Applying for a License to Process Medical Cannabis in Alabama

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Alabama became the 36th state to allow cannabis for medical use when Gov. Kay Ivey signed into law the Darren Wesley ‘Ato’ Hall Compassion Act on May 17, 2021. The Act establishes a process through which applicants will compete for a limited number of licenses in the following categories: (1) cultivator; (2) processor; (3) dispensary; and (4) “integrated facility” (which can cultivate, process, transport, and dispense medical cannabis under one license), as well as a to-be-determined number of licenses for secure transporters and testing laboratories. A 14-member Medical Cannabis Commission licenses and regulates the medical cannabis program, with input from the Alabama Department of Agriculture and Industries on cultivation matters. The Act requires that the Commission and the Department adopt regulations that allow license applications by September 1, 2022.

This article provides an overview of the requirements for obtaining a processor license. Future articles will provide similar overviews for the other five license categories. 

What is a Processor License?

A processor license authorizes the licensee to: (1) purchase and transfer cannabis from a cultivator; (2) process “cannabis into medical cannabis,” which includes “properly packaging and labeling medical cannabis products”; and (3) sell or transfer medical cannabis to a dispensary.

How Many Processor Licenses will be Issued?

The Act authorizes the Commission to issue four processor licenses. At least one license must be awarded to a business entity that is 51+% owned by individuals of “African American, Native American, Asian, or Hispanic descent,” and “managed and controlled” by such individuals “in its daily operations.”

What are the Requirements for Obtaining a Processor License?

Applicants for a processor license must pay a nonrefundable application fee of $2,500. Each “owner, shareholder, director, [and] board member” of an applicant, along with each “individual with an economic interest in an applicant,” must submit to a “state and national criminal background check.” If any “owner, director, board member, or individual with a controlling interest” has been “convicted of or released from incarceration for [any] felony” or “convicted of a controlled substance-related felony” within the last 10 years, the applicant is ineligible for a license. 

The Act requires that applicants include a bevy of information in their applications, including:

  • The identity of all individuals with “direct or indirect ownership interests” in the applicant.
  • The identity of entities that are involved in the cannabis industry and related to the applicant or individuals with an ownership interest in the applicant.
  • A complete criminal history of the applicant’s owners, directors, board members, and controlling shareholders.
  • The applicant’s anticipated or actual number of employees.
  • “Financial information” in the “manner and form” required by the Commission.
  • Records indicating “that a majority of ownership is attributable to an individual or individuals with proof of [Alabama] residence … for a continuous period of no less than 15 years preceding the application date.”

Under the Act, licensees must maintain at least $2,000,000 in “liability and casualty insurance” coverage, and the Commission may promulgate regulations that “establish minimum levels of other financial guarantees” that licensees must maintain. If an applicant fails to demonstrate its ability to meet these requirements, it cannot receive a license.

The Act lists numerous criteria the Commission may use to evaluate license applications, including: 

  • The applicant’s “ability to capitalize and conduct operations as proposed in its business plan, including business experience in related fields.”
  • Several other criteria aimed at the applicant’s financial backing and business acumen.
  • Any history of non-compliance with any regulatory requirements.
  • That the applicant’s “proposed location[s] of all proposed medical cannabis facilities” are “suitable for all activities” and “not inconsistent with applicable zoning.”
  • The applicant’s “ability to serve an identifiable geographic area.”

Before issuing a license, the Commission must open a 30-day period during which anyone can submit “written comments regarding the applicant,” and the Commission is required to consider all comments received. If an applicant is denied a license, it can request that the Commission “provide a public investigative hearing at which the applicant is given the opportunity to present testimony and evidence to establish its suitability for a license.” The Commission must provide such a hearing upon request.

Each applicant (for all license types) must certify in its application that it “does not have an economic interest in any other [Alabama medical cannabis] license.” Licenses and ownership interests in licensed entities cannot be transferred absent approval by the Commission.

How Competitive is the Licensing Process?

Alabama is not the first state to adopt a “limited license” regime for state-legal cannabis, and the experiences of predecessor states (including neighboring Florida) show the fight for licenses will be extremely competitive. Some of the most well-established cannabis operators in the country (and the world) will be applying for a small number of Alabama licenses. Further, the evaluation criteria for license applicants is largely subjective, and the evaluation process ensures that obtaining a license will be a question, in part, of influence.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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