Maryland Cannabis Reform: Amendments to House Bill 556 and Projected Impacts on Licensing Conversion and Future Licensing Rounds

By Meg Nash, Sam Kovach-Orr

Mar 16, 2023

HB 556 and SB516 were introduced on February 3, 2023 and provide a regulatory framework for the adult-use cannabis industry in Maryland. Since being introduced, the House Bill was significantly amended and then passed in the full chamber with a vote of 103 to 32 on March 10. Read on for an overview of key provisions of the amended House bill that will impact both existing medical licensees and future applicants intending to pursue licenses in 2023.

Key Takeaways

Conversion

• Imposes a strict license cap of two dispensaries for existing operators, who have previously been permitted to have four dispensary licenses.

• Clarifies that conversion fees may be made in installments, with final payment due January 1, 2025.

• Confirms that the policy goal is to regulate medical and adult-use cannabis similarly.

Future Licensing

• Amends the definition of “Social Equity Applicant” to include entities that are 65% owned and controlled by individuals who attended Maryland institutions of higher education where at least 40% of individuals are eligible for a Pell Grant.

• Updates the total number of micro-dispensary licenses available in the first and second rounds of licensing.

• Confirms that any additional licensing rounds are dependent on market demand studies.

Impact on Medical Cannabis Licensees Planning for Conversion

The new language of the law appears to make strict adherence to licensing caps (i.e. only two dispensaries instead of four, as allowed under the medical program) a condition of conversion. Specifically, Section 36-401(B)(II) states that the Division shall:

On or before July 1, 2023, convert licenses that were issued to medical cannabis growers, processors, and dispensaries to licenses to operate medical and adult-use cannabis business if: A conversion fee is paid in accordance with s. 36-403 and the business complies with the ownership restrictions under subsection E.

Subsection E restricts ownership in more than one grower, one processor, and two dispensary licenses. To the extent this language is adopted by the Senate, it will have significant impacts on existing licensees who have ownership interests in more than two licensed dispensaries.

The Amended Bill also provides further clarification concerning the timeline for submitting conversion fees. By way of background, for existing medical licensees (active before 10/01/2022) to convert to adult use licensees, there will be a sliding scale, one-time conversion fee based upon the licensee's gross revenue in 2022. For growers and processors, the minimum fee amount will be $100,000 if gross revenue in 2022 was less than $1,000,000, with a maximum fee amount of $2,500,000 if gross revenue for the prior year was more than $20,000,000. For dispensaries, the minimum fee amount will be $100,000 if gross revenue in 2022 was less than $1,000,000, with a maximum fee amount of $2,000,000 if gross revenue for the prior year was more than $20,000,000. While the original conversion fees have not changed, the amendments clarify that conversion fees can be paid in installments but must be paid in full by January 1, 2025.

One section that has not changed, is that the Division is required to adopt emergency regulations that will be supplemental to the medical cannabis regulations on or before July 1, 2023. The regulations adopted by the Division, to the extent practicable, shall regulate medical and adult-use cannabis in the same manner.

Impact on Future Maryland Cannabis Licensing Rounds

The amended bill also modified the original text relating to licensing rounds, while maintaining the framework of requiring two licensing rounds. The first licensing round is exclusively reserved for social equity applicants, which now has an expanded definition.  Under the previous iteration of the bill, in order to qualify as a Social Equity Applicant, 65% ownership and control must be held by one or more individuals who:

• Have lived in a disproportionately impacted area (DIA) for 5 of the 10 years prior to application submission;

• Attended a public school in a DIA for at least 5 years; or

• Meets other criteria established by the ATCC.

The updated version now states that the 65% threshold can also be satisfied by individuals who “for at least two years, attended a four-year institution of higher education in the state where at least 40% of the individuals who attended the institution of higher education are eligible for a Pell Grant.” This addition will likely serve to cast a broader net in terms of individuals that may satisfy eligibility criteria and may impact the total number of submitted applications.

The bill has also reduced the number of available micro-dispensary licenses in the first licensing round from 75 to 10, but it simultaneously increased the number of micro-dispensary licenses during the second round from 120 to 190. 

Both versions of the bill indicate that additional licensing rounds are dependent on market demand studies which show that more licenses are required. As a result, those interested in securing cannabis licenses in Maryland should plan to pursue licensure in either the first or second licensing rounds, if not both.  

Looking Ahead

The current version of the bill will be subject to further reform by the Senate before the cannabis reform legislation becomes final. Vicente LLP is actively monitoring developments in the law in anticipation of the adult-use cannabis market coming online by July 2023.

Vicente's team is monitoring all cannabis-related developments in Maryland. 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.