Island Legislation Checks Itself

By Felisa Rogers

Hawai’i seemed ahead of the game when it came to legalization. In 2000, Governor Benjamin Cayetano signed Act 228 into law, making Hawai’i the first state to legalize medical cannabis via legislature, as opposed to voter initiative. The new law allowed cardholding patients or caregivers to grow cannabis. But, despite strenuous efforts by patients and advocacy groups, it was a full 15 years before the legislature addressed the issue of how a patient might buy medical cannabis. And even now, with the first dispensaries finally opening their doors, the islands have one of the strictest medical cannabis laws in the country. 

Typical restrictions apply regarding proximities to schools, smoking weed in public, and tracking the product from seed to sale–so far, pretty standard. But the law has several tenets that are problematic for patients and the Hawaiian medical cannabis industry as a whole: dispensaries can’t sell edibles; it’s illegal to transport product from island to island, even for patients; there’s a blanket ban on advertising; the cost of a license is on the high end of the scale; and the state has unusually rigorous and expensive testing requirements for cannabis products. Combined, these factors threaten to strangle Hawai’i’s medical cannabis industry. 

Operating a dispensary in Hawai’i is unusually expensive. Part of the high cost stems from the state’s vertically integrated system, which means that dispensaries must grow their own product and make their own concentrates. This December, most licensed caregivers from the previous program will lose their right to grow, meaning that the entire medical cannabis industry will be built on only eight businesses. Limiting the licenses to eight vertically integrated businesses means that each licensee is hit hard with the fees the state needs to fund the department that oversees medical cannabis. First, applicants pay a nonrefundable application fee of $5,000. Then, if approved, they pay $75,000 for a license, plus a $50,000 renewal fee each year. Compare this to Oregon and Washington’s recreational retailers, who pay a $250 application fee and licensing fees that range from $1,000 to $4,750. And then, the wide-open recreational market in Oregon and Washington dwarfs the 13,000 registered patients who are eligible to buy cannabis in Hawai’i. 

 “With the high cost of energy and water here on the islands, and the high cost of shipping goods from the mainland, it does mean that the margins aren’t great,” says Tai Cheng, the president of Aloha Green, Honolulu’s first dispensary. “But, because you’re vertical, you’re able to contain your costs a lot better and thus price your product better.” But Cheng acknowledges that the critics of vertical integration make valid points: “To build a vertical business costs about $10 million. That really shuts out a lot of players and people who would like to be involved.”

Christopher Garth, the executive director of the Hawai’i Dispensary Alliance, believes that the limited number of vertically integrated licenses is the number one flaw in the law. “The dispensaries are geographically isolated. This creates a near monopoly in some counties and an oligopoly throughout the state that isn’t motivated by innovation or a true sense of free-market competition.”

The real competition is Hawai’i’s robust black market and an influx of weed from California. Helen Cho, Aloha Green’s director of strategy, says it’s a company mission to educate the consumers about the advantage of legal cannabis. Namely that it’s tested and that, in the case of Aloha Green, they can guarantee the plant is grown without pesticide or salt-based fertilizers by a company committed to sustainable practices. “Our product is more expensive because it’s clean, because it passes the stringent testing requirements,” Cho says. “We want patients to understand that we approach it from a very medical, healthy angle, and that we want to make sure we protect them.”

Christopher Garth of Hawai’i Dispensary Alliance also sees patient protection as a key positive of the law. “The patient protections that our legislators have installed are pretty progressive,” he says. “These policies continue to hedge Hawai’i’s cannabis program toward a more equal social justice platform, as well as an incremental, yet greater acceptance of cannabis as a viable alternative to opioids by our medical community.”

Another positive is Hawai’ian lawmakers’ willingness to work with medical industry leaders to change the impractical aspects of the law. “Because the market is small and there are so few players, we’re able to figure things out together and we’re part of that process of modifying the landscape,” she says. “It’s kind of like we jumped off a cliff and are trying to assemble the plane while in the air. We’re figuring things out as it goes.”

Aloha Green has teamed up with the seven other licensees to form Hawai’i Educational Association of Licensed Therapeutic Healthcare (HEALTH), which funds lawyers and lobbyists. “We draft legislation that we pitch to the representatives and the senate,” Cheng says. “We’ve filled in a bunch of the holes and uncertainties that the original legislation had.” For example, they’ve managed to change the requirements for signage, legalize the sale of prefilled vape pens, change the maximum THC requirements for concentrates, and get rid of a ridiculous rule that required them to save all video surveillance footage for a year. Next, they hope to make it legal for cardholding out-of-state patients to buy from Hawaiian dispensaries—which, given the state’s tourist traffic, could be a huge step toward ensuring the survival of struggling dispensaries.

The issue of maximum THC levels for concentrates illustrates a key problem with cannabis laws drafted by legislatures: the writers don’t understand the industry. For example, the original legislation in Hawai’i was based on Colorado’s law for edibles, which limits servings to 10 mg or 100 mg for the entire package. Hawai’ian lawmakers applied this rule to concentrates without seeming to realize they were dealing with an entirely different product that typically delivers much higher concentrations of THC. By working with lawmakers, dispensary owners were able to get the maximum dosage raised to 1,000 mg. 

Despite these positive changes, the law remains riddled with problems. “Governments copy other states’ laws when they’re enacting a program, but they should really think about what’s going to work in their state,” Cheng says. “That’s what went wrong here.”  

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