Key Takeaways from Maryland Cannabis Administration’s Proposed Emergency Regulations

By Meg Nash, Bridgette Nikisher

Apr 4, 2024

In March, the Maryland Cannabis Administration (MCA) submitted identical emergency and permanent regulations to the Administrative, Executive, and Legislative Review (AELR) committee. The emergency regulations are in draft form and will not take effect until AELR has approved them. The permanent rules will be published in the register at a later date and will be subject to public notice and comment. Per statute, these regulations must take effect by June 30, 2024. MCA anticipates that these rules will meet the deadline.

Below, we’ve compiled the top things you should know from this new set of cannabis regulations. If you would like to discuss the changes in depth and how they may affect your business, don’t hesitate to contact us.

Demonstration of Funds

Licensees must demonstrate adequate capitalization within 6 months of being issued a conditional license.

Management Agreements

A “Management Company” means any entity providing management services to a licensed entity. These companies must be registered with the MCA and in good standing with the State Department of Assessments and Taxation.
Management agreements may not require a licensee to:
- Operate under a marketing plan/system that is associated with the trademark, service mark, trade name, logotype advertising, or other commercial symbol that designates the licensee as the same or similar to the management company
- Offer, sell, or distribute cannabis or cannabis products under a marketing plan or system prescribed in substantial part by the entity providing the management agreement
- Limit the offerings of cannabis or cannabis products to another licensed entity holding a direct or indirect financial relationship in the management company
- Sell or transfer ownership interest in the license at a later date to the management company
A management agreement constitutes a transfer of control if it conveys to a management company unilateral control or the right/authority to make major marketing, production, and financial decisions, including:
- The right or authority to operate under a marketing plan/system that is associated with the trademark, service mark, trade name, logotype advertising, or other commercial symbol that is the same as the management company or another licensee
- The right or authority to purchase a controlling interest in, or control of, the license at a later date
- The right to or actual payment from the licensee over the course of a calendar year exceeding the greater of 25% of the licensee’s gross revenue, 50% of the licensee’s net profits, or $250,000.

Employee Incentive Equity

A licensee may issue employee stock options as part of an employee compensation plan. Prior to issuance, the licensee must submit a detailed employee stock option plan for each employee to whom it intends to issue stock for MCA approval and pay all associated fees. Stocks issued to employees may not change the control structure of the licensee or exceed 5% total ownership to one individual.

Changes to Transfer of Ownership

All licensees may now transfer equity without MCA review and approval if the transfer is for less than 5% of a cannabis license and the proposed transfer will not result in the transferee holding 5% or more of the licensee.
MCA will deny transfers if, prior to the licensee being licensed and operational for a period of at least 5 years, the transfer would convey to the transferee the right or authority to obtain a controlling interest in the license at a later date (n.b. this appears to prohibit certain option and convertible debt transactions).

Secured Creditors

The term secured creditors was removed from the regulations.

Edibles

Licensees must apply for and obtain a permit from the MCA prior to possessing, processing, packaging, labeling, transferring, transporting, selling, or distributing edible cannabis products. Requirements for processors producing edible products were expanded upon, including sanitation, equipment, ingredients, storage, temperature requirements, and more.

Security

Security requirements for licensees were elaborated upon, including lighting requirements, security alarm requirements, and video surveillance requirements.

Packaging and Labeling

May not contain any image that may appeal to minors, including:
- Resemblance to the trademarked, characteristic, or product-specialized packaging of any commercially available candy, snack baked good, or beverage
- Images of food, candy, baked goods, cereal, fruit, beverages, or the words “candy” or “candies”
- Images, graphics, features, or likeness to images, graphics, or features that are popularly used to advertise to children, such as cartoons, animals, neon colors, celebrities, mascots, or phrases.

Micro Dispensary Inventory Storage

Micro dispensaries may store their inventory in a storage facility that it controls and operates, a storage facility that is controlled and operated by a licensed grower, processor, or incubator space, or a storage facility controlled and operated by a licensed standard dispensary. Any storage facility is subject to security and access provisions.

Delivery/Transport

Additional provisions guiding the delivery/transport of cannabis and cannabis products were added, including provisions relating to electronic manifests, vehicle requirements, and procedures for receiving cannabis and cannabis products.

Cannabis Grower Controls

Cannabis grower controls were expanded upon, including a requirement that social equity grower licensees must make a good faith effort to transfer at least 10% of cannabis grown to licensed processors and dispensaries with no common ownership interest or control with the social equity grower licensee.

The Vicente LLP team is here to support your cannabis business goals in Maryland. Please review the new set of regulations carefully and reach out if you would like to discuss these changes further.

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