A deal to create America’s largest marijuana-dispensary chain may be derailed as Pennsylvania regulators take a closer look at the company’s operations in the state.
Arizona-based Harvest Health and Recreation of Arizona, which has cannabis operations in multiple states, announced last week that it was acquiring CannaPharmacy Inc., a company with presence in Pennsylvania, New Jersey, and neighboring states.
On Friday, Pennsylvania Department of Health officials demanded “all records, documents, and correspondence” between Harvest, its Pennsylvania subsidiaries, and CannaPharmacy to determine if the companies misrepresented themselves to win permits to grow and sell medical marijuana.
The investigation comes at a time when several states, including Maryland and Massachusetts, are trying to ensure big out-of-state corporations do not dominate the nascent market, potentially shutting out locally owned businesses. In the first year of its medical program, Pennsylvania dispensaries recorded sales of about $130 million in 2018.
While announcing the acquisition on April 8, Harvest said it owned seven permits in Pennsylvania, which would allow it to open 21 dispensaries in the Keystone State. However, the state’s laws allow a maximum of five permits to be possessed by any one entity. Harvest won seven permits by applying through different firms with slightly different names.
In an April 10 letter, the state — which prohibits the transfer of marijuana permits — accused Harvest of “blatant misrepresentation” and warned that the permits would be revoked if the company didn’t stop making claims about its oversize footprint. The latest demand for documents also included a similar threat to revoke permits if the company doesn’t comply by May 6.
A spokesman for Harvest said CEO Steve White had not had a chance to review Pennsylvania’s request. “Harvest is committed to working closely with the Department of Health and to be fully compliant with all state regulatory policies,” said spokesperson Alex Howe.
In addition, the proposed merger would give Harvest control of two marijuana grow facilities in Pennsylvania, one more than the state law permits.
CannaPharmacy is the parent company of Franklin Labs LLC, which in 2017 was granted one of Pennsylvania’s first licenses to grow medical marijuana. Franklin Labs’ board is helmed by John Hanger, a former adviser to Gov. Tom Wolf. It owns a former Pepsi-Cola warehouse near Reading, where the company planned to cultivate marijuana.
Its other grow facility comes as a result of a recent “management services agreement” with Agrimed Industries. That would allow Harvest to grow marijuana in the southwestern Pennsylvania hamlet of Carmichaels, documents obtained by The Inquirer show. Like Franklin Labs, Agrimed has yet to supply a single gram of cannabis to Pennsylvania patients.
The recent wave of consolidations has attracted the attention of regulators in other jurisdictions as well. It has prompted regulators in Massachusetts and Maryland to take action to preserve the intent of the medical marijuana laws, which were passed with the often-stated intent of promoting new small businesses.
In late March, regulators in Massachusetts launched an investigation into whether national marijuana companies had flouted state laws that limit the number of licenses that can be controlled by any one firm. The probe followed an investigation by the Boston Globe, which found that rivals Sea Hunter Therapeutics and Acreage Holdings had bragged to investors about amassing more marijuana licenses than the three allowed by the state.
Sea Hunter operates dispensaries in Pennsylvania under Herbology brand. Acreage, which counts former U.S. Speaker of the House John Boehner on its advisory board, operates a grow in the Keystone State under the Prime Wellness brand.
On Thursday, Canadian cannabis giant, Canopy Growth, said it had bought the rights to acquire Acreage in a $3.4 billion deal that would transpire after marijuana is legalized across the nation.
Maryland legislators recently capped the number of marijuana businesses that could be owned by any single company at four. State law had initially limited ownership to one grower or one dispensary, according to the Baltimore Sun. The change came after Green Thumb Industries, a Chicago-based marijuana operation, entered into management service agreements with three independent retail dispensaries. The arrangements gave GTI effective control of them all.