Key Takeaways:
- Amendments to Maryland House Bill (HB) 556, and its companion Senate Bill (SB) 516, provide clarification on essential provisions for persons or entities interested in participating in the cannabis industry in Maryland.
- Both bills have crossed over and are expected to quickly pass the other chamber, and once a compromise version passes both chambers, it is expected that Governor Wes Moore (D) will sign into law.
- Notably, the amendments to SB 516 increase the maximum amount of each type of license that a person may have "ownership interest in or control of" to allow for up to four dispensary licensees, rather than two.
- Additional clarification provided by both bills includes information on the second round of licensing and expanded definition of "social equity applicant."
- Amendments to both bills also seek to require cannabis businesses to transition from a cash system to "traditional banking."
Maryland House Bill 556 (cross-filed with Maryland Senate Bill 516), introduced on February 3, 2023, contains essential provisions for any person or entity interested in participating in the cannabis industry in Maryland. Amendments were added to HB 556 on March 6, and the Maryland Senate Committee on Finance incorporated amendments into SB 516 on March 19.
HB 556, with amendments incorporated, passed the House of Delegates on March 10. Additionally, SB 516, with amendments included, passed the Senate on March 31. Both bills have crossed over and are expected to quickly pass the other chamber before being sent to a conference committee to sort out the differences. Once a compromise version of the bill is prepared, it will have to pass both chambers of the legislature, again, before heading to the governor for his signature. At this point in time, there is every reason to believe that the legislation will pass, but further negotiation will be necessary on the specific substance of the legislation.
Below is a summary of the amendments to HB 556 and to SB 516. This follows our earlier summary of the original version of Maryland HB 556. We will continue to monitor legislative developments and provide updates.
I. AMENDMENTS TO HB 556
The amendments to HB 556 propose to make the Cannabis Regulation and Enforcement Division (the "Division") an independent unit in the Alcohol, Tobacco, and Cannabis Commission.
- Licensing, License Conversion, Registration, and Business Practices
Conversions and Conversion Fees
HB 556 permits holders of medical cannabis licenses to convert to medical and adult-use (AU) cannabis. Under the amendments to HB 556, or after July 1, 2023, a license holder that does not convert the license from medical to medical and adult-use may not operate under the license, nor use the license, but may continue to hold the license for resale to another person for conversion. The purchaser of the license will be responsible for paying the one-time conversion fee.
Dispensaries
Under the amendments to HB 556, a dispensary must provide shelf space for cannabis and cannabis products from growers and processors that do not share common ownership with the dispensary. Additionally, the amendments to HB 556 prohibit dispensaries from engaging in the following activities:
- Packaging or repackaging cannabis or cannabis products.
- Transforming cannabis or cannabis products into an extract or another product.
- Wrapping, rolling, or encasing cannabis for smoking.
On-Site Consumption Establishment
The amendments to HB 556 specify that an on-site consumption establishment is an entity licensed to distribute cannabis or cannabis products for on-site consumption except for smoking.
Incubator Space Licensees
Under the amendments to HB 556, a nonprofit entity may receive an incubator space license to operate licensed premises on which micro licensees operate a cannabis business, and an incubator space licensee can purchase equipment to be used by other incubator space licensees in the same incubator space.
Workplace Requirements
The amendments to HB 556 incorporate protections for growers and employees. On or before July 1, 2024, the Division must adopt minimum standards concerning grievances, labor disputes, wages, pay rates, hours, and other employment terms and conditions. Labor organizations are prohibited from engaging in work stoppages, picketing, boycotts, or other activities that interfere with a licensed grower's operations. As a condition for licensure, licensed growers must comply with the minimum standards set forth in the bill and negotiate in good faith with any employees and legitimate labor organizations recognized by the Division.
Mandated Studies
The amendments to HB 566 add provisions for studies into various cannabis-related topics and business types. Notably, the Division is instructed to conduct a study on wholesale cannabis licenses, costs for regulation of wholesale cannabis licenses, whether there is any need for such licenses in Maryland, and an approximate amount of wholesale licenses needed in the state. Additional mandated studies include low-concentration cannabis edibles and regulations and procedures for on-site cannabis consumption. Furthermore, the amendments to HB 556 identify specific counties within the state to set up potential incubator spaces.
Transition From Cash System to 'Traditional Banking'
The original version of HB 556 requires the Division to adopt nonemergency regulations on or before July 1, 2024. The amendments to HB 556 require the Division to adopt, "to the extent possible," regulations requiring cannabis licensees to transition from a cash system to using traditional banking services, and to establish trade-practice restrictions.
'Political Subdivisions' and Imposition of Fees on Businesses
The amendments to HB 556 define a "political subdivision" as a county or a municipality. Additionally, the amendments to HB 556 replace "local jurisdictions" with "political subdivisions" for key provisions in the bill: specifically, a political subdivision may not impose licensing, operating, nor other fees or requirements that are "disproportionately more burdensome" than those imposed on other businesses with a similar impact in the area where the cannabis licensee is located.
- Social Equity Applicants
'Social Equity Applicant' and 'Disproportionately Impacted Area'
The amendments to HB 556 add a third category of "social equity applicant" to include individuals who, for at least two years, attended a 4-year higher education institution in the state where at least 40% of the attending individuals are eligible for a Pell Grant.
Additionally, the amendments to HB 556 expand the definition of "disproportionately impacted area" to mean a geographic area (as identified by the Office of Social Equity) that has "had above 150% of the state's 10-year average for cannabis possession charges, as determined by information from the administrative office of the courts."
Total Amount of Each Type of License Issued or Converted
The amendments to HB 556 do not change the total number of each type of license that can be issued and/or converted.
First Round of Licensing
The original version of HB 556 limits the first round of licensing to social equity applicants. During this first round, the Division will issue a set number of each type of license. The amendments to HB 556 reduce the maximum amount of dispensary licenses for micro licenses from 75 to 10.
Second Round of Licensing
The amendments to HB 556 provide clarification on the two potential lottery processes for the second round of licensing.
For the second round of licensing, the Division will take into consideration the diversity of the first-round license recipients to determine whether the second round will be limited to social-equity applicants. The amendments to HB 556 require the Division to consult with additional offices and boards, such as a designated certification agency; General Assembly; Governor's Office of Small, Minority, and Women Business Affairs, and the Office of the Attorney General.
Under the amendments to HB 556, if the results of a disparity study "demonstrate[] a strong basis in evidence of business discrimination against firms owned by minorities and women in the Maryland cannabis market, then the Division will issue a second round of licenses "employing remedial measures consistent with Constitutional requirements." The amendments to HB 556 require the Division to consult with the above-referenced entities to determine if a lottery system employing remedial measures established from the results of a disparity study can be implemented in a Constitutionally conforming manner; if yes, then the Division will award these licenses through a lottery that implements the Constitutionally conforming remedial measures.
Alternatively, if the disparity study does not demonstrate a strong basis for discrimination against minority and women-owned firms in the Maryland cannabis market, then the Division will enter second-round applicants into a lottery (without remedial measures) to issue licenses.
The Division can issue up to a set number of licenses in the second round, and the amendments to HB 556 increase the maximum amount of dispensary licenses for micro licenses from 125 to 190. This applies regardless of whether the lottery implements the remedial measures.
Capital Access Program Loans
The amendments to HB 556 make several changes to requirements for Capital Access Program loans to social equity applicants:
- State that the loan itself must satisfy all criteria of the lender, rather than financial institution.
- Omit the requirement that the term of the loan cannot exceed 10 years.
- Determine that the amount of the loan cannot exceed $500,000 for a dispensary or $1,000,000 for a grower or processor.
- Ownership and Limitations
'Owner' Definition
The amendments to HB 556 exclude stockholders from the definition of an "owner."
'Passive Investor' Definition
The amendments to HB 566 include "passive investors," which is defined as an entity or person that meets the following two criteria:
- Holds an aggregate ownership interest of less than 5% in a cannabis licensee.
- Does not have control of the cannabis licensee.
Limitations on Amount and Type of Licenses Held are Inapplicable to 'Passive Investors'
Under the original version of HB 556, individual ownership, interest in, or control of (including the power to manage and operate) cannabis licensees is limited to the following:
- For standard licenses and micro licenses: one grower licensee; one processor licensee; and up to two dispensary licensees.
- For incubator space licenses, up to two licensees.
- For on-site consumption licenses, up to two licensees.
The amendments to HB 556 specify that limitations on amount and type of licenses held do not apply to passive investors.
'Control' Definition
HB 556 defines "control" as having decision-making authority over the management, operations, or policies "that guide a business," or authority over the operations of a business's technical aspects. The amendments to HB 556 specify that "control" means the following:
- Voting interest of 5% or more in a cannabis licensee or a right to veto significant events.
- Authority or right make or veto decisions regarding strategic planning, operations, acquisitions, capital allocations, and divestments.
- Authority or right to appoint or remove corporate-level officers, directors, or such personnel.
- Authority or right to make major financial, marketing, or production decisions.
- Authority or right to execute exclusive or significant contracts in the aggregate of $10,000 or greater on behalf of the licensee.
- Authority or right to earn 5% or more of the profits or to collect 5% or more of the dividends.
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II. AMENDMENTS TO SB 516
The amendments to SB 516 propose "establishing the Maryland Cannabis Administration as an independent unit of State government." In addition to the name change, this bill differs from the original SB 516, and the original and amended versions of HB 556 (noting the amended version of HB 556 states that the Division is an independent unit within the Commission).
- Licensing, License Conversion, Registration, and Business Practices
Transfer of Licenses
Under SB 516, there is a five-year prohibition on transfer of cannabis licenses, including licenses converted from medical to medical and adult-use (AU). The amendments to SB 516 add an exception to this limitation: the five-year limitation on transfers does not apply to a transfer of ownership that is the subject of a legally binding settlement agreement resulting from a litigation that began on or before January 1, 2023.
Conversions and Conversion Fees
The amendments to SB 516 replace the original conversion fee requirements and calculation. Specifically, the amendments replace the set conversion fees with a conversion fee of 10% of the grower, processor, or dispensary's gross total revenue for 2022 (noting the amendments also apply the fee to dispensaries). Conversion fees cannot exceed $2,000,000 and cannot be lower than $100,000.
Under the amendments to SB 516, licensing and renewal fees must be reduced by 50% for social equity licenses, micro licenses, incubator space licenses, and on-site consumption licenses.
Dispensaries—Exceptions, Location Restrictions, and 'Political Subdivisions'
Importantly, the amendments to SB 516 permit the holder of a dispensary license converted from medical use to AU, to continue delivering medical cannabis until January 1, 2024.
Under the amendments to SB 516, licensed dispensaries must comply with specific location limitations. Specifically, a licensed dispensary cannot be within:
- 500 feet of (1) a pre-existing primary or secondary school or a licensed childcare center or registered family childcare home, or (2) a library, playground, or public park, or recreation center.
- 1,000 feet of another dispensary.
However, the distance requirements do not apply to a dispensary license that was converted or to a licensed dispensary that was properly zoned and operating before July 1, 2023.
The amendments to SB 516 also replace "local jurisdictions" with "political subdivisions" and use the same definition as the amendments to HB 556. The amendments to SB 516 permit political subdivisions to adopt ordinances to reduce the distance requirements for dispensaries. However, the bill does not specify if the distance can be increased.
The amendments to SB 516 match the amendments to HB 556 regarding dispensary shelf space.
On-Site Consumption Establishment
The amendments to SB 516 do not contain the language from HB 556 specifying that on-site consumption licenses do not permit consumption by smoking.
Incubator Space Licenses
The amendments to SB 516 match the amendments to HB 556 regarding incubator space licensees.
On-Site Consumption
The amendments to SB 516 require obtaining an on-site consumption license before operating any premises where cannabis can be consumed.
Transition from Cash System to 'Traditional Banking'
The amendments to SB 516 match the amendments to HB 556, which require transitioning from cash to a traditional-banking system.
Tax Structure Change
The amendments to SB 516 replace the phased-in annual tax rate on the sale of cannabis, which began at 6% in 2024, with a 9% tax starting in 2024 and every year thereafter.
Limitations on Sales and 'Potency' Study
The amendments to SB 516 set forth requirements for adopting regulations to ban the sale of cannabis over the internet, implementing packaging and labeling requirements, and establishing procedures for the use of point-of-sale technologies by dispensaries for all transactions to verify consumer age using a driver's license or government identification.
The amendments to SB 516 require the adoption of regulations to establish the maximum potency of cannabis and cannabis products sold in Maryland, including the maximum limit on THC amount for individual edible products and for products packaged together. Additionally, the amendments set forth various packaging and labeling requirements.
Workplace Requirements
The employee-specific and workplace provisions in amendments to SB 516 generally match those in the amendments to HB 556.
Mandated Studies
The amendments to SB 516 contain provisions for mandatory studies that generally match those in the amendments to HB 556, such as provisions relating to economic development, on-site consumption, and cannabis-infused products.
- Social Equity Applicants
Total Amount of Each Type of License Issued or Converted
The amendments to SB 516 reduce the total amount of micro licenses for dispensary licenses that can be issued or converted from 200 to 10.
'Social Equity Applicant' and 'Social Equity Licensee'
The amendments to SB 516 match the amendments to HB 556 by adding a third category of "social equity applicant" to include individuals who, for at least two years, attended a 4-year higher education institution in the state where at least 40% of the attending individuals are eligible for a Pell Grant.
The amendments to SB 516 propose an additional criterion for meeting the definition of "social equity licensee." Under the amendments, a social equity licensee can include a grower or processor that:
- Held a Stage One Pre-approval for a license before October 1, 2022; and
- Was not operational before October 1, 2022.
'Disproportionately Impacted Harmed Area'
The amendments to SB 516 use the term "disproportionately impacted harmed area."
The amendments to SB 516 otherwise match the amendments to HB 556 by expanding the definition of "disproportionately impacted harmed area" to mean a geographic area that "had above 150% of the state's 10-year average for cannabis possession charges[.]"
First Round of Licensing
The amendments to SB 516 add a specific requirement to the provision on first-round licensing, which is limited to social equity applicants. The new provision requires the Maryland Cannabis Administration to submit a report to the General Assembly on micro dispensary licensees' ability to dispense cannabis safely and securely (as noted above, the amendments to SB 516 would establish the Maryland Cannabis Administration, whereas the original version of SB 516, and all versions of HB 556, establish a Cannabis Regulation and Enforcement Division within the Commission).
Additionally, the amendments to SB 516 match the amendments to HB 556 by reducing the number of micro licenses for dispensary licenses in the first round from 75 to 10.
Second Round of Licensing
In contrast to the amendments to HB 556, which change the number of micro licenses for dispensary licenses from 125 to 190 in the second round, the amendments to SB 516 eliminate all dispensary licenses from the second round.
The amendments to SB 516 incorporate requirements for compliance with Maryland's Minority Business Enterprise Program (the original HB 556 includes language on this).
Capital Access Program Loans
The amendments to SB 516 partially match the amendments to HB 556 regarding the requirements for a loan under the Capital Access Program. Specifically, a loan made under the Capital Access Program to a social equity licensee cannot exceed:
- $500,000 for a dispensary.
- $1,000,000 for a grower or processor.
- Ownership and Limitations
Limitations on Amount and Type of Licenses Held
The amendments to SB 516 modify the maximum amount of each type of license that a person may have "ownership interest in or control of" to allow for up to four dispensary licensees, rather than two.
'Owner' and 'Passive Investor' Definitions
Under the amendments to SB 516, the definition for "passive investor" matches the definition found in the amendments to HB 556, including the provision stating that restrictions placed on persons holding ownership interest do not apply to passive investors.
The amendments to SB 516 also note that the definition of "owner" does not include "stockholder," which conforms with HB 556.
'Control' Definition
The amendments to SB 516 do not include the language about 5% voting interest, nor the right or authority to earn 5% or more of the profits or collect 5% or more of the dividends. This differs from the amendments to HB 556.
Additional Ownership Provisions
A cannabis grower awarded a Stage One Pre-approval before October 1, 2022, who was not operational before October 1, 2022 and does not hold a cannabis dispensary license, may apply for, and receive, a license to operate as a cannabis dispensary.
A business awarded a Stage One Pre-approval for a processor license before October 1, 2022, and was not operational before October 1, 2022, will be entered into the licensing lottery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
