McDaniel: Marijuana Regulators Should Hire Director

A former Arkansas attorney general who is now part owner of a marijuana cultivation business says the state Medical Marijuana Commission should hire an executive director.

Dustin McDaniel, who has a 1.04 percent stake in Natural State Wellness Enterprises of Jonesboro, praised the commission while speaking on a panel Tuesday at the Little Rock Rotary Club. But he said the regulatory body should hire an executive to provide professional guidance in overseeing a new industry in Arkansas.

"I'm hoping that we will set an example at our commission level — they need to hire an executive director, somebody with real expertise, who will help guide these commissioners … give them some direction," McDaniel said. "And they need to give the public some measure of comfort to their accountability and predictability, or else it's going to be very hard to attract further investments into this industry."

McDaniel, appearing alongside David Couch, the Little Rock attorney who wrote the 2016 constitutional amendment that voters approved to allow medical marijuana in Arkansas, said the commission is made up of "wonderful people" who have "done a tremendous job so far under great strain."

But he pointed out that the group had rejected the idea of contracting with an outside firm to review and score of thousands of pages of cultivation center applications, a method he said would have been "standardized, uniform, objective [and] verifiable." He noted that the commission is now faced with even more paperwork, having to score a far greater number of applications for dispensaries.

"But now they have three times as many applications for dispensaries," McDaniel said. "Who knows how long that's going to take?"

McDaniel said he had learned through legislators that the commission had considered meeting last week to discuss increasing the number of cultivation licenses from five to eight, even though applicants had based their business models on an industry with five cultivators in the state. The meeting never took place.

McDaniel said that to have a made a change like that "would be a terrible signal for the future of this business."

The idea of adding cultivation licenses drew a response from Scott Hardin, a spokesman for the state Department of Finance & Administration, the agency that houses the Medical Marijuana Commission (MMC) and Alcoholic Beverage Control (ABC). He told Arkansas Business on Wednesday that there is "a tremendous amount of interest from applicants in the potential for additional licenses. There are those encouraging the commission to consider this.

"However, the plan has been and remains five total cultivation licenses at this point," he said. "Considering three additional licenses is contrary to the rules and procedures established by the commission."

As for hiring an executive director, Hardin said that couldn't happen without intervention by the Legislature.

"Absent legislative action, additional staff may not be hired for the MMC," Hardin said. "ABC and DFA, in coordination with the commission, continue to work to efficiently implement this program."

A Tipping Point

McDaniel and Couch spoke on a panel moderated by Dan Roda, chief legal officer of MediPays, a company that will offer cashless banking services to the state's medical marijuana industry through an Arkansas bank that has not yet been identified. Video of the discussion is available on Facebook.

All three are members of the Arkansas Medical Marijuana Association, a nonprofit formed in August that aims to be the industry's primary trade group.

The three began the panel discussion by analyzing the tension between state and federal marijuana laws. With 29 states and territories having legalized some form of marijuana, McDaniel said the people of the United States were well ahead of their elected officials in Washington on the issue.

McDaniel said the argument around marijuana has to shift from "pro-cannabis" to one that urges the financial industry to get involved. Because marijuana remains illegal at the federal level, federally insured banks and credit card issuers have refused to provide merchant accounts to marijuana-related businesses like dispensaries and cultivators. That's left the industry awash in cash.

"We are working together with DOJ, Congress, and shifting the narrative, which has always been pro-cannabis industry — which frankly falls on some deaf ears at regulators levels in D.C. — to anti-money laundering, and pro-financial institutions and getting all these billions of dollars out of cash and into banks where they belong," McDaniel said. "So that's what I think that one of my roles will be nationally."

Couch and McDaniel said a tipping point on federal marijuana policy is coming. Couch noted that in California, Colorado and Nevada, marijuana will be a billion-dollar industry this year. The economics are going to be hard to ignore, and banks need to be there, he said. His hope is that Congress will declare marijuana a state's rights issue, allowing the industry to safely move ahead.

Giving In

Last week, the marijuana commission scored McDaniel's company among the top applicants to build one of five medical marijuana cultivation centers in the state.

McDaniel's company is one of two that will build cultivators in Jefferson County. He said construction on the building would begin immediately, and added that he was working to pay the required $100,000 licensing fee and post a $500,000 bond to officially obtain the business license.

A Democrat and former Jonesboro police officer who served as attorney general from 2007 to 2015, McDaniel said he had been opposed to medical marijuana. He had turned down several companies looking for legal representation until he was approached by members of The Ross Group of Tulsa, who he called "exceedingly sophisticated and ethical." Together, they invested in Natural State Wellness Enterprises.

"So I gave in, now here I am," McDaniel said.

McDaniel said he doesn't like the hodgepodge of state and federal laws and regulations around marijuana and thinks Congress should act. And he highlighted his discomfort with the legal conflict by revealing where he had been the day he learned his company would get the license: in a meeting with U.S. Attorney General Jeff Sessions in Washington.

"I was in a closed meeting with the attorneys general of the country, some former AGs and Attorney General Jeff Sessions, who, his opposition to this industry, is well known. And I gulped deeply as I looked at him," he said. "I've known General Sessions for several years. He probably doesn't really remember me, but we've been around one another a lot. And this is new waters. I've never knowingly violated the law in my life. … I take this stuff very seriously."

In Arkansas, Couch said he expects a market of about 80,000 medical marijuana users. The market could expand further, of course, if the voters approve recreational marijuana, as they have in nine states and the District of Columbia.

Couch said that in Arkansas, recreational marijuana is now polling at just above 50 percent. He said he'd like to see it poll 55 to 60 percent before proposing a constitutional amendment to legalize it.

Couch said any proposal he'd write to legalize recreational marijuana would protect existing medical marijuana cultivators and dispensaries while adding more of each for the recreational market. He said with a modest market for the product, the state could expect $120 million to $150 million in new sales tax revenue.

Couch said that if he proposed the amendment, he'd do it during a presidential election cycle, which tends to draw more progressive voters. The next presidential elections are scheduled for 2020 and 2024.

Couch said he has a draft of the amendment on his computer.