All Sections

Home | Business

NH's nonprofit pot sellers skirt rules to raise money

New Hampshire Union Leader

September 22. 2018 8:40PM

Jason Sidman of Sanctuary ATC points out a bud on a flowering cannabis plant at his medical marijuana growing facility in Rochester in April 2016. (DAVID LANE/UNION LEADER FILE PHOTO)

In theory, and in compliance with state law, New Hampshire's four medical marijuana dispensaries are owned and run by nonprofit organizations.

In practice, the owners have found ways to legally funnel money out of the operations.

The methods they use are open industry secrets and the situation has played out in nearly every state that required dispensaries to be run by nonprofits.

As a result, most of those states have changed their laws to reflect the reality of the industry and ease the restrictions on dispensaries that are trying to raise capital.

"A not-for-profit doesn't have shares or membership in an LLC that they can sell on an open market . but these cannabis operations are very capital intensive, especially if they're going to grow their own marijuana," said Scott Moskol, co-chair of the cannabis business advisory division of the Boston law firm Burns & Levinson. "So how is a not-for-profit to raise millions of dollars? In a traditional not-for-profit you might have memberships, membership dues, fundraisers or a capital campaign."

That's not what happens in the marijuana industry. Instead, there are several common workarounds.

One way is for the officers of the nonprofit, or their friends and family, to lend the organization money at extremely high interest rates, allowing them to receive returns equivalent to being an investor in a business.

That's the model used by Temescal Wellness, which operates dispensaries in Lebanon and Dover, and by Sanctuary Alternative Treatment Center in Plymouth.

Three of the directors on the board of Sanctuary loaned the nonprofit a combined $1,374,251. As of the end of the 2016 tax year they were due back $1,610,397, according to tax documents.

They also collected $55,000 each in salaries.

Ted Rebholz, CEO of Temescal Wellness, doesn't take a salary from his nonprofit, according to tax records. But he was owed $514,323 on an original loan of $276,540 as of 2016.

Both the dispensary non-profits were formed in early 2015 and it was not clear from the tax returns how much interest had already been paid back to the officers at the time they were filed.

"Our goal is not to take money out of the corporation," Rebholz said, adding that Temescal pays federal taxes like a business and that the current state law disadvantages everybody.

"Nobody benefits from that," he said. "Patients don't benefit because they see higher prices and investors don't benefit because they're just lenders."

New Hampshire's third dispensary operator, Prime Alternative Treatment Center, uses a different model.

It has entered into a contract with a for-profit consultancy that is owned by John Glowik, who is also president of the Prime nonprofit, according to a conflict-of-interest statement the organization filed with the state when it applied to open a dispensary.

It is not clear from the statement, or from Prime's most recent tax filings, how much the nonprofit pays Glowik's consulting company. Representatives for Prime couldn't be reached for comment.

"That is one method that has been used traditionally in states that have nonprofit requirements," said Timothy Fair, a Vermont-based cannabis consultant.

Last year, Vermont and Massachusetts changed their rules to allow dispensaries to operate as businesses.

A similar law in Maine will take effect in December.

When the change came in Massachusetts, a large number of the dispensaries converted to for-profit enterprises, Moskol said.

"It may have been a good idea theoretically, but practically you couldn't have a thriving medicinal program with that requirement, which is why you're starting to see those requirements come off now," Fair said. "Making a dispensary be a nonprofit really doesn't do anything except hurt the program. It's setting them up to fail."

New Hampshire's first medical dispensary opened in April 2016 and so far, none of them have recorded profits, according to state data. That's not unusual; dispensaries require substantial spending up-front.

Being a nonprofit "makes it much more expensive to do business," said Jason Sidman, CEO of Sanctuary. He anticipates, and hopes, that the Legislature will remove the requirement soon.

"I think that we will likely hear more about it in the upcoming legislative session," he said.

Business Crime, law and justice Health

More Headlines

Motivation Matters: A noble use of power