Why Florida's Medical Marijuana System Is Ripe for Corporate Takeover


In June 2014, the disgraced former CEO of Hospital Corporation of America (HCA) signed Florida’s medical marijuana bill into law. It was a fitting beginning to a regulatory process that has been marred by shadowy fraud in the selection of lucrative vertically integrated licenses in what could become one of the largest medical marijuana markets in the country. The state appears poised to double down upon the fraud, and in keeping with Governor Rick Scott’s legacy of putting healthcare profits before people, some of the new law’s provisions could shield corporate revenues at the expense of fragile patients.

This is the picture painted by Freedom of Information Act requests, Sunshine Law requests and public reports pointing to perjury and fraud on the part of Alpha Foliage and its partner Surterra Therapeutics, one of only five nurseries granted oligopolic power over Florida’s entire medical cannabis market. The corruption may lead all the way to the governor’s office and it seems some of Florida’s powerful agricultural companies have wielded their influence over existing medical marijuana laws to add dangerous provisions in their financial favor.

CBD, A Chemical Romance

After August 2013, the national perception of medical cannabis would never be the same. CNN Chief Medical correspondent Sanjay Gupta’s endorsement of safe access, a preview and promotion of his then-upcoming documentary special Weed, changed the national conversation and sparked a string of scientifically misguided legislation in states with full prohibition. Gupta’s special featured the story of Charlotte Figi, an epileptic child of conservative parents in Colorado whose debilitating seizure activity was controlled by taking a high-CBD cannabis oil produced by Colorado Springs-based Realm of Caring. The strain was named Charlotte’s Web in her honor.

Charlotte’s Web is a brand name of a strain-family of cannabis high in cannabidiol (CBD), a non-psychotropic chemical constituent of the plant. It is low enough in Δ9-tetrahydrocannabinol (THC) to meet federal arbitrary industrial hemp guidelines. A new narrative in medical marijuana sprang up practically overnight and conservative legislatures responded with a wave of “CBD-only” laws. The makers of Charlotte’s Web, Realm of Caring, actively lobbied for legislation in many states to legalize the strain exclusively, including in Florida.

The CBD-only laws vary from state to state but generally make possession legal for a small portion of epileptic patients. Some states, like Utah, have simply legalized possession but force patients to break federal law by obtaining the medicine out-of-state. Parents of epileptic children, dubbed the "Mommy lobby” by the Washington Post, were the driving force behind the bills now signed into law in 16 states; Utah, Alabama, Delaware, Georgia, Iowa, Kentucky, Mississippi, Missouri, North Carolina, South Carolina, Oklahoma, Tennessee, Texas, Virginia, Wisconsin and Florida. The laws have been criticized for being extremely restrictive and full of so much bureaucratic red tape they are ineffective at providing safe access to the patients the laws were designed to help. Yet, as support for medical cannabis continues to surge nationally, states still restricting access are being forced to respond.

CBD-only laws are proliferating quickly across the United States. In the minds of conservative legislatures, CBD is the truly "medical” form of marijuana because it doesn’t produce a high. Despite there being no specific evidence that CBD-only cannabis is, in fact, more medical (it’s not), the notion has transformed the once-demonized drug into a socially acceptable botanical medicine in all states, with two-thirds of all Americans supporting safe access to botanical cannabis.

New Regulations for a New Point of View

Florida Gov. Rick Scott signed HB 843, the 2014 Compassionate Use Act (CUA), permitting the cultivation, production and distribution of CBD-only cannabis. The Republican-led legislation is highly restrictive and only initially licensed five regional vertically integrated businesses to serve the state’s market. Rulemaking authority was granted to the newly developed Compassionate Use Office, a division of the Florida department of health. 

The state has begun to lay the groundwork for a restrictive whole-plant medical cannabis law in the face of growing patient demand, and the magnitude of the resultant business opportunity has not been lost on one of the state’s main players, Surterra Therapeutics, which has raised $9.8 million in investment and is seeking $35 million more as of mid-March. Surterra Therapeutics has been actively trying to obtain as many of Florida’s licenses as it can. 

For patient advocates, the CUA was not the medical marijuana they envisioned. Regardless of the bill’s passage, activists with United for Care placed Amendment 2, a much more inclusive medical bill, on the ballot. Amendment 2 would also authorize products rich in  THC. Fifty-seven percent of Floridians voted in favor of the expanded medical marijuana program in 2014, but it did not pass because the legislation failed to meet the 60 percent supermajority threshold required by the state constitution. Activists have already placed it on the 2016 ballot where it is more likely to succeed.

The CUA’s conservative sponsors praised the legislation for bringing much-needed relief to the few patients who would qualify while heavily regulating the substance.

“Today was an important step to take back control of the situation and get it into the hands of families as soon as possible,” Republican Sen. Rob Bradley told the Associated Press.

But Amendment 2’s backers were skeptical.

“The bill’s passage today is merely more lipstick on the pig that is Tallahassee’s failed medical marijuana,” Ben Pollara of United for Care told the AP.

In 2014, the campaign against Amendment 2 was backed by Drug Free America, headed by Rick Scott campaign contributors Mel and Betty Sembler. The new regulations allow the state’s exclusive license holders the ability to begin growing massive amounts of cannabis, which they can buy and sell to each other wholesale. The businesses are all, by law, vertically integrated. Each license holder has the exclusive ability to cultivate, process and dispense the medicine in their region. Sales are scheduled to begin in late summer, and because the market will be considerably smaller, nurseries will have the ability to stockpile supply. 

Such provisions would prove a boon to Florida’s large established nurseries that dominate the state’s agricultural economy and political process.

Florida’s Winners Are Chosen

A total of 24 nurseries applied for the five state licenses. They had to meet a stringent list of conditions to pay the $60,000 non-refundable application fee, prove they have the ability to grow at least 400,000 plants and demonstrate they have been in continuing operation for at least 30 years. Licenses were awarded to Costa Nursery farms of Miami, Knox Nursery of Winter Garden, Hackney Nursery Company of Tallahassee, Chestnut Tree Farm of Alachua and Alpha Foliage (Surterra Therapeutics) of Homestead. 

The license holders are not required to produce the product in the region for which they hold a license. 

After the first five licenses were awarded, legal challenges from nurseries that competed and lost have delayed implementation of the laws and distribution of medicine. According to Sunshine State News, since 2014, Florida has spent over $500,000 in attorney’s fees representing the department of health in these legal challenges. The applicants were ranked in a secretive process by a board appointed directly by Governor Scott. Initial analysis of various applications shows a strong bias in some regions towards the winners, despite them not being as qualified in cannabis cultivation, science, medicine or even growing plants meant for human consumption. 

One of Florida’s most ambitious new licensed cannabis growers, Alpha Foliage/Surterra Therapeutics, has already harvested large amounts of cannabis despite potentially not actually qualifying for the license. In addition to being awarded one of the initial five licenses, it challenged through Redlands Nursery, an affiliate of Alpha’s, for licenses in four other regions.

Through public records requests, it appears Alpha/Surterra has falsified information in order to meet the state’s requirements, in violation of both Florida and federal statutes.

Alpha Foliage is a commercial nursery located in Homestead that proudly boasts over 30 years of operation on its website. It operates 300 acres of nursery growing ornamental plants, or decorative plants not meant for human consumption. On its website, Alpha Foliage says it is “committed to bettering the environment through innovative practices that maximize its positive impact on the environment,” yet the nursery’s history paints a different picture.  

Alpha has a well-documented history of using pesticides known to cause harm to wildlife and humans, specifically the workers exposed to them, very often their own. Shipments of plants have been denied and returned by the State of California due to pest infestations and the company has been fined for improper disposal of dangerous chemicals. Through its subsidiary Omega Farm, Alpha shipped fire ant-infested plants to Kentucky in 2008; at least two retail clients at Kroger’s Grocery Stores were bitten or stung by the pests. The incidents do not appear to be isolated, but rather the standard business practice for at least the last decade. In January 2010, the California Department of Food and Agriculture suspended shipments from Alpha Foliage to the California market for “a minimum of 6 months,” which lasted nearly two years, due to an excess of violations.

Although all applications are made available to the public via request, the state redacts potentially sensitive information. Many of the applications, especially Alpha/Surterra’s, are so heavily redacted there is little to no text left on the majority of the documents.

However, from the available information, it is clear that Alpha Surterra falsified its 30-year history by using the Social Security number of Jeffrey DeMott, the son of John DeMott, Alpha Foliage’s current owner. Jeffrey DeMott was born in 1983, public records requests show his registered SSN used in place of the federal employer identification number on Alpha Foliage’s 1983 application. They claimed they have been in continual operation since 1981, but lost all records from that time until 1992 in Hurricane Andrew, which completely leveled Homestead. These falsifications are in violation of Florida law.

Additionally, the phone number listed on the application, supposedly from 1983, is the current phone number of Alpha’s affiliate nursery, Redlands, which is also working with Surterra Therapeutics.

Prior to Alpha Foliage filing as a corporation with the state of Florida in 1991, it was owned solely by Charles Buster, who has not been affiliated with the company since that time. A falsified document supposedly registering the nursery in 1983 was signed by Raymond DeMott, brother of current owner John DeMott (and Jeffrey’s uncle), who is not an owner or a signatory of the company. If the document was real, it should have been signed by Buster. The state has confirmed it has no way to verify registrations prior to 2008, and based on the falsified documents submitted, released a list of nurseries in 2015 it says met the requirements for medical cannabis licensing. This list was cited in awarding a license to Alpha Foliage.

To the public, the state presented a neutral, unbiased selection process based around an anonymized “scorecard" that awarded application scores based on factors like technical cultivation ability and medical expertise. However, portions of the medical sections of Alpha’s application are flagrantly plagiarized. One section read nearly identical to the first paragraph of Wikipedia’s page on cannabinoids. The application also contains uncited text from an interview with medical cannabis researcher Raphael Mechoulam and a scholarly article published in the journal Immunobiology in 2009. 

Much of the medical information cited was authored by A.J. Fabrizio, chief scientific officer of Oakland, Calif.-based Terratech. Fabrizio is an un-degreed hash producer in his mid-20s located in the San Francisco Bay Area and appears on Instagram as @thebrainbehindthebud. He has no other specifically listed qualifications pertaining to medical cannabis science. Yet in awarding licenses to Alpha/Surterra, the state of Florida either didn’t check for plagiarism or didn’t care.

Surterra may have national aims for the cannabis industry and may be affiliated with Terratech, although no formal ties can be proved with public information. Terratech recently made Oakland’s Blum the first publicly traded dispensary in the United States, making headlines with a $14 to $21 million initial public offering. With such violations easily determined through public records requests and Google searches, it raises the question, how did the state of Florida miss all this?

Politics, Corruption and the Florida Medical Industry

In March, Gov. Scott signed the so-called “right to try” bill, HB 307, into law. The bill effectively protected the five winning license holders from losing their licenses, even as legal challenges from competing applicants have held up the process of getting medicine to patients. The bill allows the license holders to start growing full-spectrum (high THC) cannabis. Right now the only patients who will qualify to receive the full-spectrum medicine must be terminally ill. In essence, these producers can begin growing high-THC plants for which they currently have only a very limited market. 

Of the five winning license holders, most have ties directly to the Scott administration or the state’s Republican party. Hackney Nursery in the northwest region was a major campaign contributor to Gov. Scott’s reelection campaign in 2014. 

Hackney is located in Quincy, just outside the state’s capital, Tallahassee. Floridapolitics.com notes that state Rep. Halsey Beshear, a vocal proponent of the bill, was the former CFO of Simpson Nurseries, his family business, which is partnered with Hackney. Hackney beat out three other nurseries (including Alpha Foliage) for the Northwest regional license.

Smaller nurseries or other commercial cultivators that didn’t qualify have cried foul of the Florida process, saying the rules are unfair. According to News-Press.com, they say they feel the Florida Nursery, Growers and Landscape Association played a big role in shutting them out. FNGLA CEO Ben Bolusky was upfront about the organization’s desire to influence the process.

“The association did not help to write the amendment,” Bolusky told News-Press.com. “What [the association] did was ...emphasize to legislators that if it was going to move forward on any type of medical marijuana bill, what they needed to do was ensure Florida agriculture, and especially nurseries that have greenhouse infrastructure, are not left on the cutting room floor.”

Hackney is not the only winning nursery with such obvious financial ties to Florida legislators; it is merely well-placed among a field in which the practice of cultivating political influence is ubiquitous. 

Costa Farms, which won the Southeast region—which includes the Miami metropolitan area—has dumped over $270,000 into legislators’ and parties’ campaigns. 

“Does this set up a state-sanctioned drug cartel, which is what it is?” Sen. Jeff Brandes (R-St. Petersburg) asked in March during debates over HB 307. “Yes it does. You’re basically mandating that five families get wealthy.”

Florida’s medical cannabis market is projected to be large and profitable, making vertically integrated business licenses in the five regions highly desirable and potentially very lucrative. According to the most recent edition of Arcview Market Research’s State of Legal Marijuana Markets, the medical market in Florida is projected to grow to $1.5 billion by 2020. With the nation’s largest population of senior citizens, Florida could be a hub of both pharmaceutical and organically derived medical cannabis. The legislation’s Republican backers have repeatedly emphasized the role they hope Florida will play in pharmaceutical cannabis applications. 

“We have failed, as a society, to research cannabis. There was a long period where research wasn’t being done. My hope is that Florida becomes cutting edge on research… [the] science isn’t where it needs to be,” Rep. Rob Bradley told FloridaPolitics.com.

Bradley is a Republican representing Florida’s 7th District, home to Chestnut Hill Tree Farm of Alachua, the winner of the northeastern region’s cannabis license. Robert Wallace, owner of Chestnut Hill, testified to the Senate Committee on Regulated Industries, which Bradley chairs, that the company has worked with experts in the pharmaceutical industry and medical researchers at the University of Florida to develop “revolutionary” and proprietary cannabis medical technology. 

“Those are big words, sounds like it must work,” Bradley responded to the claims. Wallace was later forced to admit no actual partnership with the university. Bradley’s top campaign contributors include Hospital Corporation of America as well as nurseries and various state and national for-profit healthcare companies. 

Gov. Scott’s stance on medical cannabis evolved through the 2014 election season. He started the year opposed to Amendment 2 and his office led measures to attempt to block it, releasing a January 2014 statement: “I have a great deal of empathy for people battling difficult diseases and I understand the arguments in favor of this initiative. But, having seen the terrible effects of alcohol and drug abuse firsthand, I cannot endorse sending Florida down this path and I would personally vote against it.”

Through a close campaign against former governor and Republican-turned-Democrat Charlie Crist, who was an active campaigner for the initiative, Scott’s position was forced to change in support of medical cannabis because the initiative was polling higher than he was. 

Another vocal opponent of Amendment 2 was Republican senate president Don Gaetz, who joined Scott’s campaign in opposition, but also praised his son’s work to legalize CBD. State representative Matt Gaetz proposed HB 843 with the help of Colorado-based Realm of Caring. 

According to Fred Gardner of Project CBD, “Governor Rick Scott had stated emphatically that he would never allow any kind of medical marijuana bill to be enacted in the Sunshine State. But he was convinced by strategists that signing it [the CBD law] would make his opposition to Amendment 2 seem less inhumane. With a stroke of the pen, Scott transformed his image from arch foe of medical marijuana to pro-CBD centrist.”

Scott said in a statement, “As a father and grandfather, you never want to see kids suffer. Charlotte’s Web will ensure that children in Florida who suffer from seizures and other debilitating illnesses will have the medication needed to improve their quality of life.” In February 2014, Scott signed the bill into law. In November, Amendment 2 won 57.6 percent of the vote, failing to meet the 60 percent threshold it needed to pass; Scott won 48.1 percent, edging Crist’s 47.1 percent to win reelection. 

Political opposition to medical marijuana in Florida has been slowing, as evidenced by decreased financial contributions to the 2016 Drug Free Florida campaign. Thus far contributions have almost exclusively originated from a single donor, St. Petersburg real estate developer Mel Sembler, who has contributed all but $10,000 to the $1 million raised. In 2014, casino billionaire Sheldon Adelson backed 85 percent of the opposition’s campaign, with a $5 million donation.

No Consequences?

Each of the license holders has the ability to stockpile crops, and in the absence of legal consumers (limited to severe cases of epilepsy and terminal cancer) the market for all that product the winners needed the capability to produce is tiny. In essence, the exclusive license holders are stockpiling cannabis, which they can sell to each other wholesale. If Amendment 2 passes and the market opens up, expect to see these license holders controlling prices and supply. But should they keep their licenses? Bill proponent Sen. Bradley has actually said previously they should not. 

In a session to discuss HB 307 in March, Senator Dwight Bullard (D-Miami) asked Sen. Bradley to “walk him through the [existing] process.” Bullard acknowledged that Florida’s system, with vertical integration, is unusual. He asked Bradley what such a system would look like, to which Bradley replied: 

“It’s a vertically integrated system, as you suggest Sen. Bullard, and putting aside the controversy over the 30-year nurseryman requirement, the idea of having a vertically integrated system, I think, is a sound one. And that really was what we were always talking about throughout [the 2014 session]. This is such a highly regulated area, I think, for good reason, you want to be able to, if you have a bad actor, to yank it, yank it out by the roots. So you have one organization responsible from seed to end user, and if they are a bad actor, then you pull their license and they’re DONE.”

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