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Aug 12, 5:06 PM EDT

APNewsBreak: Big losses for Minnesota medical pot providers


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ST. PAUL, Minn. (AP) -- Minnesota's two licensed medical marijuana manufacturers posted millions of dollars in losses in their first full year of operations, according to financial documents obtained by The Associated Press.

Minnesota Medical Solutions posted a $3 million loss in 2015, a period that saw the rush to build up facilities, the growing and cultivating of the plants and the first six months of legal medical marijuana sales. The company also said it lost more than $542,000 in 2014.

The other manufacturer, LeafLine Labs, lost roughly $2.2 million in 2015. Their audit does not include information from 2014. The AP obtained copies of the documents through an open records request.

The heavy losses illustrate the difficulty of running a medical marijuana business in Minnesota's tightly regulated structure and confirm some fears among patient advocates that the program can't survive long-term.

Only 10 severe medical conditions qualify for the program - intractable pain, which supporters think will greatly broaden the customer base, was only recently added - and the plant form is banned. That makes Minnesota's program among the most restrictive in the 25 states with such laws on the books.

Between startup costs associated with growing facilities and dispensary openings, the high costs of processing the plants into pill and vapor forms and the layers of required laboratory testing, manufacturers expected a rough go in the first years. Coupled with lackluster enrollment - fewer than 900 patients had signed up within the first six months of sales - Minnesota Medical chief executive Kyle Kingsley called 2015 "an unusual year, and future years won't be like that."

"In year one, we needed to strike a balance between minimizing expenses and building a company that would be financially sustainable over the long haul," he said in a statement.

The state Legislature approved the program in 2014, and later that year, Minnesota Medical Solutions, or MinnMed, and LeafLine Labs were chosen as the two sole manufacturers. Legal medical marijuana sales began in July 2015.

Minnesota Medical Solutions raised more than $16 million in capital. Publicly available financing documents show LeafLine Labs also raised a similar amount and announced plans earlier this year to raise another $20 million.

Despite the high prices of medicine, exceeding $1,000 a month for some patients, Minnesota Medical Solutions made 65 cents for every $1 it spent to produce the marijuana pills, oils and vapors, the documents showed. The company's audit explains the loss being due to high production costs and discounts offered to first-time patients.

LeafLine made just 40 cents on each $1 it spent.

"It's not viable or sustainable to continue to operate with those kinds of losses," LeafLine chief executive Andrew Bachman said Friday.

Patient advocates had expected both companies to post heavy losses in the first years, blaming the bevy of restrictions for high production costs.

Patrick McClellan, who lobbied lawmakers for years so he could treat severe muscle spasms, was surprised MinnMed didn't lose even more money.

"I think the program itself was designed to fail," McClellan said. "I think anybody who didn't know this was kidding themselves."

The recent expansion to include intractable pain should boost the program and improve their financials, Kinglsey and Bachman said. Nearly 500 pain patients signed up in the first month it was allowed, and subsequent registrations have brought the total patient count above 2,300.

"We've never seen our patient count grow faster than it has this month, so we are feeling cautiously optimistic about our future," Kingsley said.

But McClellan doubted whether that expansion would be enough for manufacturers to cut prices. To him, the only solution is to open the program up to more conditions and relax the ban on using the raw plant.

State Rep. Pat Garofalo, a Farmington Republican, said he supports both changes but conceded they could be tough to sell at the Legislature.

"The only other option is that these companies are going to go out of business," McClellan said.

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Follow Kyle Potter on Twitter at https://twitter.com/kpottermn

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