In Hawaii, Hope Springs Eternal Following Adult-Use Defeat

As the dust settles following the recent failure of Hawaiian state legislators to pass legislation regulating the sale of adult-use cannabis, licensed operators are once again left wondering what the future holds not just for the so-called recreational use of cannabis in Hawaii, but also for the state’s medical cannabis program, which has seen better days. To get some insight into how they are processing the failure to advance adult-use and what it means for current and future business in the Aloha State, Cannabis Business Executive spoke with Jaclyn Moore, CEO of Big Island Grown, which was the subject of a company profile in March. According to Moore, the failure to get SB3335 over the finish line was a big disappointment with some major silver linings.

“I want to highlight just how dynamic a time it is right now post-session, post-adult-use dying,” she said of the general sentiment. “You have the [Miller] amendment to the farm bill that could bypass some of the factors we discussed before and impact not only the current medical program but is certainly one of the threats to an adult-use program. So, we’re monitoring the amendment to see what comes of that. Then you have the federal rescheduling. We’re trying to understand what those rules are going to be to see how they will impact the current medical program or any kind of prospective adult-use legislation.

“As an industry,” she explained, “we support and recommend improvements to patient access and patient experience, and also reducing patient and regulatory costs so that we have a medical program that’s sustainable. What we found is that the peak active patient base for the medical program was over 35,000 back in August 2021, and that it is down to 31,000 as of March 2024. That’s almost a 15 percent drop in the medical program. And with all of these things – whether federal rescheduling or the amendment to the farm bill – there are a lot of things happening that could, I don’t want to say precipitate some action, but could definitely be cause for something to change, something to move. And it’s welcomed on our side, because the medical program here is not sustainable given what we’re dealing with now. So, something’s got to give.”

It sounded like a “darkness before the dawn” scenario. “With post-adult-use legislation dying,” said Moore, “the opportunity still remains to regulate the entirety of the plant under a single entity. That way, you have medical, you have adult use, you have the pathway for legacy, and people are looking at it from the hemp side. Just having a regulatory body that actually has people on it for whom this is their focus is something where I think that opportunity still exists, and we want to see how we can push that forward again next session. It really is about an access-for-all model, and then of course having regulations that have a positive impact on public safety, provide quality jobs to local residents, and provide additional sources of tax revenue to the state.”

Indeed, movement of some sort was already under way. Moore explained that she had to reschedule an earlier call for a very understandable reason. “We were actually working on the first in-state ‘green lab’ with local law enforcement,” she explained. “We were following what other states like Maryland have done with cannabis impairment training for law enforcement. I think it represents forward movement with law enforcement, which opposed the adult-use bill at the legislature this past session but is now looking to understand and refine their understanding of what cannabis impairment looks like from a practical perspective.

“We worked with the traffic enforcement unit – more specifically, the drug recognition experts – and it was very interesting,” she added. “You had members of the Department of Health there, folks from the prosecutor’s office, and then various levels of law enforcement, and it was the first time that I had been a part of or experienced the desire from a law enforcement perspective to dig in and understand. We also had some folks come out from Kauai to participate. I think they’re going to be doing a ‘green lab’ there as well.”

Moore also pointed out that SB3335 was the most successful adult-use bill to date. “This session, we saw the most momentum and what we identified as one of the best vehicles thus far to push adult-use forward, and it was a bill drafted by the Attorney General’s office,” she noted. “I won’t say it was a perfect bill, but it was something that we could rally behind and see the potential for it to make it through the various committees, because it did provide a pathway for the legacy market to opt into the legal program.”

SB3335 had indeed advanced farther than any other similar bill ever had. “There was one committee left on the House side,” said Moore. “Last year, it passed the Senate and crossed over to the House, but it was never scheduled for a House hearing and died during that process. This year, it not only got scheduled in the House, but it was scheduled for a second House hearing with the Consumer Protection & Commerce committee. The Chair, Mark Nakashima (D-Hilo), didn’t sound like he was going to even hear it – he was not necessarily pro-adult-use in any way – but he scheduled it to be heard.

“He happens to be the representative for the area where our production center is located,” she added. “He’s been very, very supportive of the medical program, and he began to understand the impact and the necessity to regulate [cannabis] in a way that dealt with all of these black-market forces and things that were really chipping away at the medical program. And so, he went ahead and scheduled a hearing, and it passed his committee hearing, and then it went to the final in Finance, where it died. There was a bloc of lawmakers that were really opposed who banded together and didn’t entertain it, but we did have House leadership, Speaker Saiki, who at least supported scheduling it in the House.”

I wondered if, two months later, legislators understand that there could be serious financial fallout to existing businesses as well as the medical program as a result of adult-use failing. “I don’t know if that’s clear to them yet,” replied Moore. “I really don’t, because we were communicating that during the legislative session, and I think overall you can see that the medical program is in decline. That much is clear. I think it’s just a matter of some of the lawmakers not understanding, even with talk of federal rescheduling at that time, what it would mean for the medical program. They were still trying to figure that out, and you have to remember that some of the opposing testimony was that there is no medical basis for this, and that this is a gateway drug. It was all of this misinformation that didn’t have a scientific leg to stand on, but with federal rescheduling and the acknowledgement that there is medicinal value, you would imagine that those testimonies need to evolve going into the next session.

“And you did have the governor announce shortly after the bill died that he was looking at how to improve the medical program through rule-making, which was very positive,” she added. “This is where the industry is helping to follow up and have those discussions about what improving patient access looks like, and I think he was specifically focused on removing qualifying conditions, which is certainly a big step in the right direction.”

Fallout From the Failure to Pass Adult-Use

After SB3335 failed, CBE was told that some medical cannabis companies in Hawaii were experiencing distress, including having to lay off staff or consider closing locations. Moore said Big Island Grown has had to cut back a little bit, but its viability is secure, and none of the other licensees appear to be at immediate risk of failure.

“I don’t know of any dispensaries or licensees that are closing their doors right now,” she said. “It’s almost more of the same. I don’t know how sustainable it is for others, but at Big Island Grown we’ve had a very consistent and loyal active patient base, and in all the positive ways we have bucked state trends. Just to highlight that fact, 25 percent of the total weight across all product categories sold in the dispensary system comes from Big Island Grown. So, in the entire state, for all eight licensees, Big Island Grown is providing 25 percent of the total cannabis weight across all product categories. It was up to 27 percent at one point.”

Did that mean that Big Island Grown is essentially too big to fail? “I definitely would not say we’re too big to fail, but I would say what I said last time,” replied Moore. “That we’re focused on providing an exceptional patient experience and providing multiple quality touch points along the patient’s journey, on quality, and on diversity of SKUs and options. We focus on all of these things every day and that never goes away. In fact, it’s something that we’re even more focused on now when we talk about doing events and helping to facilitate and create a community that people want to participate in, not even through the dispensary, but maybe through 808 Day or some of these other things we’re doing, like beach cleanups.

“I know that other dispensaries are doing that, but it is all about creating that environment that people want to engage with,” she added. “Of course, we’re looking to push adult-use forward, but even more immediately, we’re focusing on what we can do within the medical program through the interim rule-making ability, which is going to expire the beginning of January of 2025. What can be done to enhance access, what can be done to have patients actually opt-in? When I’m talking about the decline of active patients, these 4000-plus patients didn’t stop consuming; they just stopped opting-in to the legal medial program.”

“But we have to be financially disciplined,” noted Moore. “We had to make some difficult decisions when it came to personnel, and you’re talking to an operator that has focused so heavily on creating and being an employer of choice. And by the way, we were one of the 2024 best places to work via Pacific Business News, so that was excellent. In every way, we are trying to expand and create job opportunities, because we love our community. These are folks who are looking to stay here and to live here and to thrive here in this industry because they are involved with a plant that they love and have so much passion for. That has also been our focus, so it was hard when we had to downsize a little, but we have to be very financially disciplined to be able to navigate through the uncertainty of the next 12 to 24 months.”

Hawaii is unique in that it has no neighboring states. I asked Moore if that will present a great opportunity for existing operators when adult-use inevitably happens. “The first thing I would say is that even though we don’t have states surrounding us, we are operating in Hawaii County, Big Island, which has one of the most thriving and sophisticated legacy markets anywhere,” she said. “I had previously shared information about the DEA eradication efforts in the state back in the late ‘80s, with 1.5 million plants being eradicated, more than any two trailing states, and 1.4 million of it coming from the Big Island. It’s not at that level now, but even after the eradication, I would say it’s still thriving.

“In addition to that, you have products – which I assume to be tested rejects from other states – that are here and have been here,” she added. “You can get a cartridge that comes in packaging and looks like it came from a dispensary, but you don’t really know what the origin is. It’s not from one of the local dispensaries. The level of access to unregulated products that exists here is absolutely incredible, so while we don’t have surrounding states, we are still under assault by the same types of market dynamics that others are experiencing. It’s coming in, and we’re not operating in a bubble.”

Doesn’t that only strengthen arguments for the legalization of adult-use? “Exactly,” said Moore. “Going back to whether [legislators are] dug-in or not, I think you have certain folks at a state level that maybe are, like prosecutor [Steve] Alm, who was very vocal leading the anti-adult-use charge this last session. You could look at his stance and fairly say that there’s definitely room for him to evolve that position based on the federal rescheduling and an acknowledgement that there is now a legitimate medical use for this.

“And then we have the governor, who is supportive of adult use,” continued Moore. “He’s also a doctor, a medical provider, a health care provider, so he understands the sensitivities around the medical program, which is why after the bill died, he’s looking to see what he can do to enhance the medical program and open up the qualifying conditions. What it should really be about is that you have an endocannabinoid system, but we’ll see how far that goes.”

Hawaii Governor Josh Green’s support could of course be pivotal politically. “That makes such a difference,” enthused Moore. “With the upcoming election cycle, and the amount of momentum that was built up and the level of support that we’ve seen from the governor’s office, the Senate, and now from a lot of House members – despite the small group of individuals that at the end of the day exercised their ability to kill it – the movement was more than we’ve ever seen. So, I’m focused on the momentum that has built up going into the next session, especially with all these other dynamics at play.”

Regrouping for the Future

With time to cement allies, it sounded as though there is plenty of room for optimism. “There is a lot of room for optimism,” affirmed Moore. “Like I said, the bill wasn’t perfect, but it certainly had enough provisions in it that you could really embrace and know that even though it may not be perfect for any one thing, it was broad enough and acknowledged a lot of important things that made it relevant and would have had great impact.”

She is also heartened by the fact that state regulators are becoming increasingly coordinated. “I don’t know how long ago CANNRA was started, “ said Moore, “but the Department of Health here has been very coordinated with them and may even be one of the founding members, so I’ve seen just from an operator standpoint that the level of education and understanding has increased tremendously with the various states connecting and speaking together. From a regulatory perspective, that’s something that has helped move the understanding forward tremendously. Now, if they need an interpretation of the law, or they’re putting something in the rules, at least they are looking at what other states do that make sense and using what they consider to be best practices versus just making arbitrary changes that are not necessarily rooted in anything.

“So, that’s pretty much where we are now,” she added. “We’re working in the interim session, focusing on suggestions and recommendations to help improve the medical program via interim rule-making, and focusing on what’s happening at the federal level so that we can figure out how it’s going to impact us and what it’s going to mean for the medical program and proposed adult-use legislation at a state level. I think we just don’t know enough.”

Staying up-to-speed at the local level is tricky enough. “And then of course you have the shake-up at the legislature with election cycles, and then they switch-up the committee chairs, which happens right before the session starts,” she pointed out. “You’re not starting from scratch, but it certainly adds an interesting dynamic. The one bummer is that it would have been great if somebody during their tenure as chair of one of these committees would have been able to advance this discussion in some meaningful way before things changed again.”

Was there any significant regulatory or enforcement change to intoxicating hemp products in the state? “It’s still the status quo,” said Moore. “But it’s going to be interesting to see what happens with the farm bill, which they said should see some movement in September. The [Miller] amendment is interesting. I know the Department of Health in Hawaii is now overseeing both the hemp side and the medical cannabis side. Before, it was the Department of Ag, so that’s been a change. I think what they’re doing is focusing on getting the hemp industry here up to speed with labeling and other standards that are not as stringent as on the medical cannabis side and give everybody the time and space to level up. I haven’t seen real enforcement there, but it’s not the state hemp operators that are the problem. They are also handcuffed, and do not provide the same formulations as these direct-to-consumer pen companies and what’s being sold in vape shops. There’s actually a lot of alignment between us because that affects them as much as it does us.”

I noted that it’s the same everywhere, a battle between good actors and bad actors. “The rule followers,” she added. “You pay to be regulated. You’re actually paying. And that’s the other thing; our renewal fees tripled in the last two years. So, you have a declining market with 3x renewal fees, and it’s not really sustainable.”

The next legislative session begins in early January, which is not far away at all, especially when it needs to be used for study, for education, for meetings with recalcitrant lawmakers. I asked Moore if that is how she will spend the next six months in addition to running the business and sleeping. “Absolutely,” she replied. “This is when we continue that dialogue and keep that conversation going. These elected officials are dealing with so many different things, so we need to keep it at the forefront and send them articles about what’s happening in real time.”

A recent story reinforced that point. “It was just reported that medical marijuana is the leading cause of gun permits being rejected in Hawaii,” noted Moore. “What was interesting about that is that we’ve been saying it the whole time. By the way, I don’t have my 329 card because I own firearms, so this is real. The fact that there’s a disparity amongst the rate of rejections from Big Island, Hawaii County to even a county like Kawaii is real. All of this is information that is coming out now, which is why I find it to be such a dynamic time. There is definitely reason to be optimistic, but we need to use information strategically and continue to keep the conversation at the forefront.”