A Toronto, Ontario-based company, which develops marijuana-infused products for medical and adult recreational use, plans to acquire a 51 percent share in a company that is being created to provide management and real estate services to one of the state’s licensed nonprofit medical marijuana producers.
The recent announcement has sparked commentary among advocates and patients about the intentions of the company, whether the producers are truly nonprofit and how patients will be affected by rapidly changing conditions in the state’s medical marijuana business.
In a news release issued last week, David Posner, CEO of Nutritional High, said his company is looking to “capitalize on the burgeoning marijuana industry in the United States.”
Zephyr Management Inc. will offer services to Sacred Garden, a Santa Fe-based nonprofit producer.
It will “immediately bring a profitable business under our umbrella and will provide a licensed platform to offer Nutritional High’s edible products to the New Mexico medical market,” Posner said in a statement.
In a phone interview Monday, he said that his year-old company, Nutritional High, decided to partner with Sacred Garden because the New Mexico market for edibles and extracts — his company’s focus — is fairly untapped and because he was impressed by the operation of Sacred Garden, the quality of its product and its style of doing business.
With the state recently increasing the maximum plant count for producers from 150 to 450, Posner said, “We just felt it was the perfect time.”
Posner said his company also has an interest in being well positioned if, or when, recreational marijuana is legalized in other states. He said Nutritional High is preparing to open a dispensary in Pueblo, Colo., and is in the process of finalizing a deal in Illinois, as well.
Zeke Shortes, who owns Sacred Garden with his wife, Kelly Shortes, became licensed to produce legal marijuana for patients in the state’s medical pot program in 2010. He said he decided to work with Posner because he needs capital to build a bigger production facility to take advantage of the higher number of plants he is allowed to grow, and to open up a second dispensary in Albuquerque.
According to the news release, Sacred Garden did $1.7 million dollars worth of business in 2014 but only realized $245,000 worth of profit. Shortes said the cost of being in the medical cannabis business is incredibly high, partly because state-authorized nonprofits aren’t allowed to claim any of their business expenses when filing federal income taxes.
Under the terms of the deal, Zephyr would provide a $500,000 loan to Sacred Garden to expand its operation. Shortes said he tried to get a loan for that purpose but ran into difficulty because of the nebulous nature of his company’s business in the eyes of the state and federal officials.
Shortes said he believes the federal government is purposely trying to drive mom-and-pop players out of the industry by making them stand on unstable legal ground because it would rather deal with players with big money.
He said the proposed deal
has provisions designed to allow him to regain control of his business if he feels Zephyr is trying to take over.
It has generated a good deal of chatter on the Facebook page of New Mexico Compassionate Cannabis Patients Advocates and others, much of it critical.
Posters have speculated that the move signals a greedy “land grab” by big companies that don’t care about patients’ medical needs. They’ve also debated the motives of Sacred Garden and Nutritional High and questioned whether the deal is even legal.
Larry Love, host and founder of the weekly Internet show MedicalMarijuanaRadio.com, talked about the proposed deal on his show last week and said Monday that the Department of Health’s rules prohibit foreign investments in the state’s licensed nonprofit producers.
“I believe it’s illegal according to the rules the Department of Health has set up,” Love said, adding that the department is very selective about which of its rules it chooses to enforce and when.
Love — who is a former member of Sacred Garden’s board and left under contentious circumstances — also said he’d like more transparency from that nonprofit and others.
“The books should be opened up and we should see how these nonprofits really are doing business,” he said.
Shortes said he’s unpleasantly surprised by the responses he’s been getting to the proposed deal.
“I don’t like it just because misinformation and gossip gets spread so quickly in New Mexico and most of it is based on nothing,” he said of the flurry of Internet comments. “They’ll take one little thing and make something out of it that it’s not. It’s just stirring up trouble.
“We’re not the first ones to have a management company that a publicly traded company has bought a chunk of,” he said.
According to the news release, the deal is contingent on Department of Health approval.
The department was not forthcoming Monday on what role, if any, it has in approving the deal. In response to a reporter’s questions, department spokesman Kenny Vigil said via email, “Licensed nonprofit producer information is confidential. Any time [one] proposes an amendment to their operational plan, the Department of Health carefully reviews and evaluates it based on the statute and regulations.”
According to the news release, the deal is scheduled to be finalized May 31.
Contact Phaedra Haywood at 986-3068 or email@example.com. Follow her on Twitter @phaedraann.