How to Open a Dispensary in Texas

Although Texas has a medical marijuana program, as established by the Texas Compassionate Use Act in 2015, only three “Dispensing Organizations” have been granted licenses by the Texas Department of Safety (“DPS”) to cultivate, process, and dispense low-THC cannabis (up to a 0.5 percent THC limit as of the date of this blog) in Texas to prescribed patients. See 37 Tex. Admin. Code § 12.1. Texas is a vertically integrated state, meaning that the Dispensing Organization must cultivate, process, package, and dispense the medical marijuana.

Between March 1, 2017, through March 31, 2017, DPS received 43 applications from Dispensing Organizations for licensure; yet, only the following companies obtained licenses: Compassionate Cultivation, Fluent, and Surterra Texas. In 2019, the Texas Legislature expanded the Texas Compassionate Use Program (“TCUP”) via House Bill 3703 to include additional qualifying medical conditions, e.g., incurable neurodegenerative diseases. In late 2019, DPS re-opened and then abruptly closed the application process. Considering the geographic size and population of Texas, we hope to see DPS re-open the application window for 2021. 

Application and Fee Requirements

To apply for a Dispensing Organization license in Texas, Applicants must complete and electronically submit the Dispensing Organization Application, all attachments, and the following corresponding Exhibits here:

  • Exhibit A – Proof of ownership documentation: Title 37, Texas Administrative Code (“TAC”) §12.11(b)(1). This documentation will include a Certificate of Existence or Certificate of Authority from the Texas Office of the Secretary of State and a Certificate of Good Standing from the Texas Comptroller of Public Accounts; or other documentation demonstrating ownership of a valid entity in Texas.
  • Exhibit B – Complete registration applications and criminal history disclosure for directors, managers, and employees by submitting DPS Form RSD-303 (the Application incorrectly refers to the outdated Form RSD-52). Title 37, TAC §12.11(b)(3)-(5) and §12.12. 
  • Exhibit C – Proof of required liability insurance: Title 37, TAC §12.11(b)(6). This portion requires demonstrating that the potential Dispensing Organization has commercial general liability insurance coverage for personal injury, property damage, and product liability with policy limits of (A) $1,000,000 each occurrence; (B) $2,000,000 General Aggregate limit; and  (C) $1,000,000 Product Liability.
  • Exhibit D – Proof of application payment in accordance with Title 37, TAC §12.14. As of the date of this blog, an initial application fee of $7,356 is required upon submission of the application, and if approved, a license fee of $488,520 for a two (2) year period is required. [Note: a $318,511 fee is required every other year for renewal of the Dispensing Organization’s license.]

In evaluating the application for the potential medical marijuana dispensary, an impartial review panel will score and weigh the Exhibits below as follows:

  • Exhibit E (20%) – Proof of the ability to secure the premises, resources, and employees necessary to operate as a Dispensing Organization: Title 37, TAC §12.11(b)(7)(B). This may be demonstrated by submission of:
    • (i) Descriptions of all properties Applicant proposes to utilize to cultivate, process, and dispense low-THC cannabis, including ownership information for the properties;
    • (ii) Descriptions of the methods proposed for the cultivation, processing, and dispensing of low-THC cannabis;
    • (iii) Descriptions of the types and locations of worker safety equipment and plans and procedures for complying with federal Occupational Safety and Health Administration (OSHA) regulations for workplace safety;
    • (iv) A list of current and proposed staff, including, position, duties and responsibilities, and an organizational chart illustrating the supervisory structure of the Dispensing Organization;
    • (v) Descriptions of the Applicant’s proposed testing laboratory and of the proposed testing protocols and methods;
    • (vi) A proposal establishing the ability to secure premises reasonably located to allow patient access through existing infrastructure; and
    • (vii) Department approved acknowledgments executed by Applicant’s directors, managers, and employees indicating familiarity with the federal laws governing marijuana and its interstate transportation.
  • Exhibit F (20%) – Proof of the ability to maintain accountability of all raw materials, finished products, and any by-products to prevent diversion or unlawful access or possession of these materials: Title 37, TAC §12.11(b)(7)(C). This may be evidenced by including the following:
    • (i) Floor plan of each facility or proposed floor plans for proposed facilities, including:
      • (1) Locking options for all means of ingress and egress consistent with life safety requirements;
      • (2) Alarm systems;
      • (3) Video surveillance;
      • (4) Name, layout, and function of each room; and
      • (5) Storage, including safes and vaults.
    • (ii) Diversion prevention procedures;
    • (iii) Emergency management plan;
    • (iv) System for tracking source plant material throughout cultivation, processing, and dispensing;
    • (v) Inventory control system as required by §12.8 of this title (relating to Inventory Control System);
    • (vi) Policies and procedures for recordkeeping;
    • (vii) Electronic vehicle tracking systems;
    • (viii) Vehicle security systems;
    • (ix) Methods of screening and monitoring employees;
    • (x) Employee qualifications and experience with chain of custody or other tracking mechanisms;
    • (xi) Waste disposal plan;
    • (xii) Recall procedures for any product that has a reasonable probability of causing adverse health consequences based on a testing result, patient reaction, or other reason; and
    • (xiii) Access to specialized resources or expertise regarding data collection, security, and tracking.
  • Exhibit G (10%) – Proof of the financial ability to maintain operations for two (2) years from the date of the application: Title 37, TAC §12.11(b)(7)(E). This may be evidenced by:
    • (i) Applicant’s business organization, and corporate structure if applicable;
    • (ii) List of all owners of any non-corporate Applicant, or all shareholders of a corporate Applicant;
    • (iii) All individuals and entities with control over Applicant;
    • (iv) Projected two (2) year budget; and
    • (v) Description of available assets sufficient to support the Dispensing Organization activities.
  • Exhibit H (20%) – Proof of the technical and technological ability to cultivate, process, and/or dispense low-THC cannabis: Title 37, TAC §12.11(b)(7)(A). This shall be evidenced by experience in the areas of:
    • (i) Cultivation, analytical organic chemistry, micro-biology, and analytical laboratory methods; and 
    • (ii) Patient education and interaction, and the handling of confidential information including familiarity with the requirements of the Health Insurance Portability and Accountability Act (HIPAA).
  • Exhibit I (20%) – Proof of infrastructure reasonably located to dispense low-THC cannabis to registered patients: Title 37, TAC §12.11(b)(7)(D). This may be evidenced by:
    • (i) Map showing the location of Applicant’s proposed dispensing facilities with streets; property lines; buildings; parking areas; outdoor areas, if applicable; fences; security features; fire hydrants, if applicable; and access to water and sanitation systems;
    • (ii) Floor plan of the actual or proposed building or buildings where dispensing activities will occur showing areas designed to protect patient privacy and areas designed for retail sales, with proposed hours of operation;
    • (iii) HIPAA compliant computer network utilized by all facilities;
    • (iv) Identifying descriptions of any vehicles to be used to transport product; and
    • (v) Description of all communication systems.
  • Exhibit J (10%) – Cover Letter as described on Form RSD-302. Each Applicant’s cover letter must be no longer than 500 words and must include explanations of the following:
    • (i) Applicant’s overall understanding of its role in the development of the Texas Compassionate Use Program;
    • (ii) Applicant’s business philosophy and approach to producing low-THC cannabis;
    • (iii) Applicant’s approach to providing low-THC cannabis to patients registered in the Compassionate Use Registry of Texas; and
    • (iv) How issuance of a dispensary license to Applicant will facilitate reasonable statewide access to, and availability of, low-THC cannabis to registered patients.

Additionally, all directors, managers, and employees must submit fingerprints in the manner approved by DPS. Id. at § 12.12. These directors, managers, and employees must also each pay an initial $530 registration fee and additional $530 fees for renewal of registration. See id. at § 12.14. Lastly, after all required application information is submitted to DPS for approval, and prior to licensure, the Dispensing Organization must pass an onsite inspection to ensure compliance with the above-listed requirements. See id. at § 12.11. 

As you can see, the application process for opening a medical marijuana dispensary in Texas is quite involved and requires substantial information submission and operational capital. We certainly recommend working with qualified counsel in compiling and submitting your dispensary application. 

Ongoing Requirements and Standards

To remain compliant, licensees and registrants must adhere to numerous, ongoing requirements imposed by DPS. For instance, licensees must establish and implement a “drug-free workplace policy” consistent with that of the Texas Workforce Commission; conspicuously display their DPS-issued license; cooperate with any DPS or state fire marshal inspection or investigation; dispense low-THC cannabis only to “patients,” as defined under Chapter 169, Occupations Code; cease dispensing low-THC cannabis if their license is suspended, revoked, or expired; and retain registration cards for terminated registrants for at least two (2) years. See 37 Tex. Admin. Code § 12.2. Licensees must also use “applicable best practices to limit contamination of the product” and have a plan for a recall of any potentially defective product. Id

Registrants must at all times carry or have on display their DPS-issued registration cards while performing any actions regulated under the Texas Compassionate Use Act. Further, “[i]f arrested, charged, or indicted for a criminal offense above the level of Class C misdemeanor,” a registrant must provide notice to the employing licensee within seventy-two (72) hours. Id. Within seventy-two (72) hours of the registrant’s notification, the employing licensee shall notify DPS in writing of the incident and include “the name of the arresting agency, the offense, court, and cause number of the charge or indictment.” Id. Lastly, if a registrant’s employment is terminated for any reason at all, the employing licensee must notify DPS within five (5) business days of such termination. See id.

Conclusion

Although DPS is not accepting applications for Dispensing Organizations at this time, it is important to be aware of the various requirements for licensure and registration, the expensive, corresponding fees, and the ongoing requirements to remain compliant in Texas’s evolving medical marijuana program. Click here for further guidance on DPS’ rules regarding Dispensing Organizations. 

Paul Stevenson is an associate attorney with Ritter Spencer PLLC who handles matters in medical marijuana and represents all sectors of the hemp industry, including manufacturers, distributors, and retailers of hemp products. Chelsie Spencer, a founding principal with Ritter Spencer PLLC, represents multistate operators with dispensaries across the United States and is experienced in assisting dispensing organizations with medical marijuana dispensary applications. As cannabis and hemp lawyers, the lawyers at Ritter Spencer are prepared to advise your hemp or cannabis business in all facets of the industry, including formation and transactional issues and in cannabis litigation. Contact Ritter Spencer or give us a call at 214.295.5070 for more information.

Ritter Spencer, PLLCHow to Open a Dispensary in Texas

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