Key Takeaways from Maryland’s Adult-Use Cannabis Implementation Bills Awaiting Governor Moore's Signature
By Sahar Ayinehsazian, Sam Kovach-Orr
Apr 26, 2023
Maryland's adult-use cannabis implementation bills are currently awaiting Governor Wes Moore's signature after the House Economic Matters Committee and the Senate Finance Committee collaborated to create alignment between the two pending bills, HB556 and SB516. The Governor is expected to sign them into law. Read on for an overview of important updates and key provisions
Who Will Oversee Cannabis Regulation in Maryland?
Maryland Cannabis Administration
Pursuant to the bills, the Maryland Cannabis Administration ("Administration") will be an independent unit of state government, responsible for administering and enforcing the medical and adult-use cannabis laws including licensing, conducting inspections and enforcement, and the promulgation of regulations. The Administration must adopt emergency regulations on or before July 1, 2023 and non-emergency regulations on or before July 1, 2024.
Office of Social Equity
The Office of Social Equity ("Office") will be an independent office within the Administration. The Office will be responsible for encouraging individuals from communities that have been disproportionately impacted by cannabis prohibition to fully participate in the industry. In addition to making recommendations related to social equity applications, marketplace diversity, and regulations, the Office will also assist with the Community Reinvestment and Repair Fund and the Cannabis Assistance Fund.
Alcohol, Tobacco, and Cannabis Commission
The newly renamed Alcohol, Tobacco, and Cannabis Commission ("Commission") will be tasked with developing best practices for regulating the cannabis industry, implementing public health measures relating to cannabis, and, to the extent possible, regulating medical and adult-use cannabis in a similar manner.
Advisory Board on Medical and Adult-Use Cannabis
An Advisory Board on Medical and Adult Use Cannabis ("Advisory Board") will be created to provide recommendations to the Commission and Administration regarding guidelines, rules, and regulations it deems important or necessary for review. The Advisory Board will be chaired by the Director of the Administration. The remaining 22 members will be individuals appointed by the Governor with relevant expertise including, but not limited to, those with experience in cannabis, public health, agriculture, finance, addiction treatment, social or health equity, and advocacy groups.
Revised Provisions, Definitions, Limits and Changes to Licensing
Social Equity Definition Modification
A modification to the definition of "Social Equity Applicant" has left qualification requirements unclear. The revision could be read to require 65% ownership and control to be held by one or more individuals who lived in a disproportionately impacted area for at least five of the ten years preceding submission to have either
- Attended a public school in a disproportionately impacted area for at least five years; or
- Attended a four-year Maryland higher education institution where at least 40% of the individuals who attended are eligible for a Pell Grant.
The updated definition also includes a provision that authorizes the Administration to establish other eligibility criteria for Social Equity Applicants.
New Definition of THC
The final bill includes a new definition of tetrahydrocannabinol ("THC") to include Delta-8 THC, Delta-9 THC, Delta-10 THC, any other cannabinoid the Administration determines to cause intoxication, and "any other chemically similar compound, substance, derivative, or isomer of [THC], as identified by the Administration.”
Micro Dispensary Licenses Reduced
While most of the provisions surrounding the number of available licenses have remained the same, the final bill reduces the number of available Micro Dispensary licenses from 200 to 10, which will all be available in the first licensing round.
Incubator Space License Provisions
Substantial amendments were made to the provisions relating to Incubator Space licensees in that the license must be held by a nonprofit entity. The final bill also directs the Maryland Economic Development Corporation ("EDC") to acquire and construct/refurbish at least one building to operate as an Incubator Space. After completion, the EDC will then contract with a nonprofit entity to operate said facility/facilities and ownership will transfer to the Department of General Services.
On-Site Consumption Amendment
A noteworthy amendment was made in the final bill to prohibit the indoor smoking of cannabis or cannabis products on the licensed premises.
THC Potency Limits
The final bill directs the Administration to adopt regulations establishing limits on the maximum potency of cannabis products (§ 36-203.1(A)). These limits will restrict the maximum amount of THC in individual cannabis products as well as the maximum aggregate THC amount in multiple-serving edible products.
Changes to Licensing for All Licensees
While requirements relating to licensee/registrant annual reporting were previously included, the final bill now requires a complete expenditure list to be included within said reports. Each expenditure must include descriptions of the work performed, the dollar value of the expenditure, and whether the work was performed by a licensee/registrant or a contractor/subcontractor (contractors/subcontractors must be identified by entity name).
Transition to Traditional Banking Services
The final bill directs the Administration to adopt regulations requiring all cannabis licensees to transition from a cash system to one utilizing traditional banking services.
Impact on Conversion
Several updates were made to the legislation that may materially impact current medical licensees. First and foremost, the final bill's restrictions relating to ownership were revised to allow ownership/control in four dispensary licenses.
Further, several revisions were made to the language surrounding ownership and control.
The definition of "control" has been modified to remove the inclusion of individuals who hold a voting interest of 5% or more in a cannabis licensee.
Rather, the term is defined to include those with the rights/authority to: veto significant events; appoint directors or officers; make major financial decisions; and/or executive contracts on behalf of the licensee in the aggregate of $10,000.
The term "Passive Investor" has been defined to include individuals/entities which hold less than 5% ownership and do not have control of the licensee.
The conversion fee schedule for existing medical licensees (those who were active prior to 10/01/2022) has been changed from a tiered system to a fee based on a percentage of their 2022 revenue. Conversion fees will be at least $100,000 and no more than $2 million. For growers and processors, the one-time conversion fee will be 10% of the licensee's total gross revenue. For dispensaries, the one-time conversion fee will be 8% of the total gross revenue.
Conversion fees are expressly permitted to be paid in separate installments but must be paid in full on or before 1/1/2025. The amount of any licensing or renewal fee paid by a business for the fiscal year 2023 to the Medical Cannabis Commission will be credited against the conversion fee.
Converted licensees that partner with one or more Social Equity Licensees are eligible for grants from the Office. These grants will be capped at the cost of the license conversion fee or $250,000 per year per qualifying partnership.
Provisions relating to licensed growers' canopy expansions have been modified to include licensees who were operational before 12/31/2022 (modified from 10/01/2022) and reduce the potential canopy expansions from 25% of the existing canopy to 20% of the existing canopy. The canopy expansion must also be done in stages where the licensee may expand up to 50% of the total additional square footage beginning on 1/1/2024 with the remaining 50% authorized to occur on or after 5/1/24.
Social Equity Licensees
The term "Social Equity Licensee" was expanded to include growers who held a Stage 1 Preapproval before 10/01/2022 but were not operational at that time. Further, language was added to recognize applicants from outside of Maryland seeking status as a Social Equity Applicant.
Impact on Future Licensing
As noted in our previous blog post about the Maryland legislation, there will be at least two rounds of licensing with caps on the number and types of available licenses. The law prohibits the Administration from awarding more than the following number of licenses (inclusive of converted medical licensees):
General: 75 grower licenses, 100 processor licenses, and 300 dispensary licenses
Micro: 100 grower licenses, 100 processor licenses, and 10 dispensary licenses
Incubator Space: 10 licenses
On-Site Consumption: 50 licenses
Licenses will be evaluated on a pass-fail basis. After evaluation, those licenses which have been determined to have passed will be entered into a lottery.
First Licensing Round
The first licensing round is reserved exclusively for social equity applicants. The Administration is directed to begin issuing new licenses on or before January 1, 2024 through its first licensing round with the following available licenses:
20 grower, 40 processor, and 80 dispensary standard licenses
30 grower, 30 processor, 10 dispensary micro licenses
10 incubator space licenses
Applications are expected to become available this fall.
Second Licensing Round
On or after May 1, 2024, the second round will be opened to non-social equity applicants (except for micro applications reserved exclusively for social equity applicants). However, the extent of available licenses available to non-social equity applicants will be based upon whether a disparity study demonstrates a strong basis in evidence of business discrimination against firms owned by minorities and women in the Maryland cannabis market.
In the event a strong basis of business discrimination is found, the Administration will employ remedial measures for a maximum of:
25 grower, 25 processer, and 10 dispensary licenses
70 grower and 70 processor licenses
10 incubator space licenses
15 on-site consumption licenses
To the extent a strong basis of business discrimination is not found, all applicants will be able to apply for a maximum of:
25 grower, 25 processer, and 120 dispensary licenses
70 grower and 70 processor licenses
10 incubator space licenses
15 on-site consumption licenses
Potential Additional Licensing Rounds
The Administration is authorized to award additional licenses as needed in accordance with a market demand study and may reserve some or all of the additional licenses for social equity or minority business applicants.
The law sets the application fees for new licenses at the following fee schedule:
$1,000 for micro-level applicants
$5,000 for incubator space, on-site consumption, and "standard license" types (i.e., non-micro growers, processors, and dispensaries)
$50,000 initial license fees for standard cannabis licensees
Renewal fees will be the lesser of 10% of the licensee's annual gross revenue or $50,000
Initial licensing and renewal fees for Social Equity, Incubator Space, and On-Site Consumption licensees will be reduced by at least 50%
Looking Ahead: Start Preparing Now for Maryland Cannabis Business Licensing
Considering the short turnaround time between the Administration's July 1, 2023 and January 1, 2024 license issuance deadlines for current medical licensees and first-round adult-use licensees, respectively, individuals seeking to take advantage of these opportunities should start preparing now. Attend our webinar next week for more insights!
Vicente LLP is already helping clients plan for these monumental opportunities and will continue to actively monitor developments in the law. Please contact us for assistance in achieving your goals in this new cannabis market. Whether it be corporate formation, licensing, community outreach, real estate or regulatory compliance, our team is ready to assist.