Maryland Cannabis Reform: Conversion to Adult Use for Existing Medical Licensees and New Licensing Opportunities | Vicente Sederberg LLP

On February 3, 2023, the Maryland Legislature introduced cross-filed emergency bills SB516 and HB556. The proposed legislation would impart licensing and regulation duties upon a renamed Alcohol, Tobacco, and Cannabis Commission (ATCC), create an Office of Social Equity, an Advisory Board on Medical and Adult-Use Cannabis, and create a Cannabis Regulation & Enforcement Division within the ATCC.

Key Takeaways from the Bills

  1. Medical licensees will be able to convert to adult use on or before July 1, 2023

  2. Conversion fees for existing licensees will range from $100,000 to $2,500,000 depending on gross revenue for 2022

  3. New adult use licenses will be available on or before January 1, 2024, with a second licensing round scheduled to begin May 1, 2024

  4. The First Round of Licenses will only be available to Social Equity Applicants

  5. The Division is prohibited from requiring applicants to have property at the time the application is submitted

  6. Applications will be reviewed on a pass/fail basis, and then submitted to a lottery

Cannabis Regulatory Authority

The ATCC will be responsible for regulating the cannabis industry and implementing public health measures related to cannabis, as well as regulating both the medical and adult-use cannabis in a similar matter. The ATCC will also include the Office of Social Equity (OSE), which will be responsible for promoting participation in the regulated cannabis industry by people from communities disproportionately impacted by the war on drugs to positively impact those communities. In addition, the OSE will provide recommendations to the ATCC on diversity and social equity applications.

The Cannabis Regulation & Enforcement Division (the Division) within the ATCC will be responsible for soliciting, evaluating, and denying applications for cannabis licenses, and implementing inventory management and tracking requirements for all licensees. In addition, the Division will establish operating requirements for cannabis licensees related to security, delivery, diversion prevention and health and safety standards, among other things.

The Advisory Board on Medical and Adult-Use Cannabis (Advisory Board) will be primarily responsible for providing guidance to the ATCC and Division regarding guidelines, rules, and regulations. Members will be appointed by the Governor with the advice and consent of the Senate.

Conversion Timeline for Existing Medical Cannabis Licensees

The bills propose the conversion of existing medical cannabis licensees to additionally serve the adult-use market on or before July 1, 2023.

Conversion Fees for Existing Medical Cannabis Licensees

For existing medical licensees (active prior to 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 for the year 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 for the year 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.

Timeline for New Cannabis Licensing Opportunities in Maryland

The Division will be tasked with issuing new licenses on or before January 1, 2024 through its first licensing round, with a second licensing round scheduled to begin or after May 1, 2024 for the remaining licenses. The legislation sets the application fees for new licenses at $1,000 for micro-level applicants and $5,000 for incubator space, on-site consumption, and “standard license” types (i.e., non-micro growers, processors, and dispensaries). The Division will determine license renewal fees but may not charge more than 10% of a licensee’s annual gross revenue.

First Round application submissions for all license types will be limited to Social Equity applicants. 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.

During the Second Round of Licensing, Micro-Licenses will be limited to Social Equity applicants. Notably, applicants will not be required to possess or own property at the time of the application.

Maryland Cannabis License Types and Limitations

Standard Licenses

This license type authorizes growers to have between 10,000 and 300,000 square feet of indoor canopy, and for processors to process more than 1,000 pounds of cannabis per year. Dispensaries are permitted to operate a store at a physical location that sells cannabis or cannabis products. The bills prohibit the Division from awarding more than the following number of licenses (which is inclusive of converted medical licensees): 75 grower licenses, 100 processor licenses, and 300 dispensary licenses.

Micro Licenses

This license type authorizes growers to have no more than 10,000 square feet of indoor canopy, and for processors to process no more than 1,000 pounds of cannabis per year. Dispensaries are permitted to operate a delivery service that sells cannabis or cannabis products without a physical storefront, provided that the licensee does not employ more than ten employees.

The bills prohibit the Division from awarding more than the following number of licenses (which is inclusive of converted medical licensees): 100 grower licenses, 100 processor licenses, and 200 dispensary licenses.

Incubator Space Licenses

This type of license authorizes the licensee to operate a facility within which a Micro-Licensee may operate. A maximum of 10 licenses will be available.

On-Site Consumption Licenses

This type of license allows the holder to operate a facility where individuals can smoke, vape or consume cannabis. A maximum of 50 licenses will be available.

Additional Considerations from Maryland Emergency Bills SB516 and HB556

Other noteworthy elements of the legislation include:

  • Applications will be determined to have met or not met minimum qualifications. Qualified applications will be entered into a lottery

  • Applicants will be limited to one application per license type and two applications total in any licensing round

  • Disclosure requirements exist for individuals with ownership interests of five percent or greater

  • There is a five-year prohibition on license ownership/control transfers, including those medical licensees who undergo the conversion process.

  • A sliding sales tax begins at 6% in Fiscal Year 2024, increasing by 1% each year and capped at 10%

  • Local jurisdictions are prohibited from imposing an additional tax

  • The Office of Social Equity will be responsible for identifying geographic areas that have been disproportionately impacted by the prohibition of cannabis

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