Canadian companies are investing millions of dollars into Arizona’s medical marijuana market in order to turn profits and wield influence over the state’s lucrative non-profit dispensary market.
One company, Canadian Bioceutical Corp., has paid $30 million to acquire management firms that provide services to two Mesa dispensaries.
These Canadian corporations are purchasing management companies that provide a range of services to medical marijuana facilities. Multiple companies like Canadian Bioceutical Corporation refer to Arizona’s marijuana market as highly profitable, a statement seemingly at odds with the non-profit nature of Arizona’s medical marijuana industry.
According to the Arizona Medical Marijuana Act, “A registered nonprofit medical marijuana dispensary shall be operated on a not-for-profit basis.” However, that does not mean there is not money to be had.
Canadian Bioceutical paid over $30 million over the course of three deals between January and May of this year to purchase a range of management companies in Arizona.
Other Canadian companies, namely General Cannabis Corp. and Aphria, have also made investments in the market in recent months.
In general, these management companies provide a broad list of services, ranging from financial and real estate management to providing skilled employees. And while the dispensaries are non-profits, the management companies are not.
In the first purchase in January, CGX Life Sciences, a Nevada corporation and wholly-owned subsidiary of Canadian Bioceutical, purchased management companies related to the Health For Life dispensary brand, which operates two dispensaries in Mesa.
Health For Life East is at 7343 S. 89th Place. Health For Life North is at 5550 E. McDowell Road.
Canadian Bioceutical just spearheaded a relocation of the North location to McDowell Road at the end of May. The design of the new facility will be the blueprint for future locations. The dispensary set a one-week sales record following the move, according to a Canadian Bioceutical press release.
Since its first purchase in Arizona, Canadian Bioceutical has expanded its footprint in the state by purchasing other management companies. Its last transaction "will bring total number of Arizona dispensaries under the Health for Life umbrella – current and under development – to four in a state with less than 100 dispensaries in total,” according to a company press release.
The company has also made investments in medical marijuana and recreational marijuana industries in several other states to date, including Massachusetts and Maryland.
The acquisitions make business sense. The medical marijuana business in Arizona is thriving – cannabis industry analysis company New Frontier Data projects the market to grow to $681 million by 2020 – and management companies can take advantage of that by leveraging service contracts with dispensaries that often reach 20-30 years in length.
And while Canadian Bioceutical does not actually own dispensaries in Arizona, it claims that it “exerts considerable influence” over the dispensaries it services, according to statements on the company website and in its management presentation from May of this year.
Unlike dispensaries, these management companies are not regulated by the Arizona Department of Health Services.
“I confirmed with the program that ADHS only oversees the dispensary and dispensary agents. Outside firms are not under our purview unless they are dispensary agents,” DHS staffer Ben Palmer said via email.
It is unclear who profited from the sales of the various management companies in Arizona bought by Canadian Bioceutical, though Elizabeth Stavola is regularly listed as a founding member on the acquired businesses, most of which were limited liability corporations.
Stavola is president of U.S. operations for Canadian Bioceutical via CGX.
Stavola, a New Jersey resident and Wall Street veteran, was listed as a founding member on no fewer than five LLCs registered with the Arizona Corporation Commission that are now owned by CGX Life Sciences – including S8 Industries LLC, S8 Management LLC, S8 Rental Services LLC, H4L Management North LLC, and H4L Management East LLC.
In addition to being listed as a member on many of the LLCs purchased by Canadian Bioceutical, Stavola is also listed as the founder and CEO of Health For Life Inc. on the dispensary's website.
One of the directors for Health For Life Inc., the licensed nonprofit behind the dispensary brand, is Julie Winter. Winter, also a New Jersey resident, works with Stavola at a marijuana-based beauty product company called CBD For Life, according to documents from the New Jersey Department of The Treasury Division of Revenue and Enterprise Services.
In Arizona, these management companies can be owned and/or operated by the same people running dispensaries or their friends and family, though the situation is rare.
There is nothing in the Arizona Medical Marijuana Act that prohibits this arrangement. The dispensaries just need to make sure they do not run afoul of nonprofit regulations, so they must make sure the conflict of interest is exposed to other members of the board and refrain from charging exorbitant fees.
However, the management company model – and the sale prices and profit potential associated with it – may violate what Arizona voters intended when they approved the legislation by a slim margin in 2010.
“I think it is unambiguous in the law that the voters passed that the dispensaries are supposed to be non-profit entities,” said Daniel Orenstein, postdoctoral fellow at the UCSF Center for Tobacco Control Research and Education.
Orenstein was previously fellow and adjunct professor of law, public health law and policy program at Sandra Day O’Connor College of Law at Arizona State University. He also authored “Voter Madness? Voter Intent and the Arizona Medical Marijuana Act,” published in the Arizona State Law Journal.
“Because (the legislation) talks about non-profits in the law, it can be assumed that it was not meant to create this peculiar (management company) setup,” Orenstein said.
Health For Life and Canadian Bioceutical did not return requests for comment.
– Reach Wayne Schutsky at 480-898-6533 or firstname.lastname@example.org.