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New York’s medical marijuana program was a boom for lobbyists firms. Yet 17,000 patients out of 200,000 that are eligible have been certified for the program, lohud’s David Robinson reports. Ricky Flores/lohud

Medical marijuana companies spent $2 million on lobbying in New York over four years, enriching powerful political operatives as critically ill patients struggled to access the drug.

The newly-reported money trail also led to a myriad of investors behind Vireo Health, the parent company of the White Plains dispensary embroiled in a marijuana smuggling scandal, an investigation by The Journal News/lohud has found.

A review of lobbying spending revealed that state marijuana licenses went to companies that were among those that spent the most on lobbying. A prominent government watchdog, as well as some of the companies that lost out on license bids, joined in that assessment — and criticized the outcome.

LIST: What lobbying firms got from New York’s medical marijuana applicants

IN COURT: Vireo Health legal fight key to New York, Minnesota marijuana industry

VIREO HEALTH: Marijuana smuggling scandal

“We all lose when state resources are allocated based on a bidding war rather than objective criteria,” said Susan Lerner, executive director of Common Cause New York.

Two examples include companies operating in Westchester County. Etain, which has a downtown Yonkers dispensary, spent $252,292 on lobbying, ranking it first of the five companies growing and selling marijuana in New York. Vireo ranked second, spending $211,500, according to state records.

New York’s other marijuana program applicants dropped an additional $1.54 million on lobbying, spreading the money on Albany rainmakers who peddled cannabis issues to everyone from town boards to Gov. Andrew Cuomo.

New York findings

Department of Health marijuana regulators would not discuss the industry lobbying. Ben Rosen, an agency spokesman, disputed Lerner’s suggestion that money influenced the licensing decisions.

“If she had conducted any research at all, she would know that the selection of registered organizations to participate in New York’s Medical Marijuana Program relied on an extensive, thorough and entirely transparent process that applied rigorous, objective criteria equally to all applicants,” Rosen said.

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 (Photo: File photo by Tania Savayan/The Journal News)

A Journal News/lohud review of lobbying reports filed with the New York State Joint Commission on Public Ethics, however, suggests lobbyists had an outsized role in a marijuana program that lawmakers, including Cuomo, said prioritized critically ill patients’ needs.

Among our findings:

  • Out of 43 program applicants, 20 spent money on lobbyists to try to influence local and state government.
  • The five companies awarded licenses to sell the drug spent $903,292 on lobbying, nearly half of the $2 million total.
  • The top overall lobbying spender, PalliaTech, at $270,750, lost in the initial round but is among five companies being considered for licenses under a new plan to expand New York’s marijuana program. Citiva, which ranked No. 8 in lobbying, at $105,000, is also part of the plan.
  • PharmaCann was the only company awarded a license that fell outside the top 10 in lobbying expenditures. It ranked twelfth, spending $60,000.
  • Money flowed to lobbyists from 2013 through 2016, and regulators awarded the initial five licenses in July 2015. Much of the spending happened in 2015 amid the most heated competition for licenses.

Examples of the lobbying spending included $457,792 to Bolton-St. Johns, an Albany-based firm with ties to New York trade groups, unions and politicians, such as former President Bill Clinton and U.S. Senator Charles Schumer. Vireo and Etain separately hired the firm.

Many marijuana company officials declined to comment on the lobbying, or didn’t respond to interview requests.

The lobbying revelations come at a paranoid time in the cannabis industry, as the newly anti-marijuana U.S. Justice Department is reigniting the war on drugs, with federal law enforcement under Attorney General Jeff Sessions seemingly poised to end its hands-off approach to state-licensed marijuana business.

Midwest criminal probe link

To understand the legal quagmire facing the industry, look no further than one of New York’s marijuana companies with deep ties to a Midwest criminal probe.

CHARGES: Vireo Health’s ex-officials accused of smuggling medical marijuana

RECORDS: Marijuana growers’ criminal pasts missing from records

SECRECY: New York’s medical marijuana contracts shrouded in secrecy

Minnesota lawmakers, led by Republican Rep. Nick Zerwas, have proposed explosive legislation to overhaul that state’s floundering marijuana program, citing state criminal charges there against two ex-officers of Vireo who are accused of driving $500,000 worth of cannabis-based drugs from Minnesota to New York.

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 (Photo: File photo by Tania Savayan/The Journal News)

“I think having a manufacturer that violates federal law and could increase federal attention and action to our state medical cannabis program is a risk we as a state cannot take,” Zerwas said, referring to the risk of federal drug agents expanding on the state-level prosecution of Vireo’s ex-officers.

The Minnesota legislation seeks to revoke Vireo’s license in that state and allow for stiffer fines of up to $1 million to prevent marijuana companies from skirting drug laws.

Zerwas said he plans to pursue the bill regardless of the outcome of Vireo’s case, noting the changing climate at the federal level.

“That’s why I think we need this bill, so we can demonstrate to the feds that the state of Minnesota will handle this immediately,” he said.

The Drug Enforcement Administration declined to discuss if it is investigating Vireo, but agency spokeswoman Barbara Carreno noted state cases don’t prevent the feds from closing down marijuana businesses.

“The (DEA) raids that you have seen have been in cases where a dispensary or grower has not been following state law,” Carreno said.

New York’s marijuana regulators at the Department of Health have declined to discuss the Vireo case, citing their own ongoing investigation into the alleged smuggling.

Industry advocates have described reports of criminal activity, such as the Vireo situation, as isolated incidents.

“The vast majority of the marijuana industry is following the rules and following state laws and not moving any product across state lines,” said Morgan Fox, spokesman for the Marijuana Policy Project.

Fox’s comments have a caveat, however, since every marijuana program begins by breaking the law to obtain its initial seeds. Companies typically transport the seeds or buy them on the black market as regulators look the other way, known to industry insiders as the “immaculate conception theory.”

Vireo’s story

After authorities charged the two former Vireo officers, Ronald Owens and Dr. Laura Bultman, The Journal News/lohud analyzed thousands of pages of public records and interviewed law enforcement officials and cannabis industry experts, shedding light on how Vireo rose from a start-up to leading player in the $5.7 billion cannabis industry, having built a multi-state empire seemingly overnight.

Vireo’s more than $200,000 lobbying expenditure in New York came as it raised $16.6 million from backers as marijuana-investment fever peaked between 2013 and 2015.

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Dr. Laura Bultman, chief medical officer of Vireo Health, talks about the different forms of medical marijuana offered at Vireo Health of New York, a dispensary in White Plains, during a media tour Jan. 5, 2016. (Photo: Tania Savayan/The Journal News)

The list of Vireo investors spans all walks of life, from pesticide applicators and electricians to teachers and doctors. Money flowed in from across the nation and has tapped into professional networks, especially in medicine and real estate.

One high-profile investor was Paul Zygmunt, a senior adviser and senior legislative assistant to U.S. Senator Amy Klobuchar of Minnesota from 2007 to 2013. Zygmunt declined to comment and the senator’s office didn’t respond to emailed questions.

Vireo landed its first medical marijuana license in Minnesota in 2014. That initial license served as a springboard to beat 38 competitors in New York in 2015, where regulators favored politically-active businesses like Vireo and Etain, the latter of which is connected to Peckham Industries, a White Plains road construction business and powerful political donor.

It is difficult to determine how much each person invested in Vireo or other companies because New York’s Health Department heavily redacted the medical marijuana program applications it released to The Journal News/lohud, citing privacy laws.

For example, regulators withheld more than half of Vireo’s 5,400-page application.

A key New York political connection for Vireo was Ed Draves, a Bolton-St. Johns lobbyist who Vireo described as part of its policy team. Its marijuana program application took details of his background directly from the lobbying firm’s website, touting Draves’ links to New York City Mayor Bill de Blasio, Hillary Clinton and labor unions.

Bolton-St. Johns also lobbied for Etain, which has drawn questions about two of its cannabis experts failing to disclose criminal records on program applications, as required by New York.

Draves disputed that lobbying spending was the decisive factor in licensing. The more important factor, he said, was demonstrating the company had the expertise and financing needed for the complex job of growing and selling medical marijuana in New York.

“The (companies) that are going to spend the most are going to be the most sophisticated,” Draves said. “I think the premise that (lobbying) spending is in some way indicative of what led to success is not accurate, but that the spending is more reflective of the team and their ability to bring resources.”

Second chances

Some companies that lost out in New York’s marijuana competition have criticized the licensing process as reports of illicit behavior mount.

Valley Agriceuticals, a losing applicant that didn’t spend money on lobbying, filed a lawsuit last year claiming the Health Department mishandled the licensing process. The company, which sought to open a $10 million marijuana grow facility 60 miles northwest of White Plains, later withdrew its legal challenge after learning it is one of five companies in the state’s expansion plan.

“Valley decided it was better to look forward and competing for a new license than to look back at the initial application process,” said Robert Bellafiore, a company spokesman, referring to dropping the lawsuit.

Ted Berndt of Compassionate Relief Centers of New York, another losing applicant, and others in a similar position have raised concerns about the New York program’s secrecy and what they say were inaccurate statements by competitors on applications. Some have said Health Department regulators blocked their attempts to challenge licensing scores, which used a complex system that looked at everything from finances to security plans.

“New York state enabled Vireo to have a shot at multiple states and changed the course of history,” Berndt said, referring to a Vireo affiliate, MaryMed, winning a license in Maryland’s marijuana program last year.

Addressing transparency concerns in New York, Rosen, the Health Department spokesman, noted all of the marijuana program applications and other scoring information are posted on the agency’s website.

The applications remained hidden, however, until after regulators picked winning companies. And many documents were heavily redacted when released following public records request by The Journal News/lohud and other media.

Cormach Murrihy, a co-founder of Medigro, a losing applicant that spent $177,000 on lobbying in New York, didn’t challenge the licensing process, citing the program’s early troubles to register doctors and patients.

“There are very serious challenges not just for New York state but for every state,” he said. “It was a choice of do you want to chase something just out of pride and throw more good money after bad.”

Murrihy, who also owns United Structural Works in Congers, described marijuana programs in general as risky business because the drug remains illegal under federal law.

Berndt had a similar take on being passed over for a license.

“If we’d won, who knows what kind of headaches we’d have,” he said.

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