Arkansas Delta is home to top cannabis cultivators in emerging industry

by Wesley Brown ([email protected]) 3,539 views 

As the smoke clears from the state medical marijuana board’s long-awaited decision on Tuesday (Feb. 27) to award licenses for the state’s first medical pot greenhouses, the clear winners for the highly-sought after business venture is the Arkansas Delta and several Natural State communities that will likely see economic benefits from the newest agriculture crop.

Among the five Arkansas-based companies selected out of 95 applicants to receive one of the prized cultivation licenses to grow and supply cannabis for qualified Arkansas health patients and caregivers, four of the proposals for greenhouses are expected to land in prime Delta counties with rich agricultural histories and few job prospects.

In addition, two of the companies that submitted winning applications out of the nearly 100 proposals filed are based in Jonesboro, the largest Delta city in the agri-rich eastern half of the state that encompasses all of 15 counties and portions of 10 others.

Despite the rush of proposals to grow the state’s first legalized marijuana plants, a University of Arkansas at Monticello economist said there is no definitive proof the fledgling industry will be a boon to the Arkansas Delta economy.

“There must be a lot of money involved since the applicants have put up significant investments,” said Dr. Paul Francis, a crop science expert and professor of agriculture at UAM. “A few new jobs may result, but it will depend on the future demand and economic value. That pretty much applies to all agriculture production in the state.”

Dr. Ranjitsinh Mane, assistant professor of agricultural and consumer economics for the University of Arkansas at Pine Bluff’s Department of Agriculture, said there is limited agronomy research on medical marijuana.

“It would be interesting to see the overall economic impact, direct, indirect and induced, of marijuana cultivation on the state economy in general and Jefferson County specifically,” said the UAPB economist.

A market outlook study published last summer by Washington, D.C.-based legal marijuana think tank New Frontier Data, estimated the state’s infant medical cannabis industry will grow at a compound annual rate of 67% over the first six years of sales from an estimated $3.1 million in 2019 to over $67 million by 2025. Over the same period, Arkansas is projected to account for just 0.3% of all legal cannabis sales in the U.S.

Following are the five limited liability partnerships (LLCs) selected to blossom the state’s newest industry from the startup stage to full operations over the next decade.

• Natural State Medicinals Cultivation in Jefferson County
• Bold Team LLC in Woodruff County
• Natural State Wellness Enterprises in Jefferson County/Jackson County
• Osage Creek Cultivation in Carroll County
• Delta Medical Cannabis Company in in Jackson County

ABC Director Mary Robin Casteel said while the commission awarded five licenses, the top six scoring applications included one applicant that had two of the top five scores. That company, Natural State Wellness, will be limited to an ownership stake in only one cultivation facility and one dispensary location. That means Natural State Wellness will have to decide between operating in Jefferson or Jackson County. Once each winning applicant receives a formal notification letter from the AMMC, they will have seven days to pay an application fee of $100,000 and post a performance bond of $500,000.

Among the winning companies, the two companies with “Natural State” monikers appear to be in the advanced stages of preparation to begin the construction on cultivation centers in Jefferson and/or Jackson counties. By far, the five AMMC commissioners were more impressed by Little Rock-based Natural State Medicinals Cultivation than all the other applicants.

Under the commission’s 500-point scoring system approved by the state legislature nearly a year ago, Natural State Medicinals had the top score with a healthy total of 486. According to a tabulation of individual scores supplied to Talk Business & Politics by the AMMC staff, the five commissioners all gave the Little Rock-based partnership grades between 93 and 99. No other application scored higher than 445 or received grades above 90.

Headquartered in the old Alltel building at One Allied Drive in Little Rock, the local partnership was incorporated Aug. 3, 2017, under NSMC-OPCO LLC, which is affiliated with Stephen LaFrance, the former executive vice president of privately held USA Drug of Pine Bluff that was sold to Walgreens in 2012 for $438 million.

LaFrance is principal officer and owner of Dale Capital Partners Inc., a Little Rock-based investment group that shares the same business address of the LLC that will own the pot-growing startup the Little Rock investment group proposes to build outside the city limits of Pine Bluff in Jefferson County. Joseph Courtright, who is listed on NSMC’s application as the partnership’s corporate organizer, did not immediately return phone calls made to his Dale Capital office.

Although the names of the company’s investors are redacted in the company’s AMMC application, the top-scoring proposal lists 12 investors with the unnamed chairman and CEO owning a 15.72% stake and another board director with a 15% interest.

Natural State Wellness, which had the third- and fourth-highest score with an identical 438 out of 500 on the company’s twin applications, also submitted an impressive, well-financed proposal that includes former Arkansas Attorney General Dustin McDaniel and other investors who have not yet publicly revealed their identities.

However, the partnership’s redacted AMMC application shows the largest investor will have a 34% stake in the company, while the second- and third-largest shareholders will hold 17% and 7.79% interest in the partnership, respectively. The company’s AMMC application lists 27 investors with the venture group looking to locate and construct a pot-growing facility outside the city limits of Pine Bluff or 130 miles away in Jackson County.

The Jonesboro venture group also submitted applications to the AMMC for proposed dispensary franchises in Jonesboro, Fort Smith, Little Rock and Pine Bluff. Corporate business filings with the Arkansas Secretary of State’s office show that Jonesboro LLC was incorporated July 25, 2017. According to the company’s Form D filing with the federal Securities and Exchange Commission, the partnership has raised $3.95 million from 17 investors to fund medical marijuana cultivation operations in Jefferson or Jackson counties.

Bart Calhoun, organizer for the Jonesboro venture, said after AMMC’s announcement on Tuesday the Northeast Arkansas investor group immediately began the planning process to begin construction on one of the company’s two winning proposals, although the partnership has not set a projected start date or timetable to complete the cultivation facility.

“Obviously, we have two successful proposals, one in Jefferson and one in Jackson counties. So we anticipate probably in the next 24 hours, if not sooner, making a decision on where we are going to be located,” said Calhoun, an attorney with McDaniel’s Jonesboro law firm. “Once we make that decision we expect to get a letter from the AMMC to pay the application fee and post a bond. We’ve got plans drawn for both places or for either one we pick, so we are ready to begin the process of building from the ground up as soon as possible.”

Calhoun said it will take a “good bit of time” to build a state-of-the-art cultivation center to grow the amount of marijuana needed to adequately supply each of 32 licensees the AMMC board will select to operate up to 40 retail locations in eight quadrants of the state. That decision will likely be made in the next two to three months to give the five AMMC directors ample time to review and score the 227 dispensary applications, state officials have said.

Calhoun said he was not at liberty to divulge the names of Natural State Wellness’ key investors and executives. A securities filing with the federal Securities and Exchange Commission (SEC) shows the company is only accepting a minimum equity investment of $100,000 from outside stockholders for the $6.4 million equity offering registered with the SEC on Sept. 12. McDaniel is the only company representative who has publicly stated his affiliation with the Jonesboro partnership.

Under SEC underwriting rules, privately held companies that raise capital are required to file a Form D with the SEC to declare exempt offering of securities in small, growing companies through venture capital and angel investors, as well as certain pooled investment funds.

Calhoun said details will be revealed in the coming days and weeks concerning the company’s initial startup and budget, operations, employee count, and key investors and executive team.

“A lot of that will come out in the next few days and, of course, we’ve told our investors we will respect their privacy until that time,” said the Jonesboro attorney. “We do have a large number of investors from other parts of the state that all have different backgrounds …, from doctors, lawyers to builders and bankers – you name it.”

Department of Finance & Administration spokesman Scott Hardin said full applications from the top-scoring companies will not be made public until Thursday or Friday. He said the ABC and DF&A staff still must make redactions to company financials, personal contact information, security protocols for the cultivation centers, and details on daily operations, among other things.

Talk Business & Politics also made calls to the other three companies awarded the state’s first cultivation licenses but did not receive responses from company officials listed in the AMMC applications and state business filings.

Bold Team LLC of North Little Rock, which lists Danny Brown as the company’s organizer, received the second-highest based marks from the AMMC board behind Natural State Medicinals with a tally of 444 out of 500. However, there is little additional information on the central Arkansas company’s proposed plans to build a cultivation facility near Cotton Plant in Woodruff County, except a note in the application detailing that Bold Team has four investors with almost equal stakes in the cannabis-growing enterprise.

Organizers for Osage Creek Cultivation of Springdale had the fourth-highest score out of winning applications, getting a grade of 432.5 out of 500 from the AMMC directors. The partnership’s plan to build a pot-growing greenhouse in Carroll County near Berryville was the only winning application outside the Arkansas Delta. Most of the information on the company’s application ahead of Wednesday’s AMMC had been redacted.

Jay Trulove of Berryville, who was listed as Osage Creek’s organizer after the company incorporated on May 21, 2017, did not respond to phone calls seeking comments from Talk Business & Politics.

The final winning bid from Jonesboro-based Delta Medical Cannabis Company Inc. is affiliated with former Democratic Party chair Jason Willett, who is listed as the company’s official organizer. Delta Medical scored 432 out of possible 500 for its proposal to build its cultivation facility near Newport in Jackson County. The Northeast Arkansas company also submitted applications to the AMMC board last year to build retail medical marijuana dispensaries in West Memphis (Crittenden), Greene County, Fayetteville (Washington), Fort Smith (Sebastian) and Osceola (Mississippi).

According to AMMC filings, the company’s top investors will own 33.3% and 22.22% stakes, respectively, in the Jonesboro-based limited liability partnership. Those investors, however, are shielded from public view by several affiliated LLCs with names like “Eagles, Birdies, Doubles and Triples” and “Valentine Holdings.” Five other LLC-related investors hold equity interest of less than 15%, the company’s redacted AMMC filings show.