: 13 in Chicago, 11 in suburban Cook County and three apiece in DuPage, Kane, Lake and Will counties.

Lindsey said the geographic allocation of dispensary permits could lead to a situation where downstate patients have to drive far to get marijuana, and downstate dispensaries wouldn't have significant competition.

"Obviously that's something we don't like at all," Lindsey said. "The seriously disabled shouldn't have to drive much more than the distance to a pharmacy to get medical marijuana."

The draft rules call for a patient to choose one dispensary as a provider. A dispensary can sell only to patients who have selected that particular dispensary as a provider.

"If you're in Belleville, you might not have much of a choice," Lindsey said. "And at the end of the day, that's where the money comes from, right? The patient."

Haine said: "Let's face it, the vast majority of the people in Illinois live north of I-80, so you're going to have more dispensaries in Chicago and the collar counties than downstate. But we ought to leave room to expand the dispensaries if there are a large number of patients who apply from downstate."

Haine said the number of dispensaries has to be limited in order to have tight controls on the system.

"What is the right number? We struggled with it when we crafted the bill," Haine said. "We have to make it accessible to people, but we have to also keep it under strict control."

Gullickson said other states also have rural areas, and prices generally haven't varied too greatly from one region to another.

"It's pretty standard, if you look at some of the other states, what cannabis is going for. It's usually $300 to $450 an ounce, depending on the quality or strain," she said.

'VERY LUCRATIVE'

Gullickson said the marijuana industry is potentially "very lucrative" for dispensaries and growers.

"If the dispensary is seeing about 200 patients a month, which is only seven or eight patients a day ... the dispensary will make a million dollars a year, and that's net profit," she said.

But it's also full of risks. For one thing, it's still illegal under federal law. And Illinois' program is only a pilot program, which will end after four years -- unless the legislature continues it.

In addition, some municipalities are enacting zoning laws that restrict locations of dispensaries and grow centers. Also, some landlords might not want their tenants involved in the marijuana business, so start-up costs for a dispensary or grower might have to include the purchase or construction of a building, rather than renting.

And for the cultivation centers, there's the matter of actually being able to grow it successfully. Gullickson said a hobby tomato gardener wouldn't have the expertise to produce steady, reliable crops of quality cannabis.

"It's a really expensive mistake if you are not growing and cultivating your product properly," she said.

The draft rules allow one cultivation center per State Police district, but only 22 total.

WHO GETS PERMITS?

The state agencies have proposed an application process under which applicants for dispensary and cultivation permits would be scored on a wide array of criteria, such as: business plans, security plans, expertise in the medical and agricultural fields, building plans, plans for hiring minorities, plans for helping to combat substance abuse in Illinois, plans for using alternative energy sources and plans showing how the entity could "give back to the local community" if awarded a permit.

Haine said it appears the agencies are setting up a very transparent selection process.

"There's always going to be somebody who says 'I didn't get a permit because I didn't know somebody.' That's why we're rolling this thing out very carefully. I don't want those questions raised," he said.

Haine said people who inquired with him about getting a permit were simply directed to the state's medical marijuana website.

"I can't ethically shill for any of them. All I want to do is have a level playing field for the people in my area," Haine said. "I don't want any questions raised. This is for the people who are suffering, but there are going to be some folks who make money out of this, just like pharmaceutical companies make money off Vicodin and Oxycontin."

Contact reporter Brian Brueggemann at bbrueggemann@bnd.com or 239-2511.

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