Tensions between private money and public interest in CT marijuana debate
Investor's lawyer: 'There was no quid pro quo.'
J.D. DeMatteo is a wealthy investor about to profit from the $100 million sale of Theraplant, the first of Connecticut’s four licensed producers of medical marijuana. Doug McCrory is a state senator and educator from Hartford, one of the nation’s poorest cities.
From starkly different vantages, both saw opportunity in the prospect of the state legalizing the sale of recreational cannabis to anyone 21 or older, exponentially increasing a market now limited to the 54,245 holders of medical marijuana cards.
DeMatteo’s interest in getting one of the first licenses to produce marijuana for the recreational market coincided with McCrory’s desire to open the industry to “social equity” applicants from poor and urban neighborhoods disproportionately affected by the war on drugs.
After talks with DeMatteo, McCrory insisted colleagues insert a provision at the bottom of a 297-page cannabis legalization bill. The addition was intended to allow DeMatteo to jump what is expected to be a very long line for a cultivation license — if he took on and mentored a social equity partner.
“There was no quid pro quo. It was a talk about the future and how he could participate and how a minority member could participate. There is no nefarious side to it,” said John F. Droney Jr., a lawyer who represents Theraplant and DeMatteo.
Whether the provision was the result of altruism, opportunism, or a bit of both, it quickly became an illustration of the ad hoc nature of legislative negotiations over how to dole out access to a lucrative new market.
House Majority Leader Jason Rojas, D-East Hartford, and Sen. Gary Winfield, D-New Haven, leaders of the Black and Puerto Rican Caucus working group that produced the bill, said they acceded to McCrory’s demand and accepted the language, not knowing its source or who might benefit.
The episode also underscored the deliberate distance House Speaker Matt Ritter, D-Hartford, and Senate President Pro Tem Martin M. Looney, D-New Haven, have kept from the sensitive talks about the manner and extent to which a legal cannabis market should become an instrument for addressing racial, social and economic injustice.
When the story broke Monday about McCrory’s contribution to the cannabis bill, Looney and Ritter said they had no direct knowledge of what it did or how it got there, leaving questions to Winfield and Rojas —and a decidedly unhappy McCrory, also a member of the Black and Puerto Rican Caucus.
The final draft of the cannabis bill became public Saturday night. McCrory’s provision drew questions and objections Sunday and was stripped from the bill early in the Senate debate on the bill Monday night. McCrory was furious, but ultimately joined the majority voting 19-17 for passage after midnight.
With the Republican minority unwilling to agree to a limited debate and the regular annual session approaching its constitutional adjournment deadline of Wednesday, the bill was shelved for a special session next week, with votes scheduled Tuesday in the Senate and Wednesday in the House.
House Minority Leader Vincent J. Candelora, R-North Branford, said questions remain and stripping the section from the bill should not be the legislature’s only response.
“I’m very troubled that we had a piece of legislation that was drafted to give one individual a financial benefit over the rest of the citizens of the state of Connecticut,” Candelora said. “It’s akin to somebody who robbed a bank. If they put the money back, a robbery still occurred. So I think we need to have a conversation, regardless of the outcome of that bill, of what went on, and how that provision got put into the legislation.”
The immediate impact of Candelora’s comments was an end to the refusal by DeMatteo and his representatives to answer questions.
Sullivan & LeShane, the lobbying and public-relations firm that represents Theraplant, had declined on-the-record comment, and requests through the firm to interview DeMatteo went unanswered. But Droney, a former Democratic state chairman used to jousting in legal and political forums, spoke on his client’s behalf after Candelora’s comment.
“He’s gone too far. He’s suggesting there’s some kind of nefarious deal,” Droney said in an interview. “My simple response is: That dog won’t hunt.”
McCrory, who initially declined to talk about the origins of the provision, was more forthcoming after Droney acknowledged that the senator and DeMatteo had talks about social equity while Patrick Sullivan of Sullivan & LeShane lobbied for its inclusion.
“He did talk to McCrory, and he talked to him a couple of times about social justice,” Droney said.
Droney said DeMatteo was willing to engage in talks with McCrory about social equity, but the three other medical marijuana growers would not.
“They want nothing to do with social justice. Our guy is prepared to doing some form of social justice, “ Droney said.
McCrory acknowledged the language was written with DeMatteo in mind, though it could apply to others. He called DeMatteo “the Connecticut guy,” a reflection of his local roots in a business rapidly turning to multi-state interests.
“The Connecticut guy is interested and willing to go an extra step,” McCrory said. “They’re willing to partner with a social equity applicant in terms of allowing them to learn grow their product.”
Unlike other inducements in the bill for investors to take on social equity partners, such as a 50% discount in the $3 million fee for a cultivation license, McCrory’s mentorship provision was directed only at former investors in Connecticut’s medical marijuana industry, which will be DeMatteo’s status once the sale of Theraplant closes.
In return for quick action on a license application, it would have required an investor to provide a social equity partner a sweet deal: free access to 5% of the space in the growing facility for no less than five years, plus “mentorship” and “all overhead costs that are necessary to ensure success.”
The cultivation facility would have to be in a “disproportionately impacted area,” which is defined elsewhere in the bill as a census tract harmed by joblessness or marijuana arrests.
McCrory said he had no one in mind for who might end up as DeMatteo’s social equity partner.
The state Department of Consumer Protection is anticipating a deluge of applications for a range of licenses for the production, packaging, delivery and retail sale of cannabis. To cope, the department plans lotteries to determine the order that applications are reviewed and licenses issued.
McCrory’s provision would have allowed a former medical marijuana investor with a social equity partner to bypass that lottery, getting a head start on competitors.
The threshold question of whether to legalize recreational cannabis is a relatively simple one, supported in polls by a majority of residents and backed by Gov. Ned Lamont, top legislative leaders and, by most assessments, a bare majority of lawmakers.
But questions of profit and equity, often accompanied by overheated rhetoric inside and outside the Capitol, endlessly complicated the negotiations led by Rojas and Winfield.
The governor proposed a highly detailed legalization bill in February that would have established a regulatory structure, directed a significant portion of marijuana tax revenue to communities impacted by the drug war, and expunged the records of individuals convicted of possessing or selling no more than four ounces of marijuana.
A competing bill was advanced by Rep. Robyn Porter, D-New Haven, co-chair of the Labor and Public Employees Committee, who wanted greater participation by social equity applicants and “labor peace” and prevailing wage language, making it easier for workers to unionize and establishing a favorable wage structure for employees.
The labor language made the final draft of the bill, while some social equity aspects sought by advocates did not. Porter had wanted to see some preference for social equity applicants whose families had been touched by marijuana arrests.
“I think that’s important. Didn’t make it in the bill,” Porter said. But, overall, she added, “I think we came out pretty good.”
Under the bill approved by the Senate and expected to be reintroduced in the special session, a “social equity applicant” would have to be someone who grew up in a neighborhood disproportionately impacted by marijuana arrests or who has been a resident of one for five of the last 10 years.
The bill defines an impacted neighborhood as a census tract with an unemployment rate of at least 10% or drug arrests 10% greater than the state median as measured from Jan. 1, 1982 to Dec. 31, 2020. The applicant can have an income of no more than $236,499 — triple the state’s median household income of $78,833.
DeMatteo is a venture capital investor well-known in political circles, primarily as a donor to Republican campaigns. Along with Donald J. Trump, he was a financial backer of the Eastern Pequots as they sought federal recognition and the rights to build a casino.
He was an early investor in Theraplant, the first licensed cannabis grower of medical marijuana. Aside from hiring Droney, the former Democratic state chair, one of Theraplant’s previous lobbyists was Richard Foley, the former Republican state chair who died six months ago at age 71.
DeMatteo holds licenses as an employee and investor in Theraplant, which grows medical marijuana in a 68,000 square-foot facility in Watertown. Theraplant is privately held, with four licensed financial backers: DeMatteo, Daniel Emmans and a married couple, Ethan and Julie Ruby.
Their ownership shares are not public, but industry sources said Emmans was seen as the on-hand manager, with DeMatteo as the largest investor in Theraplant, one of the four companies with facilities in seven states now under sales deals to Greenrose Acquisition Corp of Amityville, N.Y.
The Greenrose announcement in March pegged the sales as collectively costing $210 million in cash, stock and other considerations, with no breakout of the individual sales prices.
But a publicly available slide presentation to investors disclosed the Theraplant acquisition as the most expensive, with a price of $100 million in cash. The presentation claimed unaudited earnings of $16.7 million on revenues of $28. 4 million in 2020 — and a bullish view of the future.
They are expecting to see income steadily increase, projecting $42 million in earnings on revenues of $61.7 million in 2023. Theraplant was the only one of Greenrose’s cannabis acquisitions in a state where recreational sales aren’t yet legal.
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