A non-profit company led by former Massachusetts Congressman William D. Delahunt, which received three coveted state licenses last month for medical marijuana dispensaries, intends to give 50 percent of the company’s revenue to a management firm that is controlled by Delahunt and his business partners in the marijuana dispensary.
In its license applications, Delahunt’s dispensary company, Medical Marijuana of Massachusetts, projected it would earn revenue of roughly $49 million in the first three years from the dispensaries in Plymouth, Masphee, and Taunton, meaning the management company would get at least $24 million.
Delahunt is listed as a manager of Triple M Managment Company LLC, but the application does not spell out Delahunt’s share of income from the management company.
The agreement to give half of the marijuana company’s revenue to the management firm was described as “laughable” by the owner of an Andover-based consulting practice that focuses exclusively on non-profits. “It’s completely excessive,” said Thomas A. McLaughlin, who owns McLaughlin & Associates.
Delahunt also is supposed to receive a $250,000 annual salary as chief executive of the marijuana company, according to the applications—although he has said he doesn’t expect to be paid a salary for the first several years while the business is getting off the ground.
Delahunt’s business arrangement is cited in a lawsuit filed Tuesday in Suffolk Superior Court on behalf of a Needham company, 1 Relief Inc, which was unsuccessful in its bid for a marijuana license, and is seeking to block the state Department of Public Health from finalizing the 20 provisional licenses it awarded last month.
The suit contends that the department violated state procurement rules in awarding the licenses.
“Everything from beginning to end the Department of Public Health did wrong,” Robert Carp, a Newton attorney who is representing 1 Relief, said in an interview.
“The money has to be for the patients,” Carp said. “It’s hard to be patient-centric when you are collecting $250,000 a year in a job you have no training for, and then adding half of the revenue of the managed company that you also control.”
The Globe has reported that Delahunt and all the other top executives in his dispensary company are keeping their full-time jobs and will not be running the firm’s cultivation and dispensing operations.
Delahunt and his business partners could not be reached for comment Tuesday evening.
David Kibbe, a spokesman for the Department of Public Health, said in an e-mailed statement, “No provisional licenses have been handed to applicants. None will be until they clear our verification phase. We do have 20 applicants approved for provisional status, but they have not been given provisional certificates at this point.”
McLaughlin, the Andover consultant, said it’s very unusual for a non-profit to hire a management company, and unheard of that it would take 50 percent of revenues.
“Under no circumstances can I imagine that management would take 50 percent of every revenue dollar,” McLaughlin said. “What product do you buy or get where you are paying for mostly management?”
He compared the state’s fledgling medical marijuana industry to “the business equivalent of the wild, wild West.”
“If I were on the non-profit and somebody came in with that deal I would have laughed them out of the board room,” he added.
McLaughlin said that such an arrangement places officers of a non-proft at risk of being charged with violating their fiduciary duty to the organization.
In addition to the 50 percent of revenues Delahunt’s management company will receive, it also is slated to earn 8 percent annual interest on $2.47 million it loaned to the dispensary firm for its start-up costs, according to the applications filed with the state health department.
Since the department awarded the provisional licenses in late January, the Globe and other media have reported that a number of the companies awarded licenses made misstatements in their applications about local support and the agency has acknowledged it didn’t check the veracity of companies’ claims during the evaluation process. Questions also have been raised about possible conflicts of interest between the agency and some of the winning applicants. Public Health Commissioner Cheryl Bartlett held fund-raisers for Delahunt in the mid-2000s when he was still in Congress, though she said she was not involved in the final selection of winning companies.
The suit lists more than a dozen examples of what appear to be significant mistakes in projected budgets, cultivation plans, and federal tax calculations in applications of the winning companies. The suit contends these should have automatically disqualified the companies from receiving a license under the state’s procurement rules.
“We expect to have a ferocious fight on our hands,” Carp said. “But we believe if a judge understands the information before him, he will see there are too many mistakes to award something this valuable to people who have violated the guidelines.”