Pennsylvania’s Fight Against Cannabis Giant Harvest Could Take Down Two Other Growers
Analysis: The DOH’s latest demands and good old investigative journalism uncover potential legal problems for either Phase I Grower Processor
The path forward for the two remaining Phase I Grower Processors that still haven’t supplied a gram of cannabis to Pennsylvania patients became clearer this past week.
But what was uncovered raises more questions than answers.
Arizona-based Harvest Health & Recreation announced that it acquired Franklin Labs’ license and Reading-based grow space in an April 9 press release. That followed its win of six new permits across the state earlier in the year as part of the second awarding of remaining dispensary licenses.
The story got even stranger Friday after the Inquirer’s Sam Wood revealed that documents obtained showed Harvest had also entered into a “management services agreement” with Carlmichaels-based AgriMed.
While not necessarily an acquisition, these agreements hand most day-to-day business operations over to a third party, so Harvest would have a controlling stake in both grows.
If Harvest is successful, altogether it will run up to 21 dispensaries in the state, and two growers. But this is prohibited by Pennsylvania law.
Act 16 Section 616 prohibits the issuance of any more than five dispensary permits to “one person,” which would allow for a maximum of 15 locations overall. This section also limits grower processor permits to one per owner. In section 608, all permits are specifically listed as “nontransferable.”
To get around this, in both cases it appears Harvest has used some creative business strategies, which for the most part appear completely legal. With dispensary permits, it applied under six separate LLCs, each using a strategy of closely researching how earlier permit awardees won theirs.
It’s a strategy Harvest has used in the past, and has been used in other states by other companies, including in Massachusetts where regulators are investigating the practice and other ways companies are using to skirt around limits on permit ownership.
With the grower processing permits, Harvest took advantage of a grower that has been looking to sell for a year and a half — Franklin Labs — and another plagued by both legal and personnel issues, AgriMed. It’s here where the Department of Health finally stepped in and said it had enough — and demanded answers.
But Harvest may soon find it has company in the DOH legal doghouse.
Why Franklin Labs and AgriMed May Be Next to Fall
The news of Harvest’s acquisition uncovered trouble for other permit holders in the program. Harvest’s press release on its acquisition listed CannaPharmacy as the owner of Franklin Labs. This is a problem: Franklin Labs, LLC is listed as the permitholder with the DOH.
Who is CannaPharmacy? Nobody really knows, and it does not look to be the same company as Franklin Labs. This would mean that even before Harvest came into the picture, Franklin Labs may have been sold already, permit and all — a violation of Act 16’s prohibition on transfers.
So, Harvest is likely not the first company to apparently acquire Franklin Labs. Instead, it’s likely this CannaPharmacy company, which also owns operations in three other Northeastern states.
According to Wood, DOH regulators had no knowledge of CannaPharmacy either, which leads to the logical assumption that Franklin Labs was in violation of Act 16 as well well before Harvest came into the picture.
The fact that Franklin Labs has already been in the crosshairs of regulators doesn’t help their case. The DOH stopped a sale of the company back in October 2017, again citing that “nontransferable” clause. That doesn’t appear to have stopped them from selling it anyway — or at least handing their permit over to this new company.
With AgriMed, the story is a little more complicated. Unlike Franklin Labs, the company made some progress towards becoming an operational grow. AgriMed has existing grow space in Carlmichaels, and has been cleared to grow since February 2018.
However, a series of events the following month stopped progress in its tracks. After promoting the introduction of its grower Ryan Hedrick in March 2018 on social media, Hedrick quit for unknown reasons, and within a month or so, updates from the company all but stopped. All of AgriMed’s public facing accounts have been dormant since the summer.
(Editor’s note: Hedrick later announced he was joining Williamsport dispensary Keystone Center for Integrated Wellness, and is now COO of Parea Biosciences, which operates KCIW and won a Phase II permit.)
The sudden dormancy of AgriMed in Pennsylvania was made all the more bizarre by the fact it continued to push forward with its Ohio operations, and delivered its first harvest there in October of last year. So, it’s not like AgriMed could not grow successfully. It clearly already has.
If the DOH would take action (it’s not clear if they ever were aware of the AgriMed/Harvest agreement before their initial demands for answers), it would likely be over a failure to be operational. The DOH might also interpret AgriMed’s agreement with Harvest as an attempt to sell itself to Harvest without actually doing so.
That could be enough to drag AgriMed into the controversy, and put their permit at risk as well.
The DOH Appears Eager to Enforce Act 16
While no enforcement action might be imminent in either case, cannabis regulators at the DOH have suddenly become more forceful in several aspects of the law.
In just the past month alone, dispensaries and growers were warned about any “giveaways” on April 20, while also revoking the marijuana certification credentials of Philadelphia medical doctor Dr. Matthew Roman.
It is not clear what may have triggered the DOH’s decision to take a more aggressive stance on enforcement across the board. But typically a large scale enforcement effort rarely just involves one party. From the looks of it, the DOH may have enough evidence to potentially go after at least two more permit holders in the state.
It could be an interesting summer, for sure.
Disclaimer: The analysis in this article is the opinion of the author after review of the available information at the time of publication.