Riding the legislative momentum of a voter-driven mandate, the 2023 Maryland General Assembly arrived Saturday at a policy destination the state has been inching toward for years — establishing rules for recreational cannabis sales.
Should Gov. Wes Moore sign the bill into law, which he is likely to do, Marylanders 21 and older will be able to buy recreational cannabis on July 1.
Voters passed a ballot referendum in November that legalized cannabis in the state’s constitution. And elected officials dutifully carried out their orders, placing the landmark reforms at the top of their legislative list even before the session’s opening day.
The sweeping legislation settled a host of commerce-related decisions — including the number and types of cannabis business licenses and the amount of sales tax businesses must charge — and built a framework for government oversight.
Overall, lawmakers in both chambers aligned to accomplish two main goals — to hit the July 1 deadline to thwart illegal sales and to infuse tax revenues and economic opportunity back into communities disproportionately harmed by cannabis prohibition and prosecutions. Each intention has been woven throughout the 100-page bill.
The bill’s Senate cosponsor, Sen. Brian Feldman, said the legislature achieved many of the overarching goals in preparation for launch. But he expects revisions in future sessions as lawmakers review their design.
“The goal here was never to come up with the perfect product that will never be changed,” the Montgomery County Democrat said. “I think we’re gonna make adjustments to this program on this legal framework every session over the next several years.”
The first six months of the new market will ride on the well-established medical cannabis industry. And the bill establishes a state agency to oversee regulations for both medical and recreational products, the Maryland Cannabis Administration. The previous oversight agency, including its executive director, Will Tilburg, will meld into the new agency.
Maryland has around 100 medical cannabis dispensaries throughout the state that must convert their licenses before they can sell to recreational consumers. However, the law will require dispensaries to keep ample supply on hand for medical consumers and offer either dedicated hours or express lanes to ease their shopping experience.
To convert their licenses, medical dispensaries will owe the state 8% of 2022 gross revenues with a minimum fee of $100,000 and a maximum fee of $2 million. Medical growers and processors will pay the one-time conversion fee of 10% of their 2022 gross revenues with the same upper and lower limits. They have 18 months to pay off the fee.
The bill also dictates where new dispensaries can set up, at least 500 feet from a primary or secondary school, playground, library or public park, and 1,000 feet from another dispensary.
Taxes and revenues
Unlike the medical products that have been sold since 2017, recreational cannabis will be taxed at the register. And after some debate, the chambers settled on a 9% rate, which is one of the lowest in the country.
The bill’s drafters never intended for the industry to fill state coffers but rather undergird state regulation that safely steers consumers away from an illicit market.
Once the operating costs of government oversight are covered, the state distributes what’s left, including 35% to a Community Reinvestment and Repair fund intended to go back to communities harmed by cannabis prohibition.
Local governments are not allowed to add their own tax. However, they will get a sliver of the proceeds collected in their counties, with a requirement to share an even smaller slice with municipalities.
Michael Sanderson, the executive director of the Maryland Association of Counties, has expressed concerns that the cut won’t be enough to cover the costs of local jurisdictions tasked with implementing pieces of the omnibus legislation.
Maryland “made a peculiar, one-of-a-kind decision to retain most of the net revenue for state government purposes, rather than most states that sent a large share to local governments for their education, infrastructure, and quality of life services,” Sanderson wrote in an email. “It’s unfortunate, I think.”
Each provision — like licensing, taxation and even the very structure of the government body tasked with regulating the state’s newest industry — has been weighted with economic opportunity and revenues for communities harmed by cannabis prohibition.
Although studies have revealed that Black and white populations use cannabis at the same rates, African Americans have disproportionately been arrested and incarcerated for marijuana possession, according to an independent racial equity analysis.
Cosponsor Del. C.T. Wilson said he spent the better part of a year sharpening Maryland’s cannabis legislation to cut through the economic disparities created by the failed war on drugs and illicit cannabis sales. And lawmakers had to write the bill without using the word “race” to keep the law constitutionally sound.
“We set it up in a very race-neutral fashion as required by the courts,” Wilson said in early March after his chamber passed the bill. “But we did so being very mindful of those communities that were not only disenfranchised, but utterly destroyed by drugs and the war on drugs.”
The state will field license applications in two rounds, issuing the first round beginning on Jan. 1, 2024. The first round will be be reserved for “social equity” applicants, or those who have lived for five of the last 10 years or have gone to school in neighborhoods with a disproportionate number of marijuana arrests based on court data.
Eligible applicants could also have attended a college where at least 40% of students would have been eligible for a Pell Grant, a federal financial aid program for low-income students.
The bill sets up a social equity office, independent from the Maryland Cannabis Administration, which will act as a small business consultant for licensees, providing free technical support and promoting participation in the cannabis industry in disproportionately harmed communities.
The state has also set aside $80 million toward funding for social equity businesses and has created loan default provisions to cushion banks that invest in social equity entrepreneurs.
All told, there’s a few different types of licenses and a set number for each that will be up for grabs.
“Standard” licenses are for larger businesses that can grow, process and sell larger quantities of cannabis and for brick-and-mortar dispensaries.
“Micro” licenses are for smaller businesses that will likely require less capital to start, which will create a lower barrier to entry for people with less capital.
The state will issue 75 standard grower licenses, 100 processor licenses — businesses that convert cannabis into edibles or other products — and 300 brick-and-mortar dispensary licenses. There will be 100 micro grower and micro processor licenses each.
And the state created a few other license types that also create a lower financial barrier to entrepreneurship. For example, a micro dispensary license — essentially a delivery service — will allow the license holder to sell cannabis without a store front. But since this is uncharted territory, the state will start off slow, with a 10-license pilot program.
Another relatively low-cost start-up businesses is an on-site consumption establishment. The holder of such a license can run a business where people can consume, but not smoke, cannabis products.
Deal done, but still a work in progress
Before the final vote in the House chamber, Wilson, the House cosponsor, urged the overwhelmingly Democratic body to vote green.
Wilson urged Republicans doubting the bill’s designs to also lend support while leaving open the possibility for future conversations. Wilson and his Democratic colleagues handily defeated Republican efforts to amend the legislation by placing more restrictions on where dispensaries can be located and introducing criminal justice provisions into a bill sponsors wanted solely focused on commerce.
“This is not the perfect vehicle, but it’s best we can do with the information that we’ve had,” Wilson said.
Wilson emphasized to the House of Delegates how much thought has gone into the bill — in creating access and equity, in trying to learn from best practices from other states. But such a massive piece of legislation that touches so many areas of civic life will certainly need more work in future years, he admitted.
“And you’re right we will probably be back next year,” he said. “But don’t make perfect be the enemy of the good.”
The House of Delegates passed the bill 104-35.