Recently enacted Pennsylvania Senate Bill 773 (SB773) introduces several amendments intended to expand opportunities and increase competition among existing cannabis licensees in Pennsylvania. The bill seeks to support independent licensees in the state and is a response to the consolidation among licensees that many states have seen as state-legal marijuana operators struggle under the weight of federal prohibition and competition from the unregulated marketplace.
Pennsylvania has had a medical-only cannabis program since 2016. The program allows for the licensing of 25 grower/processors (licensees who cultivate medical marijuana plants and process the medical marijuana into medical marijuana products) and 50 retail dispensary licensees that each could own up to three medical marijuana dispensary locations. The state initially envisioned limited vertical integration among grower/processor and dispensary licensees — the Medical Marijuana Act originally provided that only five of the 25 grower/processor license holders could be granted dispensary licenses. 35 P.S. § 10231.616(5). While the intent of the original legislation was to increase competition, the program has been criticized for creating a near-monopoly at the dispensary level, as many dispensary licenses consolidated under a few multistate operators (MSOs).
With the passage of SB773, lawmakers have targeted their efforts toward those licensees who have not yet become part of an MSO corporate family. These are referred to in the bill as “independent dispensaries” and “independent grower/processors.” Independent dispensaries will now be allowed one grower/processor permit to produce their own medical marijuana products, and independent grower/processors will be allowed one dispensary permit (with up to three locations) to be able to bring their products directly to market. This change is estimated to result in approximately 30 new dispensaries and four new grower/processor facilities.
Applicants for these additional permits must certify that they will not enter into a change of control transaction, defined as the consolidation, merger, or acquisition of more than 20% of the business’ securities or ownership interests, with any other person, for at least one year from the date their first dispensary or grower/processor location is deemed operational by the Pennsylvania Department of Health. One exception to this prohibition is that, after becoming operational, the licensee can enter into a change of control transaction with a disadvantaged business, minority-owned business, women-owned business, service-disabled veteran-owned small business, or veteran-owned small business.
While some hoped that the legislation would also expand the state’s medical marijuana program to include recreational marijuana sales, it appears Pennsylvania lawmakers are not ready to take that step. SB 846, which would provide for adult use cannabis, was introduced in 2023 but has not progressed out of committee. Lawmakers are instead reacting to the natural consequences of operating in a restricted, highly taxed, and highly regulated system: small, independent operators have a hard time staying afloat, making mergers and consolidation more appealing. It remains to be seen whether SB773 will provide the relief Pennsylvania’s remaining independent medical marijuana licensees are looking for.
