In fledgling pot firms, doctors are public face

When Ed Ehlinger, the commissioner of the Minnesota Department of Health, announced the selection of the two organizations that will be tasked with growing and distributing medical marijuana in the state, the proceedings had the whiff of a Hollywood awards ceremony.

With one prominent exception: Doctors, not breathless thespians, occupied the center stage.

“All I can say is wow,” said Dr. Andrew Bachman, an emergency room physician and co-founder of LeafLine Labs, one of the two winners of the coveted license, as he addressed a throng of reporters gathered at the MDH headquarters for the Monday morning press conference.

Dr. Gary Starr, his colleague, beamed as he took to the dais, declaring it is “a great day for LeafLine Labs and a monumental day for patients in Minnesota.”

Dr. Kyle Kingsley, the CEO of the other winner, Minnesota Medical Solutions, pointed out that his “physician-led” enterprise earned the top score from the selection committee. In accord with the show biz values of the proceedings, he cued up a glossy video — complete with a musical score and soft-focus images of patient consultations — that touted the company’s “patient-centric” approach.

But while doctors served as the face of LeafLine and MinnMed for purposes of the public rollout, the investors, staff, and consultants at both companies come from a wide variety of other professions.

As detailed in the two company’s voluminous applications, that cohort includes a former Wall Street analyst, a former FBI agent, a former Secret Service agent, chemists, CPAs, horticulturists, and marijuana dispensary operators from Colorado and Washington.

Oh, and of course, attorneys.

Although he did not appear on stage, LeafLine will be headed up by lawyer Peter Bachman, one of 10 members of the Bachman clan — heirs to the storied, 125-year-old floral and garden center chain — who have a stake in the fledgling company. Bachman is a former environmental and land-use lawyer who worked in both the private and public sectors. He also served as the executive director of the Minnesota Center of Environmental Advocacy for about eight years.

At MinnMed, Minneapolis attorney Ross Hussey — like Bachman an alumnus of William Mitchell College of Law — won’t be in charge of the whole operation but will serve as its chief regulatory officer. According to the MinnMed’s application, Hussey, who was not available for comment, will leave his private practice to make “regulatory compliance his full-time job.”

Minnesota’s medical marijuana law is considered among the most restrictive in the nation and, with only 5,000 patients projected to enroll at the outset, it remains unclear whether either company will be profitable in the short run.

Yet, those concerns — and the $20,000 nonrefundable application fee to the MDH — did little to tamp down enthusiasm among investors for a shot at the license.

In part, the willingness to take the financial risk derives from the expectation that the state will ultimately expand the number of medical conditions under which patients can qualify for enrollment.

Manny Munson-Regala, the assistant commissioner at the MDH, said “a potentially huge expansion” of the patient base could come as early as 2016 if his boss, Ehlinger, recommends that intractable pain should be included among the qualifying conditions. Under the state’s medical marijuana law, Ehlinger is mandated to examine the issue and return to the Legislature with his findings.

For many attorneys, the prospect of carving out a practice in the emerging marijuana law field is enough to outweigh any such uncertainties, according to Hilary Bricken, a lawyer with Seattle-based Canna Law Group and board member of the National Cannabis Industry Association.

What’s the attraction to the field?

“Very rarely do young attorneys — or any attorneys — have the ability to get in on the ground floor and answer questions that have never been brought to the forefront. That is a very sexy thing as an attorney when your two options are litigation and transactional work,” said Bricken, who represented one of the 10 unsuccessful firms that applied for the MDH license.

That lure is magnified by the unwillingness of many larger law firms to dip into the industry.

“Whether it’s an issue of reputational risk or finances, they’ve pretty much stayed on the sidelines,” said Bricken. “That’s created a ton of opportunities for solo practitioners and boutique law firms in areas like intellectual property litigation.”

Maureen Carlson of the Minneapolis’ law firm Thompson Hall agrees with that assessment.

“To be at the forefront, that’s what’s exciting about it,” said Carlson. “I’ll probably never see a new industry quite like this in my lifetime. And I think it’s important that business lawyers are there every step of the way to help implement this.”

Until Monday morning’s announcement, Carlson remained hopeful that her client — whom she declined to identify — would be awarded one of the two licenses.

Despite her disappointment, Carlson said the MDH “picked two great candidates.”

She characterized MDH’s application as rigorous, particularly because applicants had less than two months to assemble their applications. That was a tight turnaround, given that prospective manufacturers needed to garner local zoning approval for four distribution sites and one grow house, as well as tending to the myriad other details involved in a startup.

While MinnMed’s application ran a staggering 1,600 pages (with the financial statements largely redacted under trade secret provisions of the Data Practices Act), that’s not unusual, according to Bricken.

Regulations in Illinois and Nevada require similarly voluminous documentation, she said, and Minnesota’s financial demands are laxer than those in Nevada, where prospective growers are subject to a liquidity requirement of $250,000.

“I was surprised that Minnesota didn’t get super invasive about the financials. They were much more focused on the logistics of the distribution facilities and getting approval from cities and counties,” she observed.

Nonetheless, the requirements were stringent enough to keep small operators out of what is already a very capital intensive industry.

From the government’s perspective, she noted, that serves the dual purposes of guaranteeing the viability of the enterprises through a potentially tough ramp-up period and, just as importantly, “ensuring that [applicants] have skin in the game so they behave.”

What stands out most about Minnesota’s approach?

Bricken said the requirement that dispensaries be staffed by licensed pharmacists is unique. Marijuana is classified by the federal government as a Schedule 1 controlled substance — a designation that signifies no currently accepted medical use and a high risk of abuse. As a consequence, she said, many pharmacists won’t touch medical cannabis out of worries that the Drug Enforcement Administration could revoke their licenses.

“I think that Minnesota got off to a good start by trying to regulate heavily. But putting the pharmacists in the line of fire? My initial reaction was, ‘How the hell are you going to get a pharmacist who’s willing to do this?’” she said. “For Minnesota to put legitimate health care providers in that position was really bold. That’s not been done in any other state.”

Ted Meteja, a Colorado marijuana consultant who partnered with one of the unsuccessful applicants, Sano Remedies, expressed no objections about the rigor of the Minnesota approach.

“They asked a lot and it was a short amount of time. But it was a good process, a good learning experience,” said Meteja. He held out hope that Roseville-based Sano — which MDH ranked fourth on its scoring scale — might still become a player in Minnesota in the future.

The group could conceivably partner with LeafLine or MinnMed or, possibly, return with a new application should the state expand the program to allow for more providers.

Meteja declined to say how much Sano spent in preparing its application.