Maryland House Bill 556 Amended on March 2, 2023

BREAKING:?On March 2, 2023, Maryland House Bill 556, introduced by Delegate C.T. Wilson and Vanessa E. Atterbeary for the purpose of establishing a regulatory and licensing framework for the expanded adult-use market, was amended (“Amended Bill”). There is a lot to digest and I will be providing an analysis at a later time. Below is a breakdown of several proposed amendments:

1.?????The Amended Bill would allow convert licenses to operate a medical and adult-use cannabis business: (1) if a conversation fee is paid in accordance with Section 36-403 of Subtitle 4 and (2) the business complies with ownership restrictions under Subsection (E) of Section 36-403. The ownership restrictions are as follows: a person may have an ownership interest in or control of, including the power to manage and operate, only:

a.?????for standard licenses and micro licenses:

???????????????????????????????????????????????????i.????1 Grower Licensee;

?????????????????????????????????????????????????ii.????1 Processor Licensee; and

????????????????????????????????????????????????iii.????Not more than 2 Dispensary Licensees

b.?????for Incubator Space Licensees, not more than 2 Licensees

2.?????The Amended Bill seeks to provide an alternate option for the holder of a license issued by the Natalie M. LaPrade Medical Cannabis Commission (“MMCC”) who does not convert the license. On and after July 1, 2023, the holder of a MMCC issued license who does not convert the license: may not (1) operate under the license; or (2) renew the license; but may continue to hold the license for resale to another person for conversion. The purchaser of a license sold by a license holder who does not convert a license would be responsible for paying the one-time conversion fee under Section 36-403 of Subtitle 4.

3.?????The Amended Bill seeks to expand the definition of “Social Equity Applicant”: The term “social equity applicant”?means an applicant for a cannabis license or cannabis registration that has at least 65% ownership and control held by one of more individuals who: (i) have lived in a disproportionately impacted area for at least 5 of the 10 years immediately preceding the submission of the application; (ii) attended a public school in a disproportionately impacted area for at least 5 years; or (iii) for at least 2 years, attended a 4-year institution of higher education in the State where at least 40% of the individuals who attend the institution of higher education are eligible for a Pell Grant; or (iv) meets any other criteria established by the Commission on the results of a disparity study.

4.?????The Amended Bill seeks to revise the definition of “Disproportionately Impacted Area”: The term “disproportionately impacted area” means a geographic area identified by the Office of Social Equity, which the bill seeks to establish within the Alcohol, Tobacco and Cannabis Commission (“ATC”), 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.

5.?????The Amended Bill seeks to expand the definition of “Control”: The term “control” includes?(i) holding a voting interest of 5% or more in a cannabis licensee or a right to veto significant events; (ii) the right or authority to make or veto decisions regarding operations and strategic planning, capital allocations, acquisitions, and divestments; (iii) the right or authority to appoint or remove directors, corporate-level officers, or their equivalent; (iv) the right or authority to make major marketing, production, and financial decisions; (v) the right or authority to execute exclusive contracts or significant contracts in aggregate of $10,000 or greater on behalf of the licensee; or (vi) the right or authority to earn 5% or more of the profits or collect 5% or more of the dividends.

6.?????The Amended Bill allows the one-time conversion fee to be paid in installments on the condition that it is paid in full on or before January 1, 2025.?The amount of any renewal fee paid by a business for fiscal year 2023 to the MMCC shall be credited against the one-time conversion fee assessed under Section 36-403 of Subtitle 4.

7.?????The Amended Bill proposes the issuance of 10 micro dispensary licenses in the first round of licenses and 190 micro dispensary licenses in the second round of licenses.

8.?????The Amended Bill proposes the use of a disparity study to determine how the second round of licenses should be issued. If the disparity study demonstrates a strong basis in evidence of business discrimination against firms owned by minorities and women in the Maryland cannabis market, the division shall issue a second round of licenses, employing remedial measures consistent with constitutional requirement. If the Cannabis Regulation and Enforcement Division (“Division”), in consultation with the certification agency designated by the Board of Public Works under Section 14-303(B) of the State Finance and Procurement Article, the Governor’s Office of Small, Minority, and Women Business Affairs, the General Assembly, and the Office of the Attorney General, determine that a lottery system employing remedial measures established in accordance with the disparity study, the Division shall award the below-noted licenses through a lottery process that employs remedial measures. If the disparity study does not demonstrate a strong basis in evidence of business discrimination against firms owned by minorities and women in the Maryland cannabis market, the Division shall enter each applicant that meets the minimum qualifications established by the Division into a lottery.

a.?????The second round of licenses to be issued shall not exceed:

???????????????????????????????????????????????????i.????For standard licenses: 25 Grower Licenses; 25 Processor Licenses; and 120 Dispensary Licenses

?????????????????????????????????????????????????ii.????For micro licenses: 70 Grower Licenses; 70 Processor Licenses; and 190 Dispensary Licenses; and

????????????????????????????????????????????????iii.????10 Incubator Space Licenses; and

????????????????????????????????????????????????iv.????15 On-Site Consumption Licenses.

9.?????The Amended Bill requires the ATC to complete a study on wholesale cannabis licenses. On or before June 1, 2024, the ATC shall submit the results of the study required by Subsection (a) of Section 13.

10.??The Amended Bill requires the ATC to conduct a study on on-site consumption of cannabis and cannabis products at retail premises of cannabis licensees. On or before June 1, 2024, the ATC shall submit the results of the study as required by Subsection (a) of Section 15.

11.??The Amended Bill would prohibit a political subdivision from imposing licensing, operating, or other fees or requirements on a cannabis license that disproportionately greater or more burdensome than those imposed on other businesses with a similar impact on the area where the cannabis licensee is located.

If you would like to discuss how these developments may affect you or your business, please contact Jonathan Wachs at 301-575-0302 and [email protected].