(Karen E. Segrave)

When authors of an amendment to legalize medical marijuana drafted it a decade ago, they offered voters a plan that would require at least 60% of dispensary and cultivator ownership to be held by Arkansans.

But at present, nearly nine years after Amendment 98 passed, state records offer only a “snapshot” of overall ownership of the state’s cannabis companies.

It isn’t a particularly clear picture.

Arkansas Business asked for ownership records on the state’s 37 dispensaries and eight cultivators in January. State regulators ultimately replied Feb. 28, sending 35 organizational charts that in many cases failed to establish who owns the businesses, what stakes are held or where the owners live.

One chart, apparently for Custom Cannabis in Alexander, listed all owners and their percentages, but didn’t include any company name.

Another, for Osage Creek Dispensary, listed no names at all, simply positions: “owner,” “chief operating officer,” “general manager,” “pharmacist consultant” and “inventory manager.”

Nevertheless, Scott Hardin of the state Department of Finance & Administration called the charts “the clearest snapshot of overall ownership and operation” the state could offer.

“We do receive a full list of individual owners every year in May when every permit must renew with the [Medical Marijuana Commission],” Hardin said in an email. “In a couple of months every permit holder will have to submit detailed ownership information.”

Unlike the organizational charts, those records will be in a standardized format, Hardin said, though a great deal of personal data will be redacted.

Arkansas Business compiled a list of owners for each of the state’s licensed medical marijuana businesses in 2019, analyzing each group’s license applications.

After a number of prominent individuals divested from the industry, Arkansas Business this year sought to again compile an ownership list and compare the current roster of owners to the initial group of investors.

That proved unfeasible, although the state is able to reveal ownership of a specific dispensary or cultivator, Hardin said. The sheer number of ownership changes — well over 100 since May 2019, when the first dispensaries opened — make compiling a complete ownership list too daunting at this time, Hardin said.

“I constantly receive requests for ownership, but it is typically specific to an individual permit,” Hardin said. “That is a fairly easy task as I cross-check meeting documents for ownership changes since the last renewal. If I don’t see that specific permit, I know I can go back to the renewal docs, which remain accurate.

“Overall, we are quick to share the owners of any individual permit at any given time. However, I can’t produce one report that lists the individual owners of every permit, their city, etc.”

Hardin encouraged Arkansans curious about specific permits to contact him at scott.hardin@dfa.arkansas.gov. “I’m always happy to pull ownership, and it is certainly public information.”

The charts obtained by Arkansas Business lay out clear ownership of about two dozen cultivators and dispensaries, at least as they stood last May. But only four-fifths of the licensed companies were represented.

Some documents listed all members of LLCs with ownership stakes, but others did not. Some listed LLC members but did not identify the specific dispensaries or cultivation centers they own.

Cannabis Businesses With Decipherable Ownership

(Based on Records the State Provided to Arkansas Business)

Management Deals

In another complication, management contracts have put many out-of-state players in charge of Arkansas cannabis enterprises, muddying certainty on who “owns” marijuana companies and who controls their income.

A remarkable lawsuit from 2022 that had prominent Arkansas attorney Marshall Wright on one side and his former partners Nate Steel and Alex Gray on the other illustrated the potential conflicts. The suit claimed that a dispensary used Arkansans as figurehead owners while outsiders reaped their revenue through management deals. Those deals stuck the Arkansas “owners” with big tax bills, according to the lawsuit, which remains active.

“Management agreements are certainly something we see out in the marketplace,” said Dan Roda, chief strategy officer at cultivator Natural State Medicinals in White Hall. “They are a very big part of the industry, and that’s certainly not limited to Arkansas. And, you know, I think this is true in any business.”

Roda said the federal government’s continued classification of cannabis as an illegal drug presents tax risks for cannabis business owners, even in states where sales are perfectly legal.

“I’ve heard the same chatter through the grapevine that there could be potential risks,” Roda said. “The lawyer in me says that tax allocations have to be clear in any operating agreement. They’re probably especially important in an industry like cannabis that has such a high overall tax burden thanks to 280E.”

Internal Revenue Service rule 280E disallows deducting business expenses by any enterprise “that consists of trafficking in a Schedule I or II controlled substance,” according to the IRS. Federally, cannabis is still a Schedule I drug.

Little Rock attorney David Couch, who wrote the cannabis amendment with Jason Polk and Cheney Pruett, called the ownership thicket one of the worst legacies of a generally good system. Amendment 98 succeeded in creating an industry that now delivers $275 million worth of cannabis treatments per year to more than 100,000 Arkansans.

“I think the system is working well generally, but I’m disappointed that out-of-state companies have used these management agreements to get around the Arkansas ownership requirements in a lot of instances,” Couch said in a telephone interview. “There are all these big companies that technically don’t own the license to operate the dispensaries, but all of the net economic benefits were assigned to them.”

Licensing Chaos

Couch’s other regret about the amendment was that it required the state to award cannabis business licenses on the basis of merit rather than through a lottery.

From the start, the licensing process has drawn dozens of legal challenges. An early court ruling held up cultivation licensing for months, and allegations of favoritism and even bribery eventually led to an FBI inquiry.

A charter member of the Arkansas Medical Marijuana Commission, Dr. J. Carlos Roman, told Arkansas Business in 2022 that he spoke to FBI agents after a license seeker offered him money.

“There was an attempted bribery,” Roman said in an interview, discussing allegations widely reported in 2018 involving Natural State Agronomics, which didn’t receive a license. “I did contact the FBI, and they investigated them. Unfortunately, there was not an indictment against them.”

Arkansas is one of the few states that used merit scoring rather than the lottery system in cannabis licensing. The commission judged applicants’ qualifications, business plans, finances, timelines to open and experience in regulated industries.

Eventually the state handed out licenses worth millions of dollars to entities that were free to sell their stakes — to buyers who never faced similar intense scrutiny. The commission has approved 110 cannabis industry ownership changes since April 2019 with never a dissenting vote. All ownership changes gained unanimous approval except for a 4-0 vote in May 2022 involving the Fort Cannabis dispensary in Fort Smith. In that case, Chairman James Miller abstained in that vote.

Litigious Legacy

Litigation over cannabis licensing has been so persistent that one of the state’s eight cultivation licenses remains in legal dispute to this day.

A Pulaski County Circuit Court judge concluded in December that the state improperly awarded a cultivation license to hotel chain CEO Storm Nolan of Fort Smith. Judge Herbert Wright found that River Valley Relief Cultivation’s license had been granted to a similarly named holding company, River Valley Production, that Nolan had dissolved before the state granted the license.

The judge also found that Nolan’s cultivation site was too close to a school to meet requirements of the amendment.

“The Court remains curious as to why so many accommodations were made for Mr. Nolan, despite concerns and protests being repeatedly raised from the beginning of the application process,” Wright wrote in his order.

Nolan and the state have appealed the decision, which favored 2600 Holdings, a rival for the cultivation license, to the Arkansas Supreme Court.

“We and the state are contending that our licence was properly awarded,” Nolan said in a phone interview this month. “[The state] followed all the laws and their own rules and regulations, and we believe the Supreme Court will give us a fair shake.” (See sidebar.)

Despite the ownership and licensing complexities, industry veterans like Roda and Couch say medical marijuana has been a godsend to thousands of patients and a tax boon for Arkansas.

Roda, who co-founded the cannabis fintech company Abaca and sold it for $30 million to Safe Harbor Financial of Golden, Colorado, in 2022, is board vice president of the Arkansas Cannabis Industry Association, where Natural State CEO Robert deBin is board president.

“Overall, the Arkansas market is strong,” Roda said. “There are a great number of patients and demand is still considerable.” He noted that competition has driven down dispensary prices, leading to a dip in total sales last year to $276 million from a record high of $283 million the previous year. “You know this is something we see in every state as the market matures.”

He said Arkansas’ system compares well with other states. “I really think the state did a commendable job of putting together a program that struck a good balance of ensuring patients are served while establishing a business environment that’s fair and sustainable and manageable. You never hear any of the nightmare stories here like there were in states like Oklahoma and California.”

More than 2,300 dispensaries operate in generally unregulated Oklahoma. California has more than 1,200 dispensaries, compared with Arkansas’ 37. The state had 38 dispensaries until mid-2024 when regulators revoked the license of Green Springs Medical in Hot Springs for multiple violations. That license is now available, along with two that have never been issued. The amendment allows for up to 40 dispensaries.

“The Medical Marijuana Commission was prohibited for several years from issuing the remaining licenses due to a restraining order in a lawsuit filed by an unsuccessful dispensary applicant,” said Hardin, the state spokesman. “However, that lawsuit is no longer active. We could see the commission move toward issuing the licenses this year.”

Looking further ahead, Couch, deBin and Roda all see adult-use marijuana in Arkansas’ future, and they lament that the Arkansas Supreme Court banished a cannabis initiative from the 2024 ballot. The justices held that the popular name and ballot title of the issue were misleading just weeks before the election.

“I was definitely very disappointed, because I knew it would have been a very good thing for the state economically and for the people,” deBin said.

He noted that Missouri voters approved recreational marijuana in 2022, four years after legalizing medical cannabis. Arkansas’ industry has subsequently suffered, deBin said, because Arkansans near the border are driving across the line “without having to go see a doctor” and smuggling products back into Arkansas. That’s unfortunate for those individuals, deBin said, not only because they could face arrest for having illegal cannabis when they return, but also because Arkansas’ medical marijuana is cheaper.

“They’re paying a premium and opening themselves up to legal troubles,” deBin said.

Proud Trailblazer

DeBin is proud to be a pioneer in the cannabis industry, and he noted that Natural State Medicinals was the first cultivator to put products on the market back in 2019. The business was his concept, and he put together the initial investor group and wrote NSM’s successful license application.

“We’ve created millions of dollars in taxes and created 100 full-time jobs,” deBin said.

The medicinal cannabis industry has generated $154.4 million in state taxes over the years. The levies include the regular state sales tax of 6.5% plus a 4% privilege tax that the Arkansas General Assembly established.

“While both taxes apply to purchases at a dispensary, only the 4% applies when a cultivator sells product to a dispensary,” Hardin said. Most of the tax revenue from the first few years of sales went to the University of Arkansas for Medical Sciences’ push to gain a National Cancer Institute designation. But the state now directs the funding to food security issues, Hardin said.

A part of the revenue also goes to the state units that oversee day-to-day operations of the industry: the Department of Finance & Administration, the parent agency of the industry-regulating Alcoholic Beverage Control unit, and the Department of Health, which oversees the patient card program.

“It’s nice to be able to do something that you enjoy where you can make a good living and also help people at the same time,” deBin said, summing up his experience in the industry. “It’s almost impossible to find that.”