As we’ve noted before, Tennessee is likely to be the last Deep South state to legalize medical cannabis. But given the pace at which states have legalized (38 states plus the District of Columbia), last doesn’t necessarily mean far away.

In fact, Tennessee began laying the foundation for a medical cannabis program in May 2021, when the Tennessee Legislature enacted a statute that created the Tennessee Medical Cannabis Commission (TMCC). The TMCC’s purpose is to “serve as a resource for the study of federal and state laws regarding medical cannabis and the preparation of legislation to establish an effective, patient-focused medical cannabis program.” The statute requires that the TMCC prepare recommendations for “how best to establish an effective, patient-focused medical cannabis program,” along with proposed legislation for the state Legislature.

The statute makes clear that it does not yet “authorize a medical cannabis program to operate” in Tennessee, and “licenses for such a program shall not be issued … until marijuana is removed from Schedule I of the federal Controlled Substances Act.” But re-scheduling may happen sooner rather than later, as the U.S. Department of Health and Human Services (HHS) recommended to the U.S. Drug Enforcement Agency (DEA) that marijuana be moved from Schedule I to Schedule III under federal law in August 2023 (which we wrote about here).

With federal re-scheduling seemingly on the horizon, all eyes are on the TMCC to see how they will steer the creation of Tennessee’s medical cannabis program. At the TMCC’s last meeting on October 30, the commission discussed several topics that are critical to any cannabis program, including (1) open license vs. limited license regimes; (2) vertical integration vs. separate licenses for each piece of the cannabis supply chain; (3) opt-in vs. opt-out methods for local governments; and (4) which state agency would have primary oversight of the program.

A summary of the TMCC’s discussion of those topics is below. The TMCC’s next meeting is on November 15, 2023, and we intend to keep our readers updated regarding the TMCC’s meetings going forward as Tennessee moves, slowly but surely, to stand up a medical cannabis program.

Open License vs. Limited License Regimes

This question is one of the most critical for operators. “Open license” regimes (e.g., Mississippi and Oklahoma) do not cap the number of cannabis operators in the state. “Limited license” regimes (e.g., Florida and Alabama) cap the number of licenses, leading to an extremely competitive license application process for potential operators seeking a piece of a regulated monopoly.

The TMCC heard from a guest speaker that noted the oversupply issue that has plagued many open-license states at the outset of their programs. The same speaker also explained that, in his view, it is easier to make sure patients are getting high-quality products in a limited-license regime, as the operators are more sophisticated and there are less of them for regulators to oversee. The TMCC appeared to be receptive to these positions.

Vertical Integration vs. Separate Licenses Down the Supply Chain

This is another critical issue for operators. Some states (e.g., Florida) only license fully integrated cannabis companies, which grow, process, and dispense medical cannabis. Other states (e.g., Mississippi and Arkansas) provide separate licenses to each piece of the supply chain, with cultivators licensed to grow cannabis and sell it to separately licensed retailers, who then dispense cannabis products to patients. Some states find a middle ground. For example, Alabama allows five vertically integrated licensees, and then separately allows a limited number of cultivator, processor, and dispensary licensees.

The most interesting aspect of the TMCC’s discussion of this topic centered on Georgia, which recently became the first state to allow medical cannabis (a low-THC version, which is the only medical cannabis allowed in Georgia) to be dispensed through licensed pharmacies. The TMCC noted that this could make for an easier lift in standing up a medical cannabis program in Tennessee given that there is already a network of licensed pharmacies in the state.

pt-In vs. Opt-Out for Local Governments

Some states require that local governments opt-in to the medical cannabis program (e.g., Alabama), while others set a default rule that all counties participate in the medical cannabis program but allow counties to then opt-out (e.g., Mississippi). The TMCC seemed to lean heavily toward an opt-out method because it tends to be less cumbersome. The TMCC also debated whether these decisions should be made at the county or municipality level.

Regulatory Authority

The TMCC seemed to be unanimous that primary regulatory authority for Tennessee’s cannabis program should rest with the Tennessee Department of Health. The TMCC did indicate that it believed other agencies should have authority over certain cannabis-related issues, including the Department of Agriculture with respect to cannabis cultivation.

What Are the Takeaways?

As we’ve written before, savvy operators begin putting their state-level teams together well before a state legalizes cannabis. While Tennessee has been a laggard on the cannabis front, it is only a matter of time before Tennessee legalizes medical cannabis, and the TMCC is crafting recommendations for how that program will look now. With Tennessee’s large population (seven million people, 15th most populous in the U.S.), there should be plenty of demand for operators to fulfill when the time comes.