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This story was republished with permission from Crain’s Cleveland Business and written by Jeremy Nobile. 

Jim Canepa is proud of his role in helping grow state liquor sales from $970 million in 2017 to $1.8 billion in 2023. Similarly, marijuana industry stakeholders are quite fond of Canepa’s business-first approach as a regulator, which he brings along from leading the Ohio Division of Liquor Control to his latest role as superintendent of the state’s new Division of Cannabis Control (DCC).

Crain’s sat down with Canepa as he continues to settle into his latest job as the top regulator for the state’s growing marijuana industry as it prepares for non-medical sales to commence faster than what was originally anticipated when voters approved Issue 2 last fall.

Here are some of his takes on regulation, avoiding the pitfalls seen in other markets, Delta-8 products, and what could support or hinder non-medical marijuana sales from launching as soon as June. (The following Q&A has been edited.)

You were asked to join DCC, right? Why make the move?

My epitaph will probably read, “liked the challenges.” Being pigeonholed as the liquor guy, or before that the EPA guy, or before that the inspector general guy, or before that the attorney general guy, or before that the criminal trial prosecutor guy—it’s less about the title, more about the substance of what I do, which is solve problems.

I like the challenges that go with standing up new programs, fixing broken things. It’s almost like the same reason I like refinishing furniture or doing landscaping or cooking. I get to use my determination and creativity in problem solving and to me, this is just another series of challenges and problems to resolve and solve in a way that makes sense. And anybody who knows me knows, as soon as I get it fixed and running well, I start looking to the next thing.

So what do you think is next after DCC? Perhaps you go from liquor control to cannabis control to gaming regulation?

After this, I’ll be an old man. I did liquor for seven years. I’m 61 now. So what’s next after this? Maybe a professional hunting/fishing guy. I don’t know.

Whether it’s a management approach, lessons earned, or other things along these lines, what’s something from your time in liquor control that you’re applying to your work now at DCC?

I’m going from 80 permit types in liquor to five permit types in DCC. And I’m going from 10,000 permit holders to somewhere right now under 300. So it’s a much narrower permit-type field, but it’s the same principles that I bring over, which are: these are businesses that employ people, that pay people, that make, test and sell a product.

Their viability as a business is time-sensitive. And time is money. So when they’re seeing changes to products, or new products, or expansion of facilities, you have to be sensitive on the liquor side—and now here—that you are supporting businesses that employ people and their livelihoods. And their success and failure can’t be conditioned upon a bureaucratic government taking its good old time and not being sensitive to those challenges.

I was very business-focused over in liquor. And I set it up so we had great visibility on the challenges to the businesses in the process so that we could either remove those impediments if they were unnecessary vestiges from the past no longer needed in the present, or through process improvement to make if more efficient for the applicant/permit holder.

For better or worse, my own approach is sort of very indicative of my approach to my own personal affairs. Like I don’t have junk drawers. I don’t like extra junk in places where it doesn’t need to be. The stuff that needs to be there should be there and the stuff that is there should work. That’s my approach in liquor, and that’s my approach here.

How about on the enforcement side?

Liquor is a $1.8 billion business with 490 outlets. That’s a lot of logistics. And like cannabis, liquor is a controlled and regulated substance. So it is really, really important that the purveyors at those retail locations, their staff and the ownership, follow the rules.

While I’m very business-friendly and will bend over backward to find a way forward so that these businesses are successful, I really give no quarter for not following the rules. That expectation or that ethos, if you will, becomes very apparent to the group that I regulate. So I’m bringing that with me here so that those who have the permit privileges to do something that those without the permit are prohibited from doing, means they have to do it right or I take a different approach, which is less business-friendly.

So while they all understand that I’m trying to help them be successful, violating the rules, relative to selling to people under 21, or advertising to people under 21, or not keeping careful inventory control, for example, all those carry a very, very heavy penalty, likely to mean removal of those permit privileges.

Are there any particular states or markets that you’re looking to for cues in terms of standing up the non-medical marijuana program?

We have really done a deep dive in all the states. And that really goes to what you said, where do we see best practices, or good intentions but failed efforts? For example, Michigan, there are things there I would not like to recreate, including the business failure rate. There are a lot of vacant storefronts that used to sell cannabis. As we build the rules here, we do it through that lens, to not recreate that.

Sometimes, if you’re not careful when you look at access and placement, the businesses load up on each other’s bumpers, which causes failure rate. So as we move forward, we look at buffers around the dispensaries to kind of keep them from causing failure because of over-saturation. I’ve also gotten a lot of strong comments and opinions about the eye pollution with the billboard there. So we do not want to re-create that issue.

I also look to states like Missouri and Maine and Nevada, how they kind of plot out their field operations and compliance based on number and types of facilities. Like the number of inspectors per facility, I’ve looked at that to help me staff.

Frankly, those who have learned the most on what works and doesn’t work are industry people. I’ve made it my business to front-load my efforts here with meeting them all about what are the challenges? What can we change or improve? So that is what I’ve done to a painful degree on the front end. And that has really paid off. We’re trying to help these business but make it so things are safe, secure, healthy and legal.

So as far as you’re concerned, we should not expect marijuana ads on billboards or any cannabis business strips in Ohio, yeah?

Well, I would say more of the same consistent with what you’ve seen or not seen thus far. The current rule under the medical rules is there is no advertising on billboards. You’re not going to see me speak up to change that.

Now in terms of when rec marijuana sales could actually begin, I know that Issue 2 requires that the state begin accepting applications for adult-use retailers around early June and that licenses are to be allocated no later than early September, which has led to the expectation that adult-use sales could begin in September. But there’s recently been talk that adult-use sales could launch as soon as June. Can you walk me through how that would work?

The initiated statute said applications no later than June 7 and issuing permits no later than Sept. 7. To meet those deadlines, we had to sort of reverse engineer the timeframes to create rules for applications and permit privileges in the non-medical space.

The first rule package that we proposed was dual-use privileges. In other words, those medical facilities that have been permitted and have been selling medical cannabis for the last five years—under a paradigm that is far more limited and conservative than what was passed under the initiated statute for non-medical—could sell non-medical with a dual-use permit. That was the first rule that we put through so that it could get through that rulemaking process in advance of the June 7 timeframe.

So as a factual matter, if that dual-use rule proposal pops out at the end of the process sometime on or prior to June 7, our application will be ready and approved through the rulemaking process. And those who have been selling already would apply by the deadline as proposed in the initiated statute.

We would then be required to take those applications and turn them around for issuing a permit. Conceptually speaking, that application would not be very complicated because they’ve already gone through all the traps to receive their permit to sell medical cannabis. So the question really comes down to a business decision on the industry side. A lot of them are multi-state operators who have to go through their corporate approval and legal channels, so that will take time.

So what you’re saying is, we should expect some retailers to be ready to go as soon as possible, but there’s no guarantee that every business will be ready to—or interested in—doing non-medical sales immediately, yes?

Savvy retailers are going to have to decide what kind of customer experience they want right out the gate. That is why you see a lot of bars or restaurants that have liquor permits really focus on a first customer interaction, because those first impressions are going to matter for those customers.

If you think of a demographic like me, a 61-year-old suburban guy who has never been to dispensary, it’s going to matter, that experience. So for scaling from medical customer traffic to a larger, higher-volume, non-medical-customer traffic is going to matter to many of them.

And in order to accommodate that, they are going to have to change their floor plan, which is a major modification that requires some processing time that they’re willing to accept to make that first customer interaction a positive one. There will be others who throw caution to the wind and say damn the torpedoes, we’re going to be open as soon as we can. So there will be people who want to sell as soon as possible.

When you hear that June timeframe, it is because the application process will have begun and the processing of someone who just wants to turn around and sell non-medical the same way and under the same medical rules but to non-medical customers, that process will not be lengthy or complicated.

In other words, what you’re saying is there is a legitimate pathway for adult sales to begin in June.

There is a factual pathway because of the way the initiated statute is written and because these players are not new players, they’re existing permit holders selling in the last five years in the medical realm, which is far more complicated, strict and secure than what the initiated statute proposed for non-medical sales.

If you’re looking at the bell curve, on the left there will be that skinny entrance into the market, which will represent like June and July. As that curve goes up to August, September, October, that will be that sort of meaty part of the bell. And people who are really thoughtful about the retail experience will on the right side, which gets into November, December and maybe even the new year.

One might assume that these dual-use license holders could require another site visit as a condition of securing that license. Is that true? And would that slow things down?

All these sites are visited all the time now as part of their permit enforcement. They were inspected when permitted under the medical rules. And then there’s an annual renewal inspection. And then there are spot inspections. And then there are compliance or complaint-driven inspections. So they are visited a lot. And remember, there are less than 300.

The only real change is going to be at the point of sale. So that software that rings out a customer, in order for them to get the green light from us to start sales, that has to be correctly identifying between medical and non-medical customers, and it has to be getting the taxes correct because the excise tax won’t apply to medical patients. And not to mention the THC delta that the initiated statute included between medical and non-medical. So all that has to be correct in the software at the point of sale. If they change nothing—including footprint or ownership—they have to have that correct, which will require a final certification.

To drive the point home on this, what we are trending toward initially is a dynamic where adult-use sales first commence subject to medical marijuana rules and regulations. Is that accurate?

Exactly. So dual-use under the exact same medical rules. Then, as the new non-medical operational rules come out and are approved, they can start following those.

As advertising rule packages come out, they can start following those. All those will be after June. That is why I’m saying that as dual-use comes out, they’ll be following the exact same medical rules they’ve been following for five years. That’s an umbrella under which are all the requirements for security, retail, point of sales, testing, packaging. Those do not change. And operators know what those are because they’ve either been following them or dinged for non-compliance on them.

I think that is why the governor was proposing that the legislature act sooner than later under the principle that they would sell non-medical under the medical rules out of the existing medical dispensaries. So that is the rule that we moved first based on what he was pushing the legislature to do sooner than later because of the Delta-8 problem and the black market. This is why we pushed for the dual-use rules first.

So what could prevent us from seeing non-medical sales in June? Is it primarily actions by the legislature or individual business decisions?

Check and check. Really, any intervening causes outside of DCC, which could also include (the Joint Committee on Agency Rule Review) or a lawsuit. Those are things outside my control. Setting aside any third-party interventions, I’m going to meet the deadlines.

To that point, there has been murmurings for some time now about lawmakers fussing with the adult-use law approved by voters, though all those efforts have so far failed to gain any traction. Do you have any feelings or concerns about the legislature altering the adult-use cannabis law voters approved?

I have a very pragmatic lens that I look through. A lot of what you’re referring to falls under the categories of public consumption and children walking through clouds of marijuana smoke, THC content caps, Delta-8. With those sorts of things, I say right on. You have my full support.

To the extent that there are industry-related murmurings, that is the reason for all the stakeholder outreach to get their input on the rules and to get their buy-in on the front end. I will never get 100% enthusiasm for everything. But there’s this 80/20 principle. I aim for the 80% and let them self-police the 20%. And I kind of feel that is where I’m out.

What about the risks of lawsuits from industry interests potentially suing to stop the rollout of adult use? Are you at all worried about such things?

No, I’m not.

I’m painfully direct and I’ve said this to them. I’m like, hey, it’s your own discretion to throw a Scud missile into the process here. All that does is delay you from starting dual-use. So that doesn’t bother me. It’s just self-inflicted injury. And there are some who are like geez, I can’t believe he just said that, but he’s right. So more power to them if they really want the rest of the 80% in that 80/20 to jump on them with all fours because it is a symbiotic industry, and that concept requires relationships. And if those who are suing don’t care about those relationships, it’s a big business risk. And that doesn’t bother me, but it should bother them.

I will also say as a side note, I’m a lawyer. If, in 35 years, I had $5 for every time someone said well somebody is thinking about suing and it never came into fruition, I’d have enough to go to a fine-dining restaurant with my entire family.

Thinking about what you referenced earlier in terms of kids being exposed to marijuana smoke, what are your thoughts on consumption lounges? Should we have those?

That is an effort in speculation in how a market matures. We haven’t even begun the recreational market yet. We’ve been in a medical market where the idea of a lounge is obtuse.

I look back to liquor and my role there, and it took since 1937 to evolve and mature where it is now, to be accepted by those in the community where it has matured. Westerville was dry when I moved to Columbus in 1985. (Designated outdoor refreshment areas) were sort of the Voldemort in the liquor world and took years to become acceptable. It comes down to a local, community attitude, just like the DORAs. So I don’t know how that is going to mature. It depends on whether or not these businesses are good community members.

That said, this is where we’d point out that Ohio doesn’t actually have any laws in place today that permit marijuana consumption lounges to exist. We would have to write new state laws on this before local municipalities could decide if such a business were appropriate for them, right?

Yes, it would require statutory changes. Something open to the public would require input from health and safety, local zoning, local health departments. And statutory changes are usually bottom up. Like, because of a maturing market, that might feel like something that is needed. So a legislator would have to decide if that’s something that they’re being asked to do.

But certainly, and more directly, you can’t have a consumption lounge in a bar, because there is already a liquor permit in a bar that specifically prohibits, in their privileges, that permit holder from allowing, facilitating, accommodating or possessing a controlled substance, which marijuana still is.

Do you have any thoughts at this time on how many dispensaries Ohio ultimately needs?

Needs? I don’t know. How many will be populated on a map? Well, we have 132 now, including 12 that still have only provisional licenses. Under the initiated statute, certain classes get one or three. And based on those, roughly, you’re talking about adding another 200 dispensaries on top of those 132.

But in terms of net new ownership dispensaries—so not dual-use licenses or existing permit classes that get additional 10(B) dispensaries under the initiated statute—there is a timeline for Sept. 7, 2026, for us to start accepting applications for net new entrants for the dispensary business.

There’s a lot of almost anxiety about licensing amongst a small group who are going to be operating until 2026, and I’m like, you guys have a captured market until 2026.

You’ve referenced Delta-8 a couple times. To what extent is that really a concern of yours with respect to the legal cannabis industry?

From a business standpoint or a risk and health and safety standpoint, I think people are just whistling past the graveyard on this.

Delta-8 is an intoxicating substance that is unregulated and untested and not age-gated. We’ve been talking about all the safeguards, guard rails and concerns about the cannabis industry, but people are just whistling past the graveyard on these intoxicating substances being sold at gas stations. It is outrageous nothing is being done about it.

From a business impact analysis, that is all siphoning away from the legitimate, tested, permitted industry. These take great, huge investments. Meanwhile, you have this sketchy interloper causing poisoning to children without any packaging requirements—they look exactly like candy— and without any testing requirements, so you don’t know if you’re getting rat poison or a placebo. I think so much appropriate attention is being paid to the cannabis industry, which has been in place for five years and regulated and tested, but none at all to an intoxicating substance that is being cooked up in kitchens around the country. And I think that needs addressed.

The post Here’s how recreational marijuana sales in Ohio could start in June appeared first on Green Market Report.

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