How others’ mistakes could help Maryland get Cannabis Legalization right
A state of New York notice posted at a business announces the seizure of “illicit cannabis” at a New York City business as authorities crack down on unlicensed smoke shops on June 16, 2023.
Maryland may be later than many other states in legalizing cannabis, but those who wrote the state’s laws hope they’ve avoided the problems that have plagued other states: Lack of product, lack of diversity in the industry, and taxes so high that people kept buying on the black market.
Maryland Del. C.T. Wilson will be watching Saturday’s rollout of recreational sales closely. A Democrat from Charles County, he was one of the lead authors of the state law. He wanted to model Maryland’s law on other states, but said: “I literally couldn’t find a good one.”
“It is nerve-wracking, because I spent so much energy developing this, not really having an archetype,” Wilson said. “All we had was a bunch of states that did it wrong.”
Wilson was part of a group of lawmakers who spent months working out the details of how the newly legal industry could work in Maryland. One workgroup of lawmakers started meeting even before the November election, when voters overwhelmingly approved a ballot question to legalize cannabis.
The finished law carried four names as sponsors — Wilson, Del. Vanessa Atterbeary, Sen. Antonio Hayes, Sen. Brian Feldman, all Democrats — but scores of lawmakers all the way up to the presiding officers, House of Delegates Speaker Adrienne A. Jones and Senate President Bill Ferguson, had a hand in the law.
Ferguson hopes their work will result in a smooth rollout this week, one that seems like it was always bound to happen this way.
“It was the work of a lot of thoughtful legislators who tried to anticipate consequences,” said Ferguson, a Baltimore Democrat. “When things happen that seem inevitable, there are always people who were behind it.”
The lawmakers studied cannabis rollouts in other states, monitoring news reports and talking with colleagues at legislative conferences. They learned what has worked, and what hasn’t, and incorporated those lessons into Maryland’s law.
Here are some of the problems that Maryland hopes to avoid.
Taxes too high
It’s easy to think of cannabis as a potential cash cow for the state: A way to raise a bunch of money for state services by taxing an optional, recreational “sin” product like cannabis.
But setting the taxes too high can lead cannabis users to continue buying from the same dealers, rather than switching to the legal, regulated market.
In California, for example, the tax rate was so high (and many counties opted out of allowing sales) that as a result, much of the cannabis trade has remained in the illicit black market. The state had to go back last year and cut taxes.
Maryland lawmakers wanted to avoid that situation. Even as they weighed different tax structures, they had a goal of making sure the tax was affordable.
In the end, they settled on a 9% tax on the consumer at the point of purchase, exactly the same as the tax on alcohol. There are no taxes along the production path from plant to processing to finished product. Medical products will remain untaxed.
One idea that was considered was to tax based on the concentration of THC in the various cannabis products. While that would have the health benefit of possibly discouraging the use of more potent products because they’d be pricier, lawmakers ultimately determined it was better to go for an easy-to-understand, easy-to-collect flat tax at the point of purchase.
In the first 12 months of sales, it’s projected that dispensaries will sell $400 million worth of cannabis products, resulting in $36 million from the 9% sales tax charged on customers. Those numbers are expected to grow to $1.6 billion in retail sales by 2027, with $147 million in taxes collected.
Half of the sales tax money is already spoken for: Monitoring and regulating the industry, public health programs, local governments, assisting new businesses in the industry and addressing the needs of communities that have been historically harmed by the war on drugs. The rest will go into the state’s general fund.
The state will also take in application and licensing fees from businesses, which will go to running the state’s cannabis regulatory commission.
No way to buy legally
Some states have had muddled rules that have made it difficult for users to buy cannabis legally. That ends up being not only bad for the consumer, but also bad for the government that won’t be getting the tax revenues it anticipated.
“To me, it was making sure that product was available, it’s safe and affordable,” said Wilson. “And that’s something we did right off the bat.”
In New York, like California, the illegal market has flourished after legalization, but for different reasons. According to some estimates, there are more than 1,400 illegal pot shops in New York City alone. The number of legal dispensaries in the entire state of New York numbers only in the dozens.
New York recently passed tougher penalties for illegal cannabis sellers, and Gov. Kathy Hochul has touted efforts to crack down on them.
Across the Potomac River in Virginia, lawmakers legalized the personal use of cannabis back in 2021, with plans to have sales up and running in 2024. But the licensing plan has gotten tangled up in political wrangling in the state capital. It’s not clear when Virginia might get its legal industry operational.
The landscape is even more confusing in the District of Columbia, where cannabis became legal after voters supported a ballot initiative in 2014. But because Congress has a say in the affairs of local government in the District, sales and taxation of cannabis have been blocked.
That’s resulted in a weird economy where customers can’t pay for cannabis at a business, but they can receive it as a gift when making a purchase of another item.
To avoid those problems, Maryland lawmakers decided to allow existing medical marijuana businesses to pay a hefty fee to convert to a license that will allow both medical sales and recreational, adult-use sales.
These are businesses that are already inspected, approved and doing the work of getting cannabis to customers — and able to have product available on July 1.
“We did not want to give too much time for the illicit market to really mature and dominate the field,” said Hayes, a Baltimore Democrat. He pointed to New York’s troubles as a lesson learned.
“One reason why we made the conscious decision to allow those with medical licenses to transition ... is to get ahead of that, to make sure that our citizens who are choosing to consume are consuming a safe, regulated product,” he said.
Lack of diversity and equity
As Maryland lawmakers looked ahead to creating a legal market, they also looked back at the failed war on drugs that incarcerated many — disproportionately Black people in Maryland — for minor drug offenses.
In order to start redressing those wrongs, the state is creating a Community Reinvestment and Repair Fund that will distribute a portion of the money from cannabis taxes and licensing fees to community organizations in neighborhoods affected by marijuana arrests. The money must be used for community-based initiatives, and cannot be used for law enforcement.
Hayes said he worked hard to make sure cannabis taxes would be used in “building these communities up.”
Lawmakers also wanted to ensure that a diverse group of investors and companies would get involved in the legal cannabis economy, including women and people of color. They learned a lesson from the start of Maryland’s medical cannabis program, when nearly all of the first licenses went to white-owned and managed companies.
They’ve also looked at states like Illinois, where some licenses were set aside for entrepreneurs from disadvantaged backgrounds, but the awarding of licenses was delayed and successful licensees have faced red tape.
While the first several months of sales in Maryland starting July 1 will all be at former medical dispensaries, the state will issue additional licenses in the future with the goal of attracting a diverse group of applicants.
The first group is set aside for “social equity” applicants, who must show that they have lived or gone to school for a certain amount of time in neighborhoods with a disproportionate number of marijuana arrests. Lawmakers are hoping that round of license winners will have racial and economic diversity.
The state has also budgeted $80 million to help the social equity licensees get their businesses operational.
More changes to come
While Maryland lawmakers are hopeful that their law will work as planned, they acknowledge that it probably won’t be perfect.
They expect to learn from the first few months of cannabis sales and may debate tweaks and changes when they convene their next 90-day General Assembly session in January.
“What I’ve learned — even since we passed this — in states that have already moved forward with legalization, every year there is a new wrinkle in the market,” Ferguson said.
