A pair of major Republican donors and the former head of the Pennsylvania Lottery Commission got a big windfall last month: the chance to snag a medical marijuana permit valued at about $25 million.
It was tucked inside the temporary Pennsylvania state budget by an anonymous member of the state House, and worded in a way that doesn’t explicitly mention Bay LLC, the company poised to receive the lucrative permit. Bay LLC operates cannabis dispensaries in Philadelphia, Phoenixville, and Lancaster under the name Cure Pennsylvania.
Rocco and Robert Ortenzio are father-and-son founding members of the company. Silvan Lutkewitte III, Bay’s CEO, was appointed head of the Lottery Commission by then-Gov. Tom Corbett in 2014. A serial entrepreneur who made his fortune in gas stations and convenience stores, Lutkewitte was dismissed by Gov. Wolf, a Democrat, a year later.
Bay LLC applied to the state Department of Health to grow marijuana in southwest Pennsylvania three years ago. The company was unsuccessful, coming in third out of a field of dozens of applicants. The top two applicants — Agrimed and PurePenn — were awarded permits to grow and process cannabis. The Department of Health later refused to renew Agrimed’s permit after marijuana plants mysteriously disappeared from the facility.
Though the quietly inserted provision is not illegal, Bay LLC stands to benefit enormously from the last-minute addition to the budget, especially as the prospect of legalizing recreational marijuana grows more appealing amidst a yawning $5 billion hole in the state’s finances due to the coronavirus pandemic.
And, the grow permit is valued at at least $25 million by industry analysts.
The state Department of Health, which oversees marijuana permitting, said Bay LLC won’t actually get a permit while the non-renewal of Agrimed’s permit is still under appeal by Harvest Inc, another cannabis company that bought out Agrimed last year.
“Until that is resolved, there won’t be any action on this,” said Nate Wardle, a department spokesman. “That could take some time because all the courts are closed due to the pandemic.”
Still, the move was unusual, said Harry B. Cook, a Philadelphia lawyer who has represented several marijuana businesses. “You would think there would be a more deliberative process so you can flush out who benefits,” he said.
Cook said the legislature would customarily be called on to amend a statute, in this case the Medical Marijuana Act of 2016. “The Department of Health is in charge of adjusting the regulations,” he said.
But in this case, a lawmaker was able to slip in language without debate that allows for an unidentified company to acquire a permit that was revoked from another marijuana grower. That company would be allowed to claim the permit.
The state previously had no mechanism for awarding a non-renewed permit.
“This could open up a Pandora’s box, probably for the better,” said Cook, who once represented Pennsylvania Grown Medicine, a marijuana business that wanted to cultivate cannabis in Chester but lost out on a permit. “I think there are going to be a lot of runners-up looking for the opportunity to go into Commonwealth Court to see if this [provision] applies to them.”
Neither the Ortenzios nor Lutkewitte responded to numerous requests for comment.
Rocco Ortenzio gave at least $186,000 to candidates and political groups during the 2016 election cycle, the vast majority benefiting Republicans, according to campaign finance data compiled by the nonpartisan Center for Responsive Politics. Robert Ortenzio had at least $178,000 in political spending during the 2014 cycle, also almost all of it for Republicans.
The Ortenzios are also the co-founders of Select Medical, a $2.5 billion corporation based in Mechanicsburg. Select Medical operates 975 rehabilitation facilities across the country. In the Philadelphia region, it’s best known for its Novacare Physical Therapy centers. The company’s political action committee has contributed at least $830,000 over the course of the last four federal election cycles, about 60% of it on Republican candidates and groups.
Agrimed, the top finisher in the state’s first round of permitting, ran into trouble immediately after winning a permit in 2017. Agrimed CEO Sterling Crockett failed to note on his required FBI background check forms that he had been convicted on a misdemeanor charge in New York. A disagreement with a contractor held up construction on Agrimed’s facility in Carmichaels in Greene County.
Agrimed then entered into a management services agreement with Arizona-based Harvest Inc. to run the facility. Shortly after the agreement was signed, the health department conducted a surprise inspection and noted missing marijuana plants and nonfunctioning security cameras.
In July 2019, the Department of Health issued a cease-and-desist order to the Agrimed permit holder and declared they would not renew the permit. However, there was no language in the medical marijuana law or the state regulations that directed how that valuable permit should be handled next.
On May 28, the Pennsylvania legislature passed a temporary state budget.
Tucked into that emergency budget was some surprising language.
The provision takes a surrendered growing permit and awards it to the “next most qualified applicant in the same region.”
The Department of Health has denied renewal to only one permit, the one belonging to Agrimed. The “next most qualified applicant" for that region is Bay LLC.
Though several marijuana dispensary permits currently are being contested, the provision in the budget applies only to growers.
Mike Straub, a spokesman for state House Republicans, said the language was intentional.
“The provision was written to address that particular concern,” Straub said. “It was deemed the most appropriate, fairest way to handle this particular case.”
Straub said he did not know which lawmaker introduced the language. “I’m not trying to hide any member’s identity,” he said. He said he did not believe the decision to give Bay LLC the permit set a precedent.
Several medical marijuana dispensary permits still are held by the Department of Health. Harvest Inc. returned two permits after the department rebuked it for claiming more dispensary permits than legally allowed. MLH Ethos sent back a dispensary permit after it won a more desirable license to operate under the state’s medical research program.
Several runner-up companies that applied for dispensary permits want to know why the provision was not extended to include them. None would go on the record to voice their complaints for fear they would alienate the Department of Health.
“Everybody in marijuana is pissed off about something," said cannabis lawyer Steve Schain. “If you don’t have an ox to gore, you’re just not in the industry.”