Hawaii Overhauls Its Medical Marijuana Program

Hawaii has always been beautiful and its opening up its cannabis industry (a bit more) makes it even more so.
Hawaii has always been beautiful and its opening up its cannabis industry (a bit more) makes it even more so.

Though created in 2000, Hawaii’s cannabis regime has not provided for any regulated commercial marketplace for its approximately 13,000 patients. That all changed last week, after Hawaii Governor David Ige signed into law HB321, overhauling the state’s medical marijuana program and bringing it up to par with a growing number of medical cannabis states. Many aspects of Hawaii’s revamped medical marijuana program are quite similar to regulated medical cannabis markets in which our cannabis business lawyers already operate so we thought it would make sense to discuss the highlights of Hawaii’s overhauled program and a few of the interesting issues we see coming into play there.

Licensing structure: HB321 grants regulatory oversight to Hawaii’s Department of Health, which will issue eight business licenses distributed across four of its five counties: three for Honolulu, two for each Hawaii and Maui, and one for Kauai. Each licensee can operate two retail dispensing locations and two cultivation or “production” centers, all of which must operate only within their designated county. Production centers can grow no more than 3,000 plants at each location and cannot be located alongside retail dispensaries. The bill prohibits local opt-out and establishes general zoning guidelines, but gives localities discretion on how to grant zoning.

Hawaii will select dispensary licensees based on merit and will require, at minimum, a $5,000 application fee, $1.2 million in financial resources, 51% ownership by Hawaiian residents, and, if selected, a $75,000 license fee. Beyond these minimum qualifications, Hawaii will select licensees according to a familiar set of criteria, including their ability to operate a business, financial stability, security plans, and inventory controls, among other things.HB321 gives the Department of Health the authority to add additional or more specific selection criteria through administrative rule and contains a mechanism to add additional dispensary licenses in 2017, if necessary.

Cost: Because Hawaii is an island state, almost everything is more expensive. Real estate, electricity, water, and fuel are more expensive than most places on the mainland. Having to import production inputs will drive up licensees’ (particularly cultivators’) operating costs, which, in turn, will either cause prices to go up or (less likely) make businesses less profitable. This provides an opportunity, however, for mature operations to be competitive in the merit-based application process. Those that can demonstrate their ability to keep prices down and quality up, despite the increased production costs, could have a huge advantage.

Seed-to-sale: Interestingly, HB321 makes the state’s seed-to-sale software platform exempt from Hawaii’s procurement code, allowing regulators to bypass substantial bureaucratic hurdles that could threaten to stall their program’s implementation. The Department of Health still has to publicly solicit at least three proposals for the software, but regulators will have much more flexibility in how they can select and contract with their vendor.

Residency requirements: Hawaii is following a growing trend, particularly among Western states, of imposing residency restrictions on cannabis businesses and their investors. Hawaii requires licensees be at least 51% controlled by legal residents who have lived in the state for at least five years, the longest among states that impose residency restrictions. Oregon, for example, imposes a two-year residency requirement. Other states, like Illinois, gave preference to in-state applicants but have not established bright-line residency requirements.

Reciprocity: Hawaii will be the second state, after Nevada, to give reciprocity to out-of-state medical cannabis patients though out-of-state patients must first register with the Hawaii Department of Health before purchasing marijuana products. The details of this registration process will be determined by administrative rule, so it remains to be seen whether Hawaii will only register out-of-state patients with conditions that it recognizes. For example, a California patient who uses marijuana to treat anxiety or insomnia may not be able to purchase cannabis medicine in Hawaii.

Intrastate transport: HB321 expressly prohibits licensees from selling or transporting their products outside their designated county. But since Hawaii is an island state, the only way residents can travel between counties is by boat or airplane, which both fall squarely under federal jurisdiction. Oregon and Washington recently announced their policies to allow passengers to transport cannabis on in-state flights, however the FAA/TSA can override this policy at any time, if they so choose. This could create potential headaches for Hawaiian patients who wish to bring their medicine with them when traveling between islands.

Inter-state transport: Carrying marijuana across any state line violates federal law. Even though many people can and do fly with marijuana on domestic flights, Hawaii is the only state in which airline passengers are required to pass through an additional inspection by the U.S. Department of Agriculture. Plants, foods, and other agricultural products must be declared and inspected. Passengers trying to bring back marijuana from Hawaii to the mainland may be subject to additional penalties for lying on their USDA declarations, so it is especially advisable to leave all cannabis products behind.

Overall, Hawaii’s program shows enormous promise, and HB321 shows that its lawmakers are learning from other states’ models and have cherry-picked some of the best parts of each. We’ll be keeping a close eye on further developments from the Aloha State, so stay tuned.