Cannabis greenhouses and ‘chain-store’ clubs permitted under new rules

Malta’s laws for the sale of recreational cannabis could likely make room for large players seeking to corner the market, with the prospect of cannabis retailer ‘chains’. 

Malta’s not-for-profit model in the sale of cannabis has been a founding principle for the fledgling regulator, the Authority for the Responsible Use of Cannabis (ARUC). But under the laws and directives issued by the authority, large associations will be able to have multiple distribution sites, as well as grow cannabis in greenhouses in rural settings usually outside the development zones. 

As confirmed by ARUC chairperson Leonid McKay in reply to questions from MaltaToday, with the largest association possible to grow cannabis being allowing a maximum of 500 members, such a cannabis club will also be able to split the volumes of cannabis it grows across multiple distribution sites. 

The allowance for such large clubs is a new development with the new iteration of ARUC, which recently underwent changes at the top with the resignation of former Caritas addictions expert Mariella Dimech and various board members. 

“The legislation does not inhibit associations from having multiple distribution sites,” McKay, the new chairperson, told MaltaToday. 

“ARUC may allow such a scenario for large associations, which may not exceed 500 members, provided that the opening of multiple sites is financially feasible for the size of the association and that the opening of additional sites is not done for the mere purpose of absorbing the association’s profits into unnecessary costs. The proviso that associations must carry out the entire process from seed to distribution to their own members only would still apply.” 

In fact, under the new ARUC policies, “non-permanent structures” located outside the development zones – covered by a permit and registered as an agricultural holding – are expected to be greenhouses. “The Authority will ensure that the size of the premises is proportionate with the required level of operations to cater for the needs of the association’s members,” McKay said.

READ ALSO: Clarification | Multiple distribution points for cannabis associations cannot be compared to chain-stores in commercial set ups

Investment in air-conditioning and crop testing

MaltaToday understands that greenhouse owners seeking a foothold in the recreational cannabis business, would also have to invest considerably in air-conditioning systems that can keep indoor climate at 26 degrees Celcius in summer, when indoor greenhouse temperatures can easily climb to well above 40 and 50 degrees. 

And while such expansive set-ups will require considerable investment of their own, such ‘chain store’ dispensation of cannabis will introduce a new business philosophy to what was once thought would be an independent collection of small growers with their dispensary. 

Large growers will in fact benefit from economies of scale on such demands from ARUC to test their crop’s phytocannabinoid profile. 

Leonid McKay heads the Authority for the Responsible Use of Cannabis

“Testing is one of the most important elements in this reform,” McKay told MaltaToday. “The Authority’s ultimate aim is to ensure that cannabis distributed to users does not contain harmful contaminants.” 

To keep such crops under control, Cannabis Harm Reduction Associations will carry out testing on the first batch and on every 20th subsequent batch, provided that the same cultivation practices and strains are maintained. “The cycle shall be repeated every time such practices are changed. Furthermore, the Authority will also do random spot checks and testing to ensure that the quality indicated in the test results is being maintained. Labels must be affixed to each distributed packet,” McKay said. 

Registration fees for associations have also been slashed from the amounts originally planned: small associations with up to 50 members will now only pay €1,000 a year, rather than the minimum €8,750 annual fee initially proposed. 

McKay had previously said the decision came following feedback from prospective applicants, who said they would not be able to afford the exorbitant fees. Yet fees will rise for the larger, 500-member clubs, who will pay a €26,000 fee annually. 

The rules will apply to all cannabis associations, irrespective of size, an approach previously criticised by cannabis lobby group Releaf, which says clubs with fewer than 100 members should be given additional leeway for more makeshift operations, such as growing cannabis in grow-tents. 

Keeping an eye out for inflated wages

Even in terms of remuneration, ARUC’s law states that salaries in not-for-profit cannabis associations should not be substantial and in line with market levels and conditions as laid down in the Voluntary Organisations Act, and then be “of material irrelevance when compared to income/expenditure of the association.” 

But then there is an exception should ARUC determine that an administrator of these cannabis clubs has “specific skills” that are required by an association and must therefore be remunerated at a higher level. Such jobs might include professional growers from other countries with long experience in the cannabis industry, with substantial salary ranges that can easily be north of €60,000, cannabis experts told this newspaper. 

“The Authority is committed to ensure that the associations operate on a not-for profit basis and that any potential profits are not taken by the administrators through inflated wages,” McKay says. “The Authority will evaluate each case according to the skills of the individual and the position that they shall hold within the association, the size of the association, its expected income, and the share of expenses on wages from that income. Considering these parameters, no specific ranges shall be set.” 

While founders of the associations will be the clubs’ first members, as stipulated by the law, no individual may be a member of more than one association, which means no founder may found more than one association. 

Ultimately the associations cannot be owned by a single individual or a group of individuals, McKay says when asked whether cannabis club founders should not be involved in the pharmaceutical cannabis industry, or related to alcohol, tobacco or the gaming industry. “All members shall participate in the governance of the association so that the associations maintain a grassroot and community-based approach. The authority will ensure that all associations adhere to its regulations, including its blanket ban on any form of marketing.”

New cannabis clubs' rules 

Under ARUC’s rules, cannabis associations will be obliged to contribute 5% of annual income to a harm reduction fund and 10% of retained earnings for a community projects fund. ARUC will administer both funds. 

Founders must have lived in Malta for at least five years to set up an association and anyone convicted of major crimes or drug-related offences in the previous 10 years cannot set up an association, hold a key role in one or work as one of its employees. 

ARUC inspectors will be empowered to carry out on-site inspections or audits. Associations that don’t file a quarterly report or keep a proper list of their members will be fined €1,000 – the lowest fine stipulated in the rules. 

From there, fines rise gradually to €2,000 (selling alcohol at associations or having too many members), €2,500 (causing a nuisance to neighbours), €5,000 (selling cannabis that is not clearly labelled and packaged), and finally €10,000 for the most serious contraventions. 

[email protected]