Five things businesses should know about the Maryland Recreational Cannabis bill

Five things businesses should know about the Maryland Recreational Cannabis bill

Here are five things business owners should know about the proposal, which is set for a hearing in the House of Delegates on Feb. 17. The House version of the bill, House Bill 556 , was sponsored by delegates C.T. Wilson and Vanessa Atterbeary. An identical bill was cross-filed in the senate as Senate Bill 516, which is sponsored by senators Brian Feldman and Antonio Hayes.

The General Assembly is racing to craft legislation around the new market after voters last fall approved a referendum legalizing recreational cannabis starting on July 1.

Will existing medical cannabis businesses have the chance to enter the new recreational market?

Medical cannabis growers, processors and operators will have the chance to enter the new recreational market if they pay a fee. By grandfathering in old licenses, Maryland consumers will likely be able to choose from a variety of businesses.

The fees to convert a license are based on the business's 2022 revenue and range from $100,000 if the business’s gross revenue was less than $1 million to a fee of $2 million if the gross revenue of the business was more than $15 million. Dispensaries will pay a similar one-time fee based on 2022 revenue. The state will start converting licensees to dual recreational and medical licenses on or before July 1, to ensure there is a framework in place for the legal market before Marylanders are allowed to purchase cannabis.

What new opportunities will there be for entrepreneurs?

The legislature plans to create a variety of new licenses, including several types tailored for small businesses that require less startup capital than a traditional cannabis business. A micro license will authorize a holder to occupy less than 10,000 square feet of indoor canopy growing space and deal with less than 1,000 pounds of cannabis per year for processors. Micro licenses will allow for a delivery service that sells cannabis without a physical storefront with less than 10 employees.

To accommodate the new micro license, the government is creating a new incubator license for companies to operate a facility for multiple micro licenses to operate. Including grandfathered licenses, the state plans to issue standard licenses for up to 300 dispensaries, 100 processors and 75 growers. The state plans to distribute 200 micro dispensary, 100 micro processor, and 100 micro grower licenses. To accommodate the micro licenses, the state will give out up to 10 incubator licenses. The new licensing will be awarded in two phases. One round of licensing will begin on or before Jan. 1, 2024 with a second round of licensing in May of that same year. 

A completely new type of business will also enter the state cannabis market. The bill calls for the creation of up to 50 licenses for "on-site consumption establishments," or what are basically cannabis bars where people can buy cannabis products to use inside of a specific location. The Maryland Medical Cannabis Commission stated in a report that onsite consumption lounges could be a good way to open the industry to more underserved business owners since they have a smaller startup cost than a traditional growing operation.

How will the recreational cannabis market impact employment drug screenings?

The government is maintaining a relatively hands-off approach toward employment drug testing. The state itself cannot deny any benefits or processor licensing or other benefits based on lawful cannabis use or the presence of cannabinoids on a drug test, for someone who is at least 21 or a medical patient under 21. The same provision states that the state cannot deny employment to an individual because of a prior nonviolent cannabis offense that does not involve distribution to minors. Employers are still allowed to deny employment to people based on a drug test if the test is done with an established drug testing policy. Government employers can still discipline an employee for using cannabis at work and the protections do not apply if they conflict with an employer's obligations under federal law.

What is the government doing to work toward social equity in the new cannabis market?

The first round of application submissions for all license types will be entirely set aside for social equity applicants. The applicants will be entered into a lottery to distribute up to 20 standard grower licenses, 40 standard processor licenses and 80 standard dispensary licenses, as well as 30 micro grower, 30 micro processor, and 75 micro dispensary licensees. The second round of applicants for micro licenses will also be limited entirely to social equity candidates. 

Much of the tax revenue from cannabis will also be used to help support social equity measures. The government will allot 30% of the tax revenue to a “community reinvestment and repair fund.” The fund will distribute money to community-based organizations that help groups most impacted by the drug war. The state is also trying to help tackle one of the biggest problems facing the nascent industry, the difficulties of accessing traditional forms of banking, by creating a capital access program to facilitate partnerships between equity applicants and lenders.

How will cannabis taxes work?

Taxes for cannabis will start relatively low on July 1, with an adult-use tax of around 6%. That would increase annually until 2028, with a new tax rate of 10%. Other states have more variable taxes for cannabis. For example, in Illinois, there is a 7% excise tax at the wholesale level but increased taxes on products with higher THC or edible products.

In Maryland, taxes will pay for the costs of cannabis regulation and enforcement and 1.5% of the tax money will go to counties and municipalities based on the amount of revenue generated from any given jurisdiction. Another 1.5% of the money will go toward public health measures, and another 1.5% will go to a Cannabis Businesses Assistance Fund to help entrepreneurs. Any remaining tax revenue after the aforementioned funds will go to the state general fund.

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Region: Maryland

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