Recreational Marijuana

Maine's Adult Use Regulations Limit Industry's Access to Capital

Maine’s Office of Marijuana Policy released its provisionally adopted rules last Friday. The rules are relatively modest as they include only 78 pages of regulatory requirements. However, the benefits of a friendly regulatory environment may not overcome the onerous in-state licensing and ownership limitations.

Maine’s adult-use regulations are structured to award licenses to local residents. Applicants must be either a natural person who is a local resident; or a business entity whose officers, directors, general partners and majority of shareholders are natural persons and Maine residents.

These restrictions limit the ability of Maine residents to access the capital needed to grow the industry in a manner that benefits the state and local license holders. Applicants may find it difficult to raise sufficient capital to fund the long road required in starting a cannabis business. A lack of capital may also reduce initial revenues and tax dollars generated in the state.

The regulations also require cannabis businesses to disclose any “party of control”, which refers to a person or group of persons who exert more than a minimum influence over the businesses operations. Cannabis businesses must transfer its license when the party of control changes. By defining a party of control, Maine can stop entities from using a side door contract to entering the market without transferring the license.

Maine requires cannabis businesses to disclose contracts for IP, branding or loans that may include provisions that exert control over a business in exchange for money. The lack of objective standards around determining when a person becomes a “party of control” increases the risk that Maine’s regulator may determine that these contracts constitute a transfer to a party of control or may prohibit contractual provisions that dictate the quality of products and services. Entities entering into such agreements should seek guidance from the regulator so it avoids triggering such an event.

Maine’s regulations may guarantee the continued slow roll out of the adult-use cannabis industry as applicants’ will need to raise funds from local friends and neighbors. Hopefully Maine will reconsider this approach and allow the cannabis industry to grow in a responsible manner. The industry is facing multiple challenges, and additional capital roadblocks should be removed.

7 Things You Can Do Now to Prepare for Illinois' Recreational Marijuana Application Process

The Illinois Legislature passed a bill on Friday that legalizes adult-use marijuana businesses. Entrepreneurs who want to start a cannabis business should start preparing now in order to ensure a place in the front of the line.

The legislation requires the Department of Agriculture and the Financial and Professional Regulation to begin accepting applications for early approval adult use businesses within 60 days of new law’s effective date. These businesses may begin selling adult use products on January 1, 2020. This market is limited as there are currently only 55 licensed medical dispensaries and 22 licensed cultivators in Illinois.

A total of 75 dispensary licenses will be granted by May 1, 2020. The dispensary license application will be made available no later than October 1, 2019.

Below are 7 steps that you should take to ensure that you receive a license. Application packages should be organized, professional and easy for the regulator to find what they need.

  • Apply as an Early Approval Adult Use Businesses. Current Medical Marijuana license holders may apply within 60 days as an early approval adult use business that can sell adult use products on January 1, 2020. The accelerated access to the market comes with a price. Medical Marijuana licensees choosing this route will pay a $30,000 nonrefundable fee, a 3% cannabis business development fee, and a social equity fee.

  • Capital. Start looking for smart capital. Your corporate structure should be simple and representative of your capital raises. Resist the urge to give away shares in return for human labor. Vet your investors to ensure that the money is coming from a legal source and that the investor does not have a criminal background. Applicants must show that they have access to $100,000 in liquid assets.

  • Understand Illinois’ scoring methodology. The Department of Agriculture and the of Financial and Professional Regulation must utilize a fair scoring methodology for comparing competing applications. Below are some high-level activities that can help prepare you.

    • Ensure that all owners, officers, managers have the character, veracity, background, qualification, and experience to fund the business. Regulators will perform background checks and reject applications in which individuals lied. Regulators also want to know that the managers have the knowledge and expertise to run the business successfully.

    • Create a business plan. The regulators will review the business plan to ensure that adequate supplies of marijuana will be provided and that adequate safety and security plans are in place to prevent diversion. The business plan should show that there are adequate funds to cover the first year operating expenses. Business plans should also show how the business will comply with regulations including seed-to-sale tracking, training, recordkeeping, and day-to-day operations.

    • Staffing plan. Develop a staffing plan that shows how you will ensure that qualified individuals will be running the shop, and describe the business’ consent to enter into a peace labor agreement with employees.

    • Create a security plan. The regulators will want a site plan that shows intended security including video cameras, areas of coverage, automatic and immediate alarms, limited access areas, lighting coverage on the exterior and interior - focus on areas where marijuana is transported, processed and stored.

    • Create bios or resumes for owners and managers showing relevant experience and experience in the legal marijuana market

    • Create a community outreach and social equity plan. Create a plan to show how you will inform the community about your business, and give back to the community through involvement, employment opportunities or other positive impact activities.

  • Identify Suitable Real Estate. Identify real estate in a municipality that is likely to allow the adult use marijuana businesses. This is generally take more time than expected in that you will need to consider minimum requirements related to the premises site including:

    • Look for properties at least 1,500 feet from another cannabis business and 1,000 feet away from schools. There may be other minimum distance restrictions for other organizations such as churches or drug rehab facilities,

    • Avoid residential areas- residences are not generally allowed.

    • Ensure that the local municipality plans to allow adult use establishments.

    • Understand the local zoning requirements and fire safety requirements.

    • Obtain approval from the landlord to operate a marijuana establishment.

  • Develop a Scaled Site Plan: Create a site plan for your premises including all entrances, exits, windows, and outline all areas including patient waiting areas, sales area, and storage. Identify areas that contain video cameras and other alarms.

  • Organize Your Financial Information: Organize your tax, banking, and securities information for the past 3 years. Make the package easy for the regulators to review. The regulators will want to ensure that your money was made legally and all taxes have been paid.

  • Try to Establish a Banking Relationship. Banks are hesitant to provide services to marijuana businesses as they may be charged with money laundering; however, this is changing. Develop a relationship with a bank to understand what they will need to provide you with basic services. Understand that the bank will be required to file a suspicious activity report (SAR) to the federal government when you inform them that the account will be used for a legal marijuana business. You should not try to falsify information as this will make matters worse, and possibly prevent you from obtaining a banking relationship anywhere.

Florida Legislature Abandons Recreational Marijuana Bill as the Regular Session Closes

The Florida Legislature postponed and withdrew 11 bills related to marijuana and hemp as it closed its regular session on May 3, 2019. Most notably, the bid to enact legislation to legalize commercial recreational marijuana in Florida will not occur until the legislature reconvenes in 2020.

A full list of the bills that were suspended and withdrawn is provided below.

SB 1058 (2019) State Hemp Program
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 1116 (2019) Banking Services for Medical Marijuana Treatment Centers
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 1322 (2019) Availability of Marijuana for Medical Use
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 1324 (2019) Fees/Medical Marijuana Treatment Centers/Department of Health
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 1328 (2019) Reciprocity for the Medical Use of Marijuana
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 1780 (2019) Adult Use Marijuana Legalization
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 1782 (2019) Taxes and Fees/Recreational Marijuana
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 156 (2019) State Taxes or Fees
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 154 (2019) Medical Marijuana Retail Facilities
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 372 (2019) Smoking Marijuana for Medical Use
        SENATE - Indefinitely postponed and withdrawn from consideration

SB 384 (2019) Medical Use of Marijuana in Schools
        SENATE - Indefinitely postponed and withdrawn from consideration

5 Key Take Away's from Maine's Recreational Marijuana Regulations

Maine published draft recreational marijuana regulations more than two years after residents voted to legalize marijuana and amid contracting chaos. In September 2018, Maine hired a consultant to help draft the regulations, which resulted in a lawsuit from a competitor. Maine is now paying the losing consultant $10,000 to review the draft rules in exchange for dropping the administrative appeal.

Maine released the draft rules in response to a freedom of information act request from the Press Herald. The rules will be formally published twenty days ahead of a hearing to receive public comments.

Five (5) key take away’s from Maine’s recreational marijuana regulations include:

  • Maine chose a simple license regime that includes cultivation facility, testing facility, products manufacturing facility, and marijuana store.

  • Applicants obtain a conditional license, and then must obtain approval from a local municipality that has voted to allow that class of marijuana establishment or .where the county has opted in to allowing the class of marijuana establishment.

  • Except for independent testing facilities, Maine will verify that management and the majority of owners of licensees are natural persons who are Maine residents.

  • Maine is charging reasonable application fees ranging from $60 to $500. Annual license fees range from $350 to $15,000.

  • The regulations do not provide for social equity programs, social lounges, or temporary events.

New Jersey Delays Legalization of Recreational Cannabis

The canceling of the New Jersey Assembly vote to legalize recreational cannabis reinforces the difficulty in using the state legislature, rather than the ballot, to legalize marijuana. Lawmakers represent constituents and interests that they represent when drafting and enacting legislation. Whereas, voters act on what is put before them, and they will generally accept the conditions. In this instance, the redistribution of future cannabis revenues has scuttled New Jersey’s progress.

New Jersey’s proposed legislation to legalize recreational cannabis is progressive, and goes further than most states in designating a percentage of licenses for women, minorities and disabled vets. The legislation also automatically provides for the expungement of prior convictions. As we see it, everyone in New Jersey wants their slice of the pie. The problem is that, unlike Trivial Pursuit, it is very difficult to place all of the pieces together side-by-side given the different incentives and motivations for the state, legislatures, advocates and residents.

In the ideal world advocacy and social justice would drive the industry’s build out and pricing. However, states that allow local municipalities to opt-out introduce a new level of inequality and over-concentration of cannabis activity in economically disadvantaged municipalities. New Jersey’s legislation attempts to address social injustice and economic equality by providing persons who live in a disadvantaged area and earn less than $200,000 with priority in the application process. This solution has two problems. First, it would promote an over-concentration of cannabis facilities in economically disadvantaged areas. Second, the income cap is probably too high to capture economically disadvantaged persons. We question why the legislation does not require municipalities, especially those such as Jersey City or Hoboken, to adopt a social equity program prior to establishing the license allocation process. Using this approach, those persons would be able to benefit from opening a cannabis establishment in someone else’s backyard.

Finally, we believe that the state and local interest in generating tax revenues creates a conflict with providing licenses to mom and pop shops. Established national businesses that have access to lots of capital can accelerate the sales in the state, and increase tax revenues. We believe that it would be in the best interest of all parties to encourage these national businesses to infuse capital and know how into these social equity licenses, which could benefit both the advocates and the revenue seekers. Perhaps only the New Jersey voter will be able to solve this problem, and legalize recreational cannabis in November.

Oregon's Current Recreational Marijuana Inventory Expected to Last 6.5 Years

The Oregon Liquor Control Commission (OLCC) released the 2019 Recreational Marijuana Supply and Demand Legislative Report. The legislatively mandated report indicates that the recreational marijuana inventory as of January 1, 2019 will last the state for 6.5 years with the current level of demand . Oregon’s recreational marijuana growers produced 300,000 pounds in January 2017 and 900,000 pounds in January 2019 while wholesale prices for recreational marijuana has decreased significantly. Despite the bleak forecast for the cannabis industry, regulators are not concerned about marijuana being diverted to black market in surrounding states. The OLCC believes that most cannabis growers will continue to abide by the law in hopes of bigger gains when marijuana is legalized at the federal level and interstate sales of marijuana can occur. Marijuana market participants can access capital to help them through these tough times. However, the OLCC does not believe this will always be the case. The report states that the state faces policy considerations in order to create equilibrium in the recreational marijuana market. This might include placing limits on the amount of marijuana produced or placing a moratorium on the number of recreational licenses.

5 Things to Know About West Virginia's Marijuana Legalization Bill

The West Virginia House introduced HB 2331 which would legalize recreational marijuana. The bill was introduced by Mick Bates, a democrat, who is on the Finance and Health Committees. West Virginia enacted the West Virginia Medical Cannabis Act in 2017. However, the Bureau of Medical Health is not able to issue the patient and caregiver cards needed to obtain medical marijuana until July 1, 2019.

Below are five (5) important facts that you should know about West Virginia’s efforts for legalize recreational marijuana:

  • The legislation allows county commissions to determine whether to opt in to recreational marijuana by placing a question on a ballot on whether the production and sale of marijuana should be legal. If voters approve approve, licenses for the production and sale of marijuana may be issued. The county and municipalities will collect a 5% special sales tax on all retail cannabis sales.

  • The Bureau of Public Health must adopt the rules necessary for the implementation of recreational marijuana by July 1, 2019.

  • State application fees are capped at $5,000 per application and $500 for medical marijuana entities.

  • The state will charge an excise tax of 15% on marijuana sold by a cultivator to a processor or a retail store.

  • Retail stores must collect a 6% local sales tax that is split between the county and the county’s municipalities.

Maine Bill Authorizes State to Share 25% of Recreational Marijuana Sales and Excise Taxes with Generating Municipalities

The Maine Legislature introduced bill LD 335 to provide municipalities that allow the sale of recreational marijuana with 25% of the sales and excise taxes generated. The state is sharing the revenue in recognition of the costs associated with the regulation and enforcement activities associated with the legalization of recreational marijuana.

Massachusetts Entrepreneurs: West Boylston Accepting Applications for Recreational Cannabis Store

West Boylston, Massachusetts has re-opened a “back-up” application window for retail recreational cannabis businesses. Applications will be accepted until 4:00 p.m.. on Friday, January 18, 2019.  The submitted applications will be considered if the existing retail applicants fail to obtain two viable Host Community Agreements. The city will continue to accept applications for any non retail sales facility.

Completed applications can be sent to the Office of the Board of Selectmen, 140 Worcester Street, West Boylston MA 01583.  Please provide one original and five copies of each application being submitted. Also please provide a PDF of the application on a flash drive.     

California Entrepreneurs: American City Opening Cannabis Application Period on January 15, 2019

Following a two-year process, the American City, California will accept cannabis business applications starting January 15, 2019 and will continue until March 1, 2019. The City Council adopted a cannabis establishment ordinance in September 2018. Although store front retail businesses are not permitted, the ordinance will permit six (6) cannabis businesses including indoor grow facilities, manufacturing, testing or delivery services. The city will hold a public information workshop on January 8, 2019 at 2pm. Links to the cannabis business applications are provided below.

Cannabis Business Application

Cannabis Business Application Guide

Completed applications can be submitted to Brent Cooper, AICP, Community Development Director City of American Canyon Community Development Department 4381 Broadway, Suite 201 American Canyon, CA 94503