Preparing for the Upcoming Launch of Maryland’s Adult-Use Market

In November 2022, voters in Maryland voted to approve their state’s adult-use legalization measure. Maryland Question 4, the Marijuana Legalization Amendment, was on the ballot as a legislatively referred constitutional amendment, and the ballot measure passed with an overwhelming 66% in favor. Question 4 amended the Maryland Constitution to add a new article which authorizes individuals 21 years of age and older to use and possess marijuana beginning on July 1, 2023. The measure also directed the Maryland State Legislature to pass laws for the use, distribution, regulation, and taxation of marijuana. As such, it has been up to state lawmakers to efficiently adopt rules to establish and oversee a regulated adult-use cannabis marketplace in Maryland.

Maryland House Bill 556 (cross-filed with Senate Bill 516), also known as the “Cannabis Reform Act,” was signed into law by Governor Wes Moore on May 3, 2023. The legislation created the framework for the regulation of adult-use cannabis in Maryland, including the licensing system for adult-use cannabis businesses. Specifically, the legislation is responsible for: renaming the Alcohol and Tobacco Commission to be the Alcohol, Tobacco, and Cannabis Commission; establishing the Maryland Cannabis Administration (the “Administration”) as an independent unit of state government; establishing a regulatory and licensing system for adult-use cannabis; imposing a sales and use tax of 9% on the sale of cannabis; requiring the Administration, by July 1, 2023, to convert medical cannabis licenses to licenses to operate a medical and adult-use cannabis business; and more. In addition, the Administration recently released the first set of rules, expanding on some of the foregoing topics and providing additional guidance to businesses and consumers.

Beginning on July 1, 2023, current medical cannabis businesses will be able to sell adult-use cannabis with a converted license (requires the payment of a conversion fee) to simultaneously operate a medical and an adult-use cannabis business. Notably, licensees who choose not to convert may continue to hold their license for resale but may not operate under the license beginning on July 1, 2023. Thus far, nearly 100 dispensaries have been approved by the Administration to convert. The Administration must then award cannabis licenses in at least two separate rounds, the first of which will be reserved for social equity applicants only. On or before January 1, 2024, the Administration will begin issuing the first-round licenses; and, on or before May 1, 2024, the Administration will begin issuing licenses in a second round. The Administration will have to announce each licensing round 60 days in advance. For the first round, the Administration will enter each social equity applicant that meets minimum qualifications into a lottery. The Administration will evaluate applicants’ qualifications and their operational, business, and diversity plans; but it will not require that an applicant possess or own a property or facility to operate the cannabis business at the time of application.

The Administration will issue various license types, including standard licenses, micro licenses, incubator space licenses, and on-site consumption licenses. Standard grower licensees are authorized to operate more than 10,000 square feet, but not more than 300,000 square feet, of indoor canopy or its equivalent; standard processor licensees are authorized to process more than 1,000 pounds of cannabis per year; and standard dispensary licensees are authorized to operate a store at a physical location that sells cannabis or cannabis products. Meanwhile, micro grower licensees are authorized to operate not more than 10,000 square feet of indoor canopy space or its equivalent; micro processor licensees are authorized to process not more than 1,000 pounds of cannabis per year; and micro dispensary licensees are authorized to operate a delivery service that sells cannabis or cannabis products without a physical storefront, provided that the licensee employs not more than 10 employees. Notably, however, there are caps on the number of licenses available per type. For instance, the Administration may not, for standard licenses, issue more than 75 grower licenses, 100 processor licenses, and 300 dispensary licenses total. Meanwhile, the Administration may not, for micro licenses, issue more than 100 grower licenses, 100 processor licenses, and 10 dispensary licenses total. Additionally, no more than 10 incubator space and 50 on-site consumption licenses may be awarded.

There are also restrictions on the number of licenses a person can own or control. A person may have an ownership interest in or control of, including the power to manage and operate, for both standard and micro licenses, one grower licensee, one processor licensee, and not more than four dispensary licensees. In addition, a person may own or control not more than two incubator space licensees and not more than two on-site consumption licensees. However, a person who owns or controls an incubator space licensee or an on-site consumption licensee may not own or control any other cannabis licensee. Further, the Administration will not accept more than one application per license type from an applicant in any round or accept more than two applications from an applicant in any round.

Applicants for standard licenses, incubator space licenses, and on-site consumption licenses will have to pay an application fee of $5,000 per application; while applicants for micro licenses will have to pay a smaller application fee of $1,000 per application.