After a prohibition rush, marijuana businesses find fewer possible locations

As Delaware moves forward with issuing recreational marijuana business licenses, many municipalities are establishing their restrictions on where these businesses can open, leaving uncertainty around where licensees will be able to operate.

In 2023, the state legalized recreational cannabis and passed the Delaware Marijuana Control Act, creating the framework for licensing and regulating marijuana businesses for retail, cultivation, manufacturing and testing.

Under the legislation, counties are not allowed to ban marijuana-related businesses, but they can set restrictions on where they can operate.

Municipalities, on the other hand, can make those restrictions or choose to ban the industry outright in their jurisdictions.

Since the legislation was passed, about one-third of the state’s 57 municipalities have decided to ban the industry from their town limits ahead of the anticipated start of legal sales this spring.

Depending on how others move forward, the state may have to shift gears to allow for more accessibility for consumers and business owners.

Who has banned it so far?

Of the three counties, Sussex has been the most prohibitive, with 14 of its 25 municipalities already opting to ban the cannabis industry entirely.

Other local governments that are choosing to allow it are limiting the businesses to specific commercial and industrial zones while implementing buffer zones that range from 100 feet to 3 miles, so that the shops aren’t too close to residential areas, education institutions and health facilities.

Seaford and Georgetown are the only towns in Sussex that have set legislation to allow establishments, given that they abide by certain measures.

Seaford is only allowing two medical and/or retail shops, as reported by Bay to Bay News, while Georgetown will limit retail shops to 1,000 feet away from any educational institution, church or rehab. Lewes is allowing all cannabis businesses, except for retail shops.

In New Castle and Kent, most local governments are still trying to understand the implications that marijuana business will have on their towns, but Dover’s recent decision to allow some business activity may set a precedent for other areas.

Other towns, including Smyrna and Milford, are still in discussion on how to move forward, with Wyoming being the only other jurisdiction to allow cannabis businesses so far.

In New Castle, Middletown, Odessa and Elsmere have chosen to ban the industry, while Newark has chosen to allow it but only in a small area surrounding the intersection of Ogletown and Marrows roads.

Rob Coupe, the state’s marijuana commissioner, said that the state is aware of the bans and is committed to ensuring “access equity.”

He said that although his office is concerned, it’s too early to start moving licenses between counties, which could create an imbalance in which the industry is unfairly represented in a particular area.

“Some of this still needs to play out,” Coupe said.

As of now, state law presides over the municipalities that haven’t created specific legislation, meaning that cannabis businesses can operate given that they receive approval from the Office of the Marijuana Commissioner and comply with existing city zoning laws for businesses.

Licensees selected

In October, the Office of the Marijuana Commissioner (OMC), the body established to regulate the industry in the state, selected the first batch of applicants who could advance in the business licensing process.

With only 125 marijuana business licenses available and over 1,200 applicants, the OMC implemented a lottery system to manage the overwhelming demand.

A portion of licenses in each business type were set aside to go to social equity applicants— individuals with past marijuana-related convictions or those from areas with high marijuana enforcement.

The first lottery selected applicants for the available 30 manufacturing licenses, 60 cultivation licenses, five lab testing licenses and 15 social equity retail licenses.

Those selected had 30 days after they were notified to complete the supplemental application process for a conditional license, which involved further evaluation of their criminal history, financial background and business plans.

Now, those who have their conditional licenses have 18 months to search for a stable location to be approved by the OMC to set up shop.

The OMC will hold its last lottery for open retail applicants on Dec. 19 via Facebook Live.

Licensees affected by the bans

Since municipalities have been setting their boundaries and each license is tied to a county, potential business owners have been ruling out the locations where they had hoped to work.

Nicole Chick, owner of two smoke shops in Dover and Elsmere, was selected to be a social equity manufacturer in New Castle County, but she also applied for three open retail licenses, one in each county.

Although she hasn't given much thought to where she would set up because of the lottery, she now knows she can’t use her already-established locations.

In May, Elsmere’s town council banned the industry outright, while Dover’s council made its decision on Monday to restrict retail cannabis businesses to the U.S. Route 13 corridor.

“So both of the current buildings of my stores are frowned upon by the city councils in the area, basically. So that's very frustrating, obviously, as far as trying to make cost-effective plans,” Chick told Spotlight Delaware.

Chick tried to work with Dover’s City Council to create legislation to grandfather existing businesses so that they could become retail stores, but the proposal was never brought up for a vote, she said..

“I wish that we had some more business-minded people on the city council,” she said.

Other licensees who won’t be in retail are also concerned about the bans’ implications.

Tracee Southerland, who was chosen for a social equity lab in Sussex and New Castle County, will have two of the five locations designated by the OMC in charge of testing cannabis to ensure its safety for sale.

 

She initially planned to set up in Middletown but had to change course due to the town's ban. While she has a few potential locations in mind, she’s waiting to see how local governments finalize their regulations.

Although she prefers a quiet, industrial area, the ongoing bans could still indirectly impact her operations.

“If no retailers can find places to set up shop, then they're not going to buy any product from the growers, and the growers wouldn't need the lab to test more products. That would absolutely stop the chain that we need to operate,” Southerland said.

Regulations are a post-legalization veto

In Wilmington, Delaware’s largest city, the issue of where to allow the industry has been a debate among council members and stakeholders for the last few months, causing officials to propose a moratorium to give them more time to decide.

Zoë Patchell, executive director of the Delaware Cannabis Advocacy Network, which helped to secure legalization over nearly a decade of work, said the desire to ban shops in Wilmington is shocking considering that their residents wanted it the most.

DCAN conducted a study in 2021 in House District 2, represented by Rep. Stephanie Bolden, revealing that 79% of Wilmingtonians were in favor of legalizing cannabis while 80% supported a regulated industry.

Those figures are higher than the 70% of statewide residents in favor of cannabis, according to a 2022 polling study from the University of Delaware.

“It’s concerning,” she said.

Since legalization, Patchell and her organization have been pushing to increase possession limits, de-penalize public consumption and deschedule marijuana on a federal level.

Last Saturday, the group held a rally in Wilmington asking President Joe Biden to pardon and release individuals incarcerated for non-violent cannabis offenses before the end of his term.

During the rally, speakers like Patchell, State Sen. Kyra Hoffner and other advocates spoke about the need for cannabis to be accessible. One resident even cited how much cannabis has helped alleviate the pain she experienced during her battle with cancer.

Many of the municipalities that have decided to ban marijuana establishments have cited odor, public consumption and the possible proliferation of marijuana shops as reasons why they don’t want them in the area.

Coupe said those are the concerns he has heard in both Sussex and New Castle County.

“Some of the concerns seem deeply rooted in the fact that a lot of folks did not want marijuana legalized. And because they didn't want it legalized, I've had folks say, ‘I don't want it in my town. I don't want it in my city,’” he added..

Coupe has spent time in both counties educating local officials, explaining state laws and the safeguards in place, while addressing local concerns.

 

He emphasizes that Delaware's marijuana industry is far more tightly regulated than people think. With limited licenses, the state law making public consumption illegal, restrictive storefront advertising and the law requiring marijuana establishments to be at least 1,200 feet apart, the industry’s presence is inherently restricted.

Coupe also points out that marijuana odors people notice now come from the unregulated market.

Although the state does not offer any direct incentives to encourage municipalities to allow cannabis businesses, the regulated industry would bring safely tested products, job opportunities and support from the OMC.

“So by keeping us out, keeping the regulated industry out, that means that they take sole responsibility for the [unregulated] marijuana in their town or city,” he said.

Money is a factor

Another point of concern for some locals has been the notion that the 15% sales tax imposed on all marijuana products will go directly to the state without a carve-out for local jurisdictions.

The sales tax was written into the law to support the social equity piece of the legislation, with 7% of the tax going into the Justice Reinvestment Fund, for initiatives like restorative justice, jail diversion and workforce development.

Although the tax money, which the OMC has estimated to be $42 million annually, would trickle down into cities and towns, the lack of direct tax revenue for local governments has left some wondering if allowing the shops is worth the hassle.

Other stakeholders are concerned with the implications these restrictive measures will have on the challenges already present for potential business owners.

James Brobyn, president and founding member of the Delaware Cannabis Industry Association, said there is a need for more support from the state.

“There are two challenges in cannabis – getting access to real estate and getting access to money – and it's really hard to get both,” he said.

The DCIA was formed last January last year to advocate for the state’s medical marijuana license holders. They worked with the state to pass legislation to make access easier for medical patients and are currently recruiting new conditional license holders, offering support to help members navigate the challenges of starting a business.

Brobyn, a veteran who has worked in the cannabis industry for many years and also owns a medical marijuana business near Wilmington, said that some people aren’t taking into account the idea that there is limited retail availability and when that is combined with limiting buffers and municipal zoning regulations, little inventory is left.

Applying to enter the licensing lottery alone required individuals to submit detailed applications and application fees. Most open business fees cost $5,000, with the active license itself costing up to $10,000.

On top of the initial expenses, business owners must find the capital to start the business.

Setting up a storefront of 2,000 square feet — smaller than half a basketball court — requires an investment of $300,000, according to a recent DCIA presentation. Business owners typically don’t recoup this cost until they’ve been operational for at least 18 months.

“People are investing a lot of money in these dispensaries. They're investing a lot of money into the industry. They're going to want to protect it.,” Brobyn said.

Although the issue for business owners and consumers continues to persist, Coupe says there has been a discussion among legislators interested in looking into legislation this upcoming session that would balance the playing field between the different stakeholders.

“We can do this well, we can have great products that are safe and that consumers like that are low cost. We can do that, but we got to do it together,” Brobyn said.