The Pot Biz Sets New Legal Precedents in Ohio Legalization Showdown
By Marguerite Arnold
Marijuana legalization battles are breaking out all over the United States right now. The long-term prospect of the industry may appear rosy. However, the daily grind for most on the ground is a strange one. Politics and business are mixing in the cannabis business like no other. Many successful businesses in the vertical, like the dispensary and news aggregator Weedmaps, are putting profits into changing the laws. The group recently donated $2 million to the California recreational effort in 2016.
In Ohio, however, things have gotten downright confusing. Four of five different proposals to change the state constitution to legalize pot are competing for dollars, signatures and backing for voter initiatives that could appear on state ballots as early as this November. Every single effort to change the law has failed in the state since 2011, primarily for lack of funding.
Four of the new organizing efforts in the state are the more traditional campaigns to legalize and regulate the industry through third-party nonprofits. The last group, however, ResponsibleOhio (responsibleohio.org), is the most controversial. In exchange for funding what is expected to be a $20 million campaign to pass a proposal that would create the groundwork for a fully regulated recreational and medical industry, private investors would also receive 10 permanent growing licenses. In mid-March, the petition was certified by the Attorney General’s office allowing the group to start gathering signatures for the fall campaign.
The investors behind the effort include legendary NBA star Oscar Robertson, Frostee Rucker, an NFL defensive end for the Arizona Cardinals, Sir Alan Mooney, a minister and board member of the Ohio County of Churches who trains financial advisers, and two executives of DMP Investments, a payday lending company.
Although the effort was modelled on the campaign to legalize casinos within the state, the impact of what both legalization supporters and opponents are calling a “constitutionally-created cartel,” could change the face of reform and the industry forever.
According to Kris Krane, the co-founder and managing partner of 4Front Advisors, an investment firm that specializes in the cannabis space, “This has become a major source of controversy among marijuana reform activists. While we all agree that we want prohibition ended and for nobody to ever be arrested for marijuana offenses, there is real disagreement about whether or not this is an acceptable way to go about it. It is a legitimate concern that this initiative would essentially write a state-mandated monopoly into the Ohio constitution.”
Krane believes that no matter how well-funded the effort, backlash from the industry or consumers could kill support for the initiative before it ever gets to the ballot.
“It is a positive thing to see new donors to this issue, but there are legitimate concerns about whether this goes too far,“ Krane said. “This will likely lead to some voters voting against the initiative because they see it as a giveaway to the 1%. This initiative plays into that narrative, while the reality is that we need to end marijuana prohibition for reasons of civil liberties, racial equality, civil rights, fiscal responsibility and personal freedom.”
According to industry advisor and mentor Leslie Bocskor at Electrum Partners, “There are many who are calling this a pay-to-play move to change the state’s constitution for profit — including, of course, those who are backing other more traditional initiatives where nobody gets an automatic piece of the pie in the legislative change. I think that Ohio is ready to evolve on this issue, and a group realized the economic benefits that could be gained if they can get complete control.”
Bocskor believes this proposal creates large challenges to the industry, not the least of which is an immediate similarity to “Big Tobacco.”
More worrisome to cannabis entrepreneurs, however, is that the model “works against the idea of an open market that leads to innovation, market efficiencies, and ultimately this approach will handicap the citizens of Ohio and the consumers in its market by having such a protectionist and isolationist model,” he said.
He also specifically referenced the downstream and unintended consequences of such issues in the first two recreationally legal states.
“Look at the problems that exist in Washington State and Colorado where a much simpler limit was instituted regarding residency and ownership,” he said. “It becomes a magnet for operators looking for loopholes rather than just doing business with a level playing field.”
Bocskor has been intimately involved in the creation of state regulations in Nevada, where he also served as the founding chairman of the Nevada Cannabis Industry Association.
“The unintended consequence for Ohio is that it will incent innovators, entrepreneurs and investors to put their money, time and operations elsewhere,” he said. “Here in Nevada we created a regulatory framework that has invited more outside investment and operators to come to the state, boosting our economy, than any other market to date. We allowed outside ownership, a merit-based system for licensing, for-profit entities, and have a medical market with reciprocity with all other programs. This is how it should be done.”
According to Krane, “Small entrepreneurs have reason to be concerned about the Ohio initiative, if it winds up turning into an industry trend.”
That said, Krane also believes that no matter what happens, the nationwide fallout in other state initiatives will be limited.
“It is important to note that this kind of initiative would not be allowed in most states — only those that have the ballot initiative process for amending the state constitution,” he said. “This could not happen in more traditional initiative states where initiatives are passed as new laws, nor would it be realistic to pass through a state legislature. So this is a phenomenon that may be limited.”
However, Krane believes the reason that ResponsibleOhio has found the support it has is based on a number of factors that so far have proved to be intractable barriers to legalization advocates.
“Ohio is a particularly expensive state to run a ballot initiative, so it is not surprising that other grassroots initiatives have failed to raise enough to make the ballot,” he said. “Crowdfunding has not proven an effective method of fundraising for initiative campaigns in the United States.”
Many, like Krane, see ResponsibleOhio’s commitment to legalization as a business decision, based on a perceived opportunity, in an off-presidential year, to try to create market share.
“The backers of this initiative likely saw this void in any serious efforts to make the ballot and decided to jump in themselves this year,” he said.
And for all the fuss, this is far from a done deal. As Krane predicted, both the successes as well as pitfalls presented by the ResponsibleOhio model may focus the attention of the national reform groups, who have so far sat on the sidelines.
“It is possible that national organizations and national donors may look to Ohio as a realistic state to target for another initiative in 2015 that would be drafted in a way that was more likely to pass,” he said.