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As nonprofits, dispensaries can still make money

Legislators may need to clarify rules to keep licensed marijuana sellers from profiteering.

By John Richardson jrichardson@mainetoday.com
MaineToday Media State House Writer

Maine's new medical marijuana dispensaries have to incorporate as nonprofits.

But that doesn't mean they are charities or that they can't make lots of money. It doesn't even mean they have to reveal the salaries paid to officers and directors.

"I think the term nonprofit is often misunderstood," said Rob Levin, a Portland-based lawyer who specializes in nonprofit law. "I have no idea what the Legislature had in mind, but it wouldn't surprise me if more oversight was envisioned than what is required under (Maine law)."

Public oversight is exactly what state officials had in mind when they decided to include the nonprofit requirement, according to state Sen. Stanley Gerzofsky, D-Brunswick.

"We expected total transparency," Gerzofsky said. "We talked about it. We would want to make sure they were truly nonprofit and not nonprofit in name only."

Now Gerzofsky and other officials say the rules may need to be clarified.

The dispensaries are incorporated as nonprofits under Maine Title 13-B, which says they cannot give out profits in the form of dividends or shares, and that salaries must be reasonable.

"Nonprofit doesn't mean you can't make a profit, it means the profit has to stay with the organization or with another nonprofit," Levin said.

Beyond that, however, rules vary widely depending on the type of nonprofit.

Homeless shelters and volunteer fire departments are examples of public benefit nonprofits. Because they serve the public and typically apply for charitable tax exemptions, they face more regulation and have to file detailed financial information that's open to the public. A charitable nonprofit that uses profits to pay excessive salaries can face an enforcement action by the Attorney General's Office.

Maine's marijuana dispensaries, on the other hand, have incorporated as mutual benefit nonprofits, the same category as a condominium association or a private golf club that serves an exclusive category of people. They have to meet fewer requirements and, because the dispensaries are not seeking any charitable tax exemptions, they do not have to disclose salaries or other financial details under Maine law.

And, even if the Maine Attorney General's Office gets complaints that a mutual benefit nonprofit is overpaying its president or board of directors, it considers that a civil matter for the members or customers to sort out.

Because the state Department of Health and Human Services is licensing the dispensaries, it can set additional rules and ask for more information. The dispensaries' license applications, for example, had to include estimates of how much money each dispensary expected to make and how much they intended to pay out in overall salaries. They did not disclose individual compensation for staff or directors, however.

Gerzofsky and others said the disclosure issue is one of the things that the Legislature will likely take up again this winter.

"There's going to clearly be reporting requirements," Gerzofsky said. "We're going to have to work out an awful lot of the details."

Jonathan Leavitt, who led the referendum effort last fall that opened the door to dispensaries in Maine, said the ability to see financial details is critical.

"We need to have some guarantees in place that if this is medicine, that it's working for the patients and not the shareholders and investors," Leavitt said. "The best way we can guarantee that this is working for patients is to continue to open up the process."

The operators of the newly licensed dispensaries said they expect the state to demand transparency, and will comply.

"It remains to be seen what the state might require. We'll certainly provide anything the state or any other jurisdiction requires," said Tim Smale, president of Remedy Compassion Center, which is expected to open in Wilton. "These nonprofits need to operate in full public view and we need to make sure that we're serving patients."

Levin, the lawyer, said the existing nonprofit requirement may not be what lawmakers had in mind, but it still imposes more limits on profiteering than dispensaries face in some other states.

"I think it's a lot better than what they did in California where anything went and things got out of hand," he said. "Can it be abused? I don't know." 

Staff Writer John Richardson can be contacted at 791-6324 or at:

jrichardson@pressherald.com