How to Get a Medical Marijuana Dispensary License in Texas

Author: Andrea Hope J. Steel

Originally published September 19, 2019

*****UPDATE 5/10/2022*****

Last month, the Texas Department of Public Safety announced the TCUP rules were undergoing review and comments from the public were accepted through May 2, 2022. See more info here: Texas Medical Marijuana Program Rules Open for Public Comment - Frost Brown Todd | Full-Service Law Firm.

As co-chair of the Legislative Advisement Committee of the International Cannabis Bar Association, I coordinated a team of Texas attorneys well-versed in cannabis law and together we submitted solid comments to DPS. You can read those comments here.

DPS also announced there are currently no plans to reopen the dispensing organization application process. However, keep an eye out for proposed rule revisions in the coming months, which will be subject again to notice and public comment, and after which time the application process may open. Stay tuned!

*****UPDATE 8/4/2021******

New legislation passed in the 87th Legislative Session will go into effect September 1, 2021. Expect new rules to be forthcoming before year-end with respect to the Texas Compassionate Use Program. See more here: Dear 87th Legislative Session (Cannabis Law): What Happened Y'all? | LinkedIn. The new laws expand qualifying conditions to include PTSD and any stage of cancer, and increased the THC cap from 0.5% to 1.0%. With the increase in eligible patients and product potential, there is a possibility more licenses may be issued.

******UPDATE 10/10/2019******

In an unanticipated turn of events, yesterday DPS abruptly suspended the application period for dispensing organizations, providing only a generic email stating "[t]he department will review the program and the need for any additional licenses again in the coming months." It also took down from its site any indications that the acceptance period had ever opened. No further updates are available at this time. It is notable that under the current DPS Rules for the TCUP program, there is a production limit in place that is based on an annual report due every September 1st, and that report is tied only to an assessment of those suffering from intractable epilepsy. The recent change in number of qualifying illnesses will certainly increase the need for medical cannabis, but without a report assessing those additional illnesses and without updated rules that will be forthcoming, there are a lot of unknowns. We will continue to keep our readers posted.

******END OF UPDATE******

APPLICATIONS NOW BEING ACCEPTED OCTOBER 1-NOVEMBER 1, 2019

Texas has a limited medical marijuana (“MMJ”) program officially named the “Compassionate-Use Program” (“TCUP”). TCUP was created in 2015 through the Texas Compassionate-Use Act. By limited, I mean in various ways: the amount of THC in MMJ in Texas is capped at 0.5% and there are a very limited number of qualifying illnesses and a small (but growing) number of doctors willing to participate. Nonetheless, by all accounts it appears this program will only be expanding over the years. There are currently only three licensed dispensaries in the entire state, which were granted after one prior round of accepting applications in early 2017. On September 16, 2019, the Texas Department of Public Safety (“DPS”) announced it would again be accepting applications for new licensees. Applications will only be accepted for a one month period from October 1-November 1, 2019. The application is onerous, and the process is highly competitive. Below I set out some of the application process basics, but I strongly recommend you engage a qualified team of consultants (including attorneys) to assist you with the process. Our law firm is currently accepting clients for this purpose.

Basics:

· The Texas license for a “Dispensing Organization” is for cultivation, processing and dispensing. Texas does not presently issue various levels of licenses like some other states do. In Texas, the licensed company must cover the entire seed to sale operation, what is often referred to as “vertical integration”

· Licensing is administered by the Texas Department of Public Safety (“DPS”), including issuance, suspensions, renewals and revocations, director/manager/employee registrations, and compliance/enforcement 

· DPS also maintains the Compassionate Use Registry, which is a system for doctors & patients to register MMJ prescriptions, intended in part to prevent “pill mills” and “doctor shopping” that is often seen with opiate prescription abuse

· Every director, manager, or employee of a dispensary organization must apply for and obtain a registration after passing a fingerprint-based criminal background check

· Cities, counties, etc. are not allowed to ban the cultivation, production, dispensing, or possession of MMJ that is compliant with the law

Fees for Licensing:

· Application Fee is $ $7,356

· If approved, the License Fee is $488,520 for a 2-year period

· License Renewal Fee is $318,511 every 2 years thereafter

Threshold Criteria:

· Completed Application Form

· Proof of Ownership – the business entity must be a Texas entity or registered to do business in Texas and all franchise tax accounts must be current. This documentation is obtained from the Texas Secretary of State and the Texas Office of the Comptroller.

· Completed Form RSD-303 applications for every director, manager and employee (the Application erroneously refers to the outdated Form RSD-52)

· Proof of required general liability insurance coverage (3rd party property damage & personal injuries to 3rd parties, including bodily injury, property damage, and product liability) with limits of: $1,000,000 each occurrence; $2,000,000 General Aggregate limit; and $1,000,000 Product Liability

· Payment of Application Fee ($7,356)

Scoring – Once the threshold criteria is met, applications will be scored and weighted as follows:

20% - ability to secure the premises, resources, and employees necessary to operate

20% - ability to maintain accountability of all raw materials, finished products, and any byproducts to prevent diversion or unlawful access/possession

10% - financial ability to maintain operations for two (2) years 

20% - technical and technological ability to cultivate, process, and/or dispense MMJ

20% - infrastructure reasonably located to dispense MMJ to registered patients

10% - cover letter (500 words max)

The “meat” of the application obviously is in these scoring items and is what will set apart the front runners. This is a highly competitive process – last time applications were accepted there were 43 applicants and only three were awarded licenses. I anticipate more applications will be submitted this time around, but again only a small number of licenses will likely be awarded. The number of new licenses granted will depend on expanded needs of more MMJ patients anticipated now that there are additional qualifying illnesses. 

To be competitive, the application must include detailed information to clearly evidence the applicant has the capacity, competence, security procedures and technological proficiencies necessary to meet the health and safety needs of patients, comply with the regulations, prevent abuse/misuse/diversion, and sustain operations. Due to the depth of the requirements and the fees involved, I foresee several multi-state operators, including ones that did not receive licenses during the last go-around, to be applying this round. Good luck to all those applying - please don’t hesitate to contact us for assistance.