The Cannabis Reform Act of 2023 is expected to hit the floor of the Maryland House of Delegates on Tuesday accompanied by amendments, as the bill to prop up an adult-use recreational marijuana market progresses through the General Assembly.
With more edits still possible, lawmakers pushed the bill out of the House Economic Matters Committee last week, voting 16-5 along party lines. Three delegates were excused from voting.
The Senate will have its first cannabis bill hearing on Thursday, and some stakeholders are hoping what didn’t get added in the House version will find its way into the Senate’s.
Lawmakers tasked with constructing a recreational cannabis marketplace have a deadline of July 1. That’s the date adult-use becomes legal in Maryland for those age 21 and older, after voters in November overwhelmingly approved a constitutional amendment legalizing the use and possession of recreational cannabis.
The bill draft out earlier this month tackled a bevy of commerce-related measures; levied a sales tax on the recreational product; and chartered a social equity office dedicated to creating a diverse cannabis economy.
But before that all gets underway, the bill has to become a law. Here’s a look at a few provisions that have changed since the bill was first introduced.
Dual licenses only
If medical cannabis companies want to stay operational after July 1, they will have to convert their license to a dual license, which would allow them to sell recreational and medical cannabis, as outlined by a committee staffer during a discussion of the changes.
This means paying a fee, which can range from $100,000 to $2.5 million, based on a company’s 2022 gross revenues. Companies that got started after Oct. 1, 2022, would pay lower conversion fees.
And if a medical cannabis company doesn’t want to convert their license, they could sell it to someone who would then have to pay the conversion fee.
All future licenses issued by the state will be dual licenses.
Local governments get too small a slice
The bill sets a tax rate for recreational cannabis, and revenues will fund various portions of the bill, including functions of the market’s oversight.
The state will charge a 6% sales tax on retail sales of recreational cannabis. The rate will increase 1% each year, topping out at 10% starting on July 1, 2027, according to the bill. The medical product will remain tax-free.
Of the revenues earned, 1.5% will go back to the counties and municipalities. But advocates for local governments say that’s not enough. And an amendment added to the bill further restricts how local governments can spend the funds — only on drug treatment and behavioral health programs.
Michael Sanderson, executive director of the Maryland Association of Counties, called the distribution amount as written “a trifle.” Local governments will be on the front lines implementing the new law and will require more resources, he said.
As a hypothetical, Sanderson said if the state takes in $100 in cannabis revenue spent in one county, the state collects 6%, or $6. The county where that $100 was spent would get 1.5% of the state’s $6. That’s nine cents.
“There’s going to be a pot of money at the end of the line for general revenues to support education and just functioning of government and so forth, and they’ve left local governments really out of that consideration,” Sanderson said.
As one example, local governments will be responsible for training police officers how to navigate the new law, Sanderson said. Zoning boards and county councils will need to strategize where new cannabis businesses can operate, he added.
“You don’t want to put it 500 feet from a middle school,” he said.
A critical objective of the tax structure is to squash illegal sales by keeping taxes low, according to the bill’s co-sponsor. Sanderson said he understands this policy.
”I don’t think local governments are saying, ‘Please add more taxes and send them to us.’ We’re just saying, whatever the size of the pie, there ought to be a reasonable local slice,” he said.
Theresa Kuhns, chief executive officer of the Maryland Municipal League, an advocacy organization that works on behalf of local mayors and town council members, said that just updating each municipality’s comprehensive master plan, a state requirement, can cost up to tens of thousands of dollars. There are 157 municipalities in Maryland, including Baltimore City and Annapolis.
“They [municipalities] need a way to recoup the cost associated with adding this new business as an additional stress on the local system,” she said.
Sanderson and Kuhns said they plan to go before the Senate Finance Committee on Thursday to bring this to their attention.
Social equity amendments
The recreational marijuana marketplace bill prioritizes social equity, aiming to boost economic opportunities and stability for communities of color who have been disproportionately impacted by America’s failed war on drugs.
Wilson said he would like people of color to own 30% of Maryland’s cannabis licenses. And the bill’s cosponsors have designed a licensing structure and eligibility process they hope will yield results.
”What we don’t want to do is put minorities behind in this billion-dollar industry for years and years to come,” bill cosponsor Del. Vanessa Atterbeary said. “Because there will be no opportunity to catch up.”
To do this, lawmakers created a Social Equity Office that will, among other tasks, recruit, approve and assist social equity licensees. The office provides a variety of small business support functions to social equity license recipients, including free technical assistance for minority business enterprises, according to one amendment.
Eligible applicants for social equity licenses must have lived in a “disproportionately impacted area” for five of the last 10 years or attended five years in public schools in that area.
An amendment adds another possible qualifier — whether someone attended a public institution of higher learning for at least two years where 40% of the students would qualify for Pell Grants. This includes historically Black colleges and universities and the University of Baltimore.
The state also proposes creating “disproportionately impacted” areas where residents were more likely to have been charged with cannabis possession than the typical Marylander, based on state court data.
Incentives to mentor
Established cannabis businesses looking for a discount on their conversion fees can volunteer to mentor a new business that meets the state’s social equity requirements. The bill sets aside $5 million a year for this grant program.
An amendment passed in committee last week capped the reimbursement at $250,000, potentially much less than previously offered. Under the bill’s first draft, businesses could have had their entire conversion fee returned.
Of course, the process would be easier if both chambers kept their bills identical. But should different versions come out of each chamber, delegates and senators will get together to work out the details.