The Ohio Department of Commerce Proposes “Factsheet” in Advance of Publishing Draft Cultivator Rules

By: Rachel Winder, Government Relations Manager, and Jeff McCourt, Attorney

On November 1, 2016, the Ohio Department of Commerce released its “Cultivator Rules” factsheet, which outlines the key elements of its initial draft rules for cultivation licenses under the Ohio Medical Marijuana Control Program. The rules have not been proposed in full yet, though it appears likely they will be released later in the day.

The rules contemplate two levels of cultivation licenses, “Level I” and “Level II.” The rules cap the total number of Level I cultivation licenses at 12, and require a $20,000 application fee and $180,000 license fee. Level II cultivation licenses are more restricted in number, to six total licenses, but cost 1/10th the amount of the Level I licenses, with application fees set at $2,000 and license fees set at $18,000. The multiple levels of licenses suggest that Commerce is looking to facilitate both large cultivation facilities and smaller, possibly craft, cultivation facilities.

The licenses will initially be provisional when granted, and the cultivator must pass inspection and be prepared to cultivate within nine months of issuance. In addition, a cultivation license applicant must include quality assurance and security plans upon application, as well as demonstrate “adequate capital to meet facility plans and operational needs.” Capital requirements in other states have created a significant barrier to entry, so this requirement will be of particular interest to market participants, particularly those targeting Level II cultivation licenses.

The factsheet does not provide detail on critical items such as canopy limits or geographic distribution of the cultivators, though these items may be covered in the full rules once released.

The factsheet states that the first opportunity to comment will be starting tomorrow November 2, 2016 and be open through November 15th. The full factsheet and related information is available on the Ohio Medical Marijuana Control Program’s website (

Members of Benesch’s Regulated Industries Group will continue to monitor and provide updates on the Medical Marijuana Advisory Committee meetings and rulemaking process.

The Hazy Rollout of Ohio’s Medical Marijuana Control Program (MMCP)

The Hazy Rollout of Ohio’s Medical Marijuana Control Program (MMCP)

The following is an excerpt from a larger client alert regarding the “affirmative defense” provision of HB 523 and relevant considerations for doctors and patients interested in exploring its use prior to full implementation of the MMCP. Click here to read the full client alert.

By Jeff McCourt[1] and Dan O’Brien[2]

When Ohio House Bill 523 (HB 523) became effective on September 8, 2016, Ohio joined the company of 25 other states, the District of Columbia, and several U.S. territories that have legalized cannabis for medicinal purposes. Modeled after highly restrictive regimes adopted by state legislatures in Illinois, Maryland, and New York, the Medical Marijuana Control Program (MMCP) envisioned by HB 523 has the potential to be one of the most complex and heavily regulated medical cannabis programs in the country. HB 523 relies on a tightly controlled ‘Schedule II’ pharmaceutical-style regulatory framework, but the Ohio legislature left some room for flexibility in the MMCP by punting to the rulemaking process several of the toughest issues it faced, such as determining the number of licenses available under the MMCP, the cost of licenses, the geographical distribution of medical cannabis businesses, and the hurdles doctors will face in order to recommend medical cannabis to patients with qualifying medical conditions.

The ultimate functionality of the MMCP – both in terms of the opportunity for seriously ill patients to access medicine, and the opportunity for market participants to create a sustainable program to serve those patients – will be determined by the extensive rulemaking and licensure process to be carried out by the Department of Commerce, the state Pharmacy Board, and the state Medical Board over the next two years. Several early indicators, however, have begun to cast doubt on the program’s viability as written. This article recaps several recent developments in the MMCP and addresses specifically the Medical Board’s recent guidance on the “affirmative defense” provision of HB 523, the only part of the law that is currently operational.

I.                   Early Actions Hamper Implementation of the MMCP

The Ohio Supreme Court’s board of professional conduct, which is responsible for regulating Ohio lawyers, tossed a fireball into the lap of the Supreme Court in August by releasing a narrow reading of the ethics rules applicable to Ohio lawyers when advising clients involved in the cannabis industry. Just weeks before the effectiveness of HB 523, the board of professional conduct told Ohio lawyers that, among other things, it was unethical to assist clients in setting up medical cannabis businesses or to represent them in the rulemaking process. As a result, several of the largest law firms in the state were forced to suspend their activities in the space while the Supreme Court rushed through an amendment to the ethics rules. Such an amendment was adopted on September 20th, allowing doctors, patients and cannabis businesses to obtain legal representation in Ohio.

Adding further confusion to the mix, the Ohio Municipal League has launched a statewide effort to educate local governments about HB 523. Given the lack of clarity on how the state regulations will operate and where cannabis operations will be located throughout the state, dozens of local governments have chosen to preemptively adopt bans or moratoriums on all medical cannabis businesses within their jurisdictions. While most of the jurisdictions that have adopted such measures are small cities in rural areas, a growing number of larger cities with significant potential patient populations, such as Lakewood and Cleveland, have adopted or are considering moratoriums as well.[3] The rationale often cited by local officials when imposing these measures (essentially, that if cities don’t act now, their Main Streets could be populated with unregulated cannabis businesses that would be ‘grandfathered’ out of later-adopted zoning restrictions) are inconsistent with how the MMCP and zoning laws actually function. An unintended consequence of these measures is that cities with moratoriums on the books could be passed over entirely by businesses seeking to obtain licenses for significant cultivation and processing facilities, which could easily run into the tens of millions of dollars and thus will require certainty as to the viability of site selection by such businesses early on in the planning process.

Most recently, on September 24th, the state Medical Board, which is responsible for regulating Ohio doctors, dealt a significant blow to patients hoping to avail themselves of the protections provided by HB 523 prior to the opening of dispensaries two years from now.[4]  While couched in the context of guidance to doctors, the carefully worded interpretation of Ohio doctors’ ability to recommend medical cannabis during the “affirmative defense” period served only to highlight the gray area created by HB 523.

In its guidance, the Medical Board instructed physicians that they cannot issue a “state of Ohio approved written recommendation” to use medical cannabis until the Medical Board adopts rules for doing so, which could take up to a year. In the meantime, physicians who receive requests from patients for medical cannabis were encouraged to “consult with their private legal counsel and/or employer for interpretation of the legislation.”  In response to the Medical Board’s guidance, representatives from the Ohio State Medical Association (OSMA) reiterated the association’s previous stance that doctors should not recommend cannabis until the Medical Board adopts its formal rules.[5]

The OSMA’s interpretation of the Medical Board’s guidance, in turn, quickly drew widespread news coverage. One of the lead state legislators behind HB 523, Senator Dave Burke (R-Marrysville) responded in interviews that “willing physicians are in the free and clear” to recommend cannabis during the affirmative-defense period, and representatives from the Medical Board added that the Medical Board would “review a medical marijuana related complaint as they would any other… [and] would consider whether someone violated state law, including the immunity provision.”[6]  Another prominent backer of HB 523, Senator Kenny Yuko (D-Richmond Heights), issued a press release stating that “the affirmative defense section spells out everything a physician would need to do to provide patients with this limited, short-term protection without having to wait for the agencies. It simply wouldn’t make sense to read it any other way.”[7]

The affirmative defense provision and the varying interpretations of it by key actors has created quite a hairball for Ohio doctors and their patients to untangle with their lawyers. In an effort to facilitate discourse among the legal and medical professions regarding the affirmative defense provision (and by no means to provide legal advice to anyone), the rest of this article will cover some of the relevant considerations that doctors and their employers may want to evaluate with counsel in order to minimize risks when recommending cannabis to patients during the affirmative-defense period. While the recommendation and use of medical cannabis does pose at least some theoretical legal risk to all parties involved in the process, it is reasonably clear that Ohio physicians willing to face those risks do currently have the ability to recommend cannabis to patients with qualifying medical conditions.

Click here to read the full client alert examining the “affirmative defense” provision of HB 523 and relevant considerations for doctors and patients interested in exploring its use prior to full implementation of the MMCP.

Disclaimer: As with all of our publications, we remind you that we are providing this analysis for general informational and educational purposes, to help advance a general understanding and discourse around cannabis law and regulated industries. This article does not provide legal advice or create an attorney-client relationship. Perhaps most importantly, please remember that the use, possession, distribution and sale of marijuana remains a crime under federal law and (except as specifically permitted by HB 523) the laws of Ohio. This publication does not, and should not in any way be construed to, assist anyone in violating applicable law. 



[1] Jeff McCourt is an associate in the Corporate & Securities group in our Cleveland office, where he focuses on counseling cannabis businesses and other emerging-growth companies, venture capital and private equity funds in a variety of business and finance matters. He can be reached at 216-363-4428 or

[2] Dan O’Brien is an associate in the Health Care & Life Sciences group in our Cleveland office, where he focuses on advising long-term care providers, durable medical equipment companies, hospitals, home health care companies and other ancillary service providers on transactional and regulatory business issues. He can be reached at 216-363-4691 or

[3] See Jackie Borchardt, Ohio lawmaker urges cities not to ban medical marijuana before state sets rules,, September 8, 2016; Leila Atassi, Cleveland City Council proposes moratorium on issuing medical marijuana licenses,, September 15, 2016; and Jackie Borchardt, Lakewood, other Ohio cities block medical marijuana business licenses months before any will be awarded,, August 8, 2016.

[4] State Medical Board of Ohio, Affirmative Defense: What is required of a physician to recommend medical marijuana now that House Bill 523 is effective?.

[5] See Jim Provance, Ohio board deals blow to medical marijuana,, September 23, 2016 (“The Ohio State Medical Association had advised its members to wait for further guidance from their state licensing and disciplinary board. That position has not changed. “We would advise our members not to do anything until the rules and regulations have been drafted and promulgated,” said spokesman Reginald Fields. “We understand that may not be for a year or so.””).

[6] See Jackie Borchardt, Ohio medical board: Doctors should talk to lawyers, employers about medical marijuana law,, September 23, 2016.

[7] See Senator Yuko Responds to Medical Board Statement,, September 24, 2016.

Senators Introduce the CREATES Act

by Darrell Taylor and Kristopher Chandler

In furtherance of the government’s efforts to bring down healthcare costs, Senators Patrick Leahy (D-VT.), Chuck Grassley (R-IA), Amy Klobuchar (D-MN), and Mike Lee (R-UT) have introduced the Creating and Restoring Equal Access to Equivalent Samples (“CREATES”) Act.  The CREATES Act is intended to give low priced, generic alternatives to brand-name drugs an easier path into the marketplace.

The CREATES Act is designed to facilitate access to samples of branded pharmaceuticals and the related safety protocols.  Currently, generic manufactures must prove that their low-cost alternative is as safe and effective as its brand-name competitor.  Access to the samples of the brand-name drug are needed in order to make the necessary comparisons.  Pharmaceutical companies with branded products are reticent to provide samples of the brand-name drug to generic companies.  Without samples, generic manufacturers are limited in their ability to do the comparisons needed to fast track FDA approval to bring their lower-cost alternatives to market as soon as possible.

Pharmaceutical companies, in addition to limiting access to their proprietary samples, also restrict generic manufacturers’ access to shared safety protocols for distribution of drugs.  To gain FDA approval for certain types of drugs, generic manufacturers are required to join brand-name competitors in a shared Risk Evaluation Mitigation Strategy with Elements to Assure Safe Use (“REMS”) distribution safety protocol.  Pharmaceutical companies often refuse to negotiate a shared safety protocol with generic manufacturers because they would be undermining their market share, which likely would have a negative impact on their business.

As drafted, the CREATES Act allows generic manufacturers to seek injunctive relief from federal courts against both these practices.  The CREATES Act allows generic manufacturers to obtain a court order compelling the pharmaceutical company to supply samples of brand-name drugs for comparison testing.  The CREATES Act also allows generic manufacturers to seek a court order compelling a brand-name manufacturer to enter into a shared REMS with the generic manufacturer or demonstrate that the FDA has waived the requirement to be a part of a shared REMS.  Finally, the CREATES Act allows a generic manufacturer to seek an award for damages from a federal court against a brand-name pharmaceutical that will not provide samples or access to shared REMS.

The CREATES Act is supported by the American Hospital Association, the Generic Pharmaceutical Association, and many other advocacy groups that are trying to lower the costs to obtain prescription drugs.  With the heighten scrutiny over drug pricing, it will be interesting to see where the CREATES Act goes from here.  The entire text of the introduced bill can be found here.

Please contact a member of the Benesch Health Care & Life Sciences team if you have any questions about how the CREATES Act may impact your business.

Darrel Taylor is a partner in Benesch’s Health Care & Life Sciences group.  Kristopher Chandler is a law clerk at Benesch.

New OIG Exclusion Guidance

On April 18, 2016, the Department of Health and Human Services Office of the Inspector General (“OIG”) issued revised criteria for implementing permissive exclusion authority. These revisions are a non-binding policy statement amending those criteria issued by the OIG in 1997 in a similar non-binding policy statement.

Both the 1997 and 2016 statements address how the OIG will approach excluding an individual or entity (“person”) from participation in Federal health care programs, such as Medicare and Medicaid, from engaging in conduct prohibited by Sections 1128A and 1128B of the Social Security Act. In the 2016 statement, the OIG describes a continuum of risk and the OIG’s responses to health care fraud based upon where the person falls on the continuum of risk. The OIG also revised and refined the criteria that it uses to evaluate the risk presented by a person.

The OIG has conceptualized health care fraud as a continuum of risk, with some people presenting a low risk of health care fraud and other presenting a high risk of health care fraud.

The severity of the OIG’s response to activities that constitute health care fraud decreases the lower on the continuum of risk the activities fall as follows (from most severe OIG response to least severe OIG response): (1) exclusion; (2) heightened scrutiny; (3) integrity obligations; (4) no further action; and (5) release.

The OIG will generally only release a person from exclusion authority when the person self-discloses the conduct cooperatively and in good faith or when the OIG determines that robust integrity obligations that have been agreed to by the person are sufficient to protect Federal health care programs.

In determining where a person falls on the risk continuum, the OIG considers four (4) general categories: (1) nature and circumstances of the conduct; (2) conduct during investigation; (3) significant ameliorative effects; and (4) history of compliance. Within each category are factors that have been determined to either: (a) indicate a higher risk; (b) indicate a lower risk; or (c) be neutral to the risk assessment. Selected examples of these factors are as follows:

Nature and Circumstances of Conduct

  • Patient Harm. Conduct that causes or had the potential to cause any adverse physical, mental, or financial harm or other impact to program beneficiaries, recipients, or other patients indicates higher risk. A lack of patient harm is risk neutral.
  • Loss to Federal Health Care Programs. The greater the amount of actual or intended loss to Federal health care programs, the higher the risk.
  • Frequency of Conduct. Conduct that is continual or repeated indicates higher risk.
  • Prior Conduct. Previous imposition, breach of, or refusal to enter into a corporate integrity agreement indicates higher risk.

Conduct During Investigation

  • Termination of Fraudulent Activities. The inability of a person to engage in the conduct again because a contract or arrangement was terminated, or due to a change in Federal health care program rules, does not affect the risk assessment.
  • Failure to Respond to Subpoena. Failure to respond to a subpoena within a reasonable period of time indicates higher risk. However, prompt subpoena response does not affect the risk assessment.
  • Self-Disclosure. If the person initiated an internal investigation before becoming aware of the government’s investigation to determine who was responsible for the conduct, and shared the results of the internal investigation with the government, this indicates lower risk. If the person self-disclosed the conduct cooperatively and in good faith as a result of the internal investigation, prior to becoming aware of the Government’s investigation, this indicates lower risk. If the person clearly demonstrates acceptance of responsibility for the conduct, this indicates lower risk.
  • Criminal Penalties. A criminal resolution indicates higher risk.
  • Restitution. The inability to pay an appropriate monetary penalty to resolve a fraud case indicates higher risk.

Significant Ameliorative Effects

  • Disciplinary Actions. An entity that has taken appropriate disciplinary action against individuals responsible for the conduct indicates lower risk.
  • New Owner. If, since the end of the conduct at issue, the entity has been sold in an arm’s-length transaction to a non-affiliated, independent third party with a history of compliant participation in the Federal health care programs, this indicates lower risk.

History of Compliance

  • Prior Self-Disclosures. If the person has a history, prior to becoming aware of the investigation, of significant self-disclosures made appropriately and in good faith to OIG, CMS (for Stark law disclosures), or CMS contractors (for non-fraud overpayments), this indicates lower risk.
  • Compliance Program. The absence of a compliance program that incorporates the U.S. Sentencing Commission Guidelines Manual’s seven elements of an effective compliance program indicates higher risk. However, the existence of such a compliance program does not affect the risk assessment.
  • Integrity Obligations on Successor Entities

In addition to the factors above, the new policy statement addresses factors that the OIG may consider when determining whether to apply integrity obligations to a successor entity following a corporate merger or acquisition.

Protective factors for a successor entity resolving a fraud case for an acquired person include when the successor: (1) purchased the acquired entity after the fraudulent conduct occurred; (2) has an existing compliance program; (3) does not have a prior history of wrongdoing or fraud settlements with the United States; and (4) took appropriate steps to address the predecessor’s misconduct and reduce the risk of future misconduct.

Finally, the new policy statement states that, regardless of risk, the OIG may favor remedies other than exclusion when the offending person is a sole source of essential specialized items or services in a community or provides items or services for which there are no alternative or comparable sources.

The new policy statement can help guide providers to operate so as to minimize the possibility that the OIG will impose exclusion authority upon the provider as well as its employees. Key compliance considerations include organized, coordinated, and timely procedures to address self-reporting and government investigations. The entire text of the April 18, 2016 OIG revised criteria for implementing permissive exclusion authority is available here.

Please contact a member of the Benesch health care team if you have any questions about how to mitigate your exclusion risk in light of this new guidance or how to incorporate it into your existing compliance plan.