Cannabis regulations proposed ahead of legalization deadline



ANNAPOLIS (Feb. 5, 2023)—Maryland lawmakers introduced legislation Friday to create the framework for a legal cannabis market ahead of the July 1 start of legalization.

Identical, cross-filed bills introduced in the House and Senate create a regulatory structure for Maryland's new cannabis industry that includes rules for licensing, taxation and equity, among other things.

"I feel very good about the bill. I think it has the possibility of being a national model," said Senate President Bill Ferguson, D-Baltimore City, in a press conference Friday morning.

In the process leading up to the bill's introduction, which included several Cannabis Referendum & Legalization Working Group meetings involving legislators from relevant committees, lawmakers stressed the importance of avoiding the kinds of mistakes that have created chaos in other states where cannabis is legal.

That concern is reflected in their first commitment: a strict adherence to the July 1 deadline to have a functioning legal market in place.

"We've seen what happened in places like New York where there are over 1,400 unlicensed dispensaries," said Ferguson. The legal cannabis market has been in turmoil in other states around the country following an oversupply crisis and subsequent downturn that saw the spot price of cannabis sink to record lows in December 2022, according to Cannabis Benchmarks.

In Maryland, as in other states, supply will largely be dictated by the number of licenses approved by the Alcohol, Tobacco, and Cannabis Commission, newly renamed to add "cannabis" to the title. In the bill, licenses are divided into several categories:

• Standard licenses permit growing or processing large amounts of cannabis or operating a storefront dispensary. The bill allocates a total of 300 such licenses for dispensaries, 75 for growers, and 100 for processors.

• Micro licenses are meant to ensure smaller, boutique operators space in the market to grow or process smaller amounts or operate a delivery service without a storefront. For these smaller operators, the bill allocates a total of 200 licenses for dispensaries, 100 for growers, and 100 for processors.

• Incubator space licenses will allow licensees to house "micro license" operators. The bill allows for 10 such operator licenses.

• On-site consumption licenses would allow holders to own and operate facilities where people could legally smoke, vape, or consume cannabis. The bill allocates 50 on-site consumption licenses total.

The licensing process will take place in several rounds, according to the bill. With an eye toward creating an equitable market, the first round of applications for all license types will be limited to those designated "social equity applicants."

While some lawmakers had hoped to be able to set aside these equity licenses for members of marginalized communities, particularly the Black community which has been disproportionately impacted by the United States' protracted war on drugs, a court ruling forbidding set-asides on racial grounds makes this difficult.

Instead, lawmakers plan to designate equity licenses by location. Equity applicants as defined in the bill are individuals who have gone to school in a disproportionately impacted jurisdiction, or lived there for at least five of the last 10 years.

Additionally, lawmakers signaled a commitment to ensuring those convicted of cannabis-related offenses will have the opportunity to participate in the legal market.

"The pathway is that if you've been convicted, this won't stop you (from obtaining a license)," said Delegate C.T. Wilson, D-Charles County, chairman of the House Economic Matters Committee and one of the sponsors of the House version of the bill. "We're going to make sure that those cannabis-related convictions aren't held against you."

Lawmakers are also taking steps to ensure access through the market through careful regulation of licensing application fees.

Applications for a five-year standard, incurabor, or on-site consumption licenses will carry a fee of $5,000, while the application fee for a micro license will be $1,000.

While lawmakers, including Wilson, had initially hoped to make the application fee refundable, lawmakers said they hope these fees, which would be among the lowest in the U.S., will not discourage potential applicants nor impede entry for what's projected to be a billion-dollar industry in Maryland.

To ensure a functioning market by the July 1 deadline, lawmakers are also offering growers and distributors with current medical cannabis licenses to convert them to full-service licenses for a fee.

Another key component of legalization will be taxation policy, which plays a particularly important role in dictating how much cannabis and cannabis-related products will cost. The cost factor is one of the largest factors in dictating consumers' willingness to abandon the illegal cannabis market in favor of the legal one, according to the Marijuana Policy Project.

"The bill focuses on a pretty simple taxing structure," said Wilson after Friday's legislative session. There he told reporters that the tax on cannabis will begin at 6% and rise to 10% after five years.

To help keep prices low, the bill also prohibits the kinds of "piggyback taxes" that would allow counties to impose their own cannabis taxes.

While lawmakers are primarily prioritizing keeping prices low when designing the taxation scheme for cannabis (Wilson told Capital News Service that they expect the state to lose money initially) lawmakers still want to make sure a portion of tax revenue that the new industry generates is allocated to social equity.

Ferguson said the bill will use 30% of revenues to "invest in communities that have been negatively impacted by the war on drugs." The goal is to empower communities and investments, he said.

Ferguson said that ideally the money will go toward helping businesses open and "helping to invest in community development projects, affordable housing initiatives."

Wilson and Del. Vanessa Atterbeary, D-Howard, told reporters they expect a hearing on the bill in Wilson's committee within the next two weeks, where lawmakers will have the opportunity to iron out disagreements over the details.

Additionally, lawmakers must tackle the issues of decriminalization and expungement, aspects of the process of particular importance to new Gov. Wes Moore, who expressed confidence in the process in a statement on Friday.

"Governor Moore recognizes this bill as a well-crafted piece of legislation and is looking forward to future collaboration with the legislature to ensure Maryland is moving towards equity in our criminal justice system by supporting policies that promote redemption and reform." The statement also said, "The governor is committed to legalizing cannabis, expunging the records of anyone convicted of simple possession, and investing in this emerging industry while prioritizing equitable access to all Marylanders."

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