Arkansas Business: Room to Grow: State Adds New Cannabis Growers

Read the full story at Arkansas Business.

Ever since Arkansas legalized a medical marijuana industry four years ago, Storm Nolan of Fort Smith has waited in line, not always patiently, for a chance to get in.

Now, spurred by his late mother’s opioid addiction, he’s on the verge of getting his wish in the form of a multimillion-dollar cannabis cultivation center south of the Fort Smith airport.

Nolan, a partner in family-owned CSK Hotels of Fort Smith, is sole owner of River Valley Relief Cultivation LLC, one of three companies that recently gained state licenses to join the five original grow operations.

Nolan’s mother, Toni Whitt, an accomplished lawyer who graduated from the University of Arkansas at 19, died in 2013 at age 57 after struggling with opioids. “That was one of our primary motivations, because we’ve heard countless stories about patients who are either getting completely off of opiates or scaling down their opiate by managing their pain with cannabis instead,” Nolan told Arkansas Business.

“That’s also a reason it’s so sad that Arkansas’ pricing remains so high. People would rather manage their pain with cannabis, but they can’t afford it.”

Total sales at the state’s 29 operational dispensary sales recently topped $600,000 a day, and with twice as many Arkansans obtaining medical cards than expected — 80,314 as of Sept. 11 — the state Medical Marijuana Commission decided recently to issue three new grow licenses. Joining Nolan in the market will be Carpenter Farms Medical Group LLC of Grady, led by Abraham Carpenter Jr., and New Day Cultivation of Hot Springs, owned by Carla McCord with junior partners Nick Landers, Sherman Tate and Charles Singleton.

$300,000 a Day Wholesale

“About half of that $600,000 is divvied up between the current five cultivators,” Nolan said by telephone, noting that wholesale prices are generally about half of what Arkansas patients pay retail, prices that remain among the nation’s highest at nearly $400 an ounce.

“A pound of cannabis flower goes for between $2,800 and $3,200 wholesale, and the state’s latest numbers have the average retail price at $6,300 per pound, so that’s right in line with the 50% rule of thumb,” Nolan said.

Arkansans legalized medical cannabis in a November 2016 vote, and Nolan’s bids for both a cultivation and dispensary license fell just short in the application period that followed, finishing a close runner-up for the five initial growing slots and 32 dispensary opportunities.

Now Nolan, Carpenter and McCord are poised to build their grow operations and start bringing products to market in eight months or so, hoping to ease prices through competition.

That is, if they aren’t sidelined by a lawsuit from the original five growers: Bold Team LLC of Cotton Plant, Osage Creek Cultivation LLC of Berryville, Delta Medical Cannabis Co. of Newport, Natural State Wellness Enterprises LLC of Newport, and Natural State Medicinals Cultivation LLC of White Hall.

The gist of the lawsuit, which names state agencies and the three new cultivation licensees as defendants, is that the state didn’t follow its own guidelines in granting the additional licenses, particularly by failing to establish that new growers were needed to supply the burgeoning Arkansas market. The complaint was filed in Carroll County Circuit Court on July 15, shortly after the Arkansas Medical Marijuana Commission ruled that it would grant the new cultivation licenses. The plaintiffs are represented by Kenneth P. “Casey” Castleberry of the Murphy Thompson Arnold Skinner & Castleberry firm of Batesville.

‘Major Supply Issue’

“There’s a major supply issue in the state,” Nolan said. “We’ve seen a lot of social media messages from dispensaries telling people that they’re out of stock; they can’t get cannabis flower from the cultivators. Instead of placing orders, they basically get an allotment based on previous volume. So even if they want 20 pounds of flower, they may only get 4 pounds delivered in a given week.”

To back up his point, Nolan provided copies of Facebook messages from the Purspirit Cannabis Co. and the Releaf Center, dispensaries in Fayetteville and Bentonville, respectively, revealing that they had sold out of cannabis buds on Sept. 7 and 8. “It is a statewide problem,” Nolan said, “and right now, the cultivators just can’t can’t keep up.”

Castleberry, the lawyer representing the five original cultivators, said the commission couldn’t have determined whether the supply was sufficient to the dispensary market because only three of the five licensed growers were delivering product at the time the commission granted the new licenses. Four are now supplying product, and the fifth is preparing its first delivery this week, state spokesman Scott Hardin said.

Castleberry said that regardless of the disputed need for more cultivators, the state was obligated to follow its licensing rules strictly. “First of all, they didn’t conduct the analysis required [to establish a need for more cultivators]. And even if they had, there was really no way to know whether the five cultivators would have been able to supply the dispensaries because two of the cultivators were not actually supplying [dispensaries],” Castleberry said.

The new cultivators, answering the complaint, argue that circuit courts lack jurisdiction to review adjudications by state agencies. However, Castleberry said, “there’s a longstanding general rule that circuit courts have the authority to enjoin administrative agencies from committing unlawful acts, and we’re claiming that by acting in violation of its own rules, the Medical Marijuana Commission … was doing so.”

The five plaintiffs were content to let Castleberry speak for them, and New Day Cultivation, citing the pending litigation, declined to comment. Abraham Carpenter Jr. of Carpenter Farms did not respond to interview requests.

Both Nolan and Hardin said lawsuits over cannabis licences, which can be worth tens of millions of dollars or more, were inevitable. “The litigation started back as the process was launched, and it has not stopped,” said Hardin, who works for the Arkansas Department of Finance & Administration.

“There have been multiple lawsuits throughout, really. Over the last couple of years, I don’t know if we’ve had a day without any ongoing litigation.”

Planning Underway

One aspect of Castleberry’s filing is specific to Nolan’s cultivation license. “Storm Nolan dissolved the River Valley entity back in 2019, so that entity ceased to exist and did not exist at the time the commission issued that license,” Castleberry said. “In my estimation, that’s going to be an issue the court will look at pretty seriously.”

“That’s a nonissue to us,” Nolan said in response. “Our entity is and was in good standing as of the day they issued the license.”

Hardin, the state spokesman, said all three of the newly licensed cultivators, as well as four new dispensary licensees, are all working toward opening as soon as possible. “It’s going to take probably another one or two months for the dispensaries and longer for the cultivators. But they’re all making progress.”

Nolan plans to start growing marijuana soon in 25,000 SF of a 100,000-SF warehouse his family already owned about half a mile from CSK Hotels’ headquarters at 4320 Industrial Drive. He has engaged a Tulsa design team with vast experience in marijuana manufacturing, Mitch McClain of Davies Architects and engineer Allen Merk of Green Acorn for mechanical and electrical engineering, as well as plumbing.

“The people of Arkansas voted to adopt up to eight [cultivation] licenses, and everybody I’ve spoken with counted on those licenses coming out eventually,” Nolan said. “It seems disingenuous for them to say we don’t need those sources, considering our current patient count, at 80,000, is well above where we thought we’d be. The market size has been a pleasant surprise to everybody.”

As of Sept. 9, Arkansas had total sales of 22,530 pounds of medical marijuana worth $143 million. The first sales were in May 2019, and they shot up as more dispensaries opened. The state tracks sales at individual dispensaries, Hardin said, but it does not rank sales by individual cultivators.

Nolan hopes to get preliminary plans to the city of Fort Smith within a few weeks. After local construction approval, he expects three to four months of building, then inspections by state Alcoholic Beverage Control Division, which enforces medical marijuana regulations.

“ABC approval will allow us to put our seeds in the ground, and the cannabis plant takes, you know, from four to five months to go from seeds to salable product,” Nolan said. “So, something like seven to eight months from now.”

If only the courts will cooperate.