In November, Maryland became the 20th state to legalize adult-use recreational cannabis.
Maryland follows states such as Colorado and Washington, which each legalized in 2012. Medical cannabis became available in Maryland in 2017.
“The world of legalized cannabis, it changes daily, and comparing it to what it was in 2014 or 2012, it’s a different world,” said Justin Tepe, a lawyer at Baltimore law firm Goodell DeVries who works with cannabis companies.
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“When you look at what a state like California, Colorado, Washington, Oregon, those are the established markets that we can actually look and see: ‘Okay, here are problems that arose that we can try and avoid by starting this differently.'”
Here’s where Maryland is taking cues from other states, and where legislators hope to pave the way.
Staving off gray markets
Getting some recreational dispensaries operating by July 1 is a key part the legislation passed by Maryland’s House of Delegates and making its way through the state Senate as lawmakers hope to avoid illicit sales gaining a foothold in the market like in New York.
Almost two years after passing its equity-focused recreational law, New York opened its first adult-use dispensary and approved licenses for dozens more late last year, but cannabis companies still expressed concern about unlicensed sellers.
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“We know in some illicit markets, we’ve had individuals lace the product with fentanyl and other enhancers that are dangerous,” said Democratic state Sen. Antonio Hayes of Baltimore, a sponsor of the Senate bill that would establish the rules for Maryland’s market.
“Whereas in Maryland, our cannabis industry is monitored from what they call ‘seed to plant.’ There are controls in place to make sure that the plant is free of contaminants and pesticides and other things,” Hayes said. “Not just our medical but our adult use that’s coming in the future.”
July 1 is the earliest legal recreational sales could begin in Maryland. Whatever legislators decide, from that date forward people 21 or older will be allowed to have up to 1.5 ounces of cannabis and to grow up to two plants per household.
Maryland lawmakers plan for already-operating medical dispensaries to be able to convert their licenses into joint recreational and medical licenses. A new round of licenses aimed at diversifying the industry would come by Jan. 1, and a third round would be issued after May 1, 2024.
Among the country’s strangest examples of a regulatory gray zone is neighboring Washington, D.C., where voters legalized small amounts of cannabis nine years ago but Congress has banned sales. That’s led to a gray market where businesses “gift” cannabis with the purchase of art, clothing or other items.
Hoping more license types mean more equity
When Maryland’s four-year-old medical cannabis industry began, many noted the lack of diversity among the licensees.
While lawmakers have worked to amend that disparity, it’s been a slow process. In order to give diverse applicants more opportunities, Maryland plans to offer new licenses for boutique shops, on-site consumption spaces and business incubator tenants with lower fees and capital requirements.
“We believe that the lower barrier to entry and the lower need for access to capital will bring greater opportunities for minorities and marginalized communities,” Hayes said.
Lawrence Brown, the author of “The Black Butterfly” and research assistant at the Center for Urban Health Equity at Morgan State University, likened the incubator spaces to OpenWorks, a facility in Baltimore where people can cheaply rent microstudios with access to a wide variety of tools.
Some of the expected tax revenue will go toward cannabis licensing training programs and incubator spaces on historically Black college and university campuses.
“That I think can just help accelerate inclusion into the industry in tremendous fashion,” Brown said.
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In Illinois, where social equity provisions drew a legal challenge, additional equity requirements made it difficult for licensees to replace investors who didn’t want to wait out the litigation.
For the first round of licenses, which are all limited to social equity applicants, Maryland plans to use a lottery system to award standard, micro and incubator licenses.
In Connecticut, the state’s lottery system was taken advantage of by multi-state operators and larger companies that submitted hundreds of entries and received approval for provisional licenses.
“This flies in the face of the intended lottery system, a low-cost entry for social equity applicants,” said Jacquie Cohen Roth, the owner of CannabizMD and Tea Pad, organizations that focus on education and workplace development in the cannabis industry.
Writing around limits on using race or gender for diversity goals
One of the ways legislators believe Maryland is setting a new model is through the creation of a Community Reinvestment and Repair Fund, which would receive at least 30% of cannabis sales tax revenue.
The fund would go toward “community-based organizations” in areas determined by the attorney general as “the most impacted by disproportionate enforcement” of cannabis laws before legalization.
But when it comes to ensuring that those communities also have a foot in the door with the new recreational industry, lawmakers are limited in using race or gender as a factor without a disparity study.
Former Republican Gov. Larry Hogan commissioned such a study in 2017 when lawmakers were pushing to make the state medical cannabis industry more equitable.
Hayes said a new disparity studyis expected to be released this summer. Having the study in hand would allowed for stronger language around diversity, he said, though information from other states helped make up for that.
Maryland’s recreational cannabis bill defines social equity applicants as people who have lived in a disproportionately impacted area for at least five of 10 years before their application, have attended public school in a disproportionately impacted area for at least five years, have attended a four-year higher education institution where at least 40% of students are eligible for a Pell Grant, or meet criteria established by the Office of Social Equity based on future disparity study results.
It does not include people who have been charged with or convicted of a cannabis offense.
Balancing tax revenue and consumer prices
Maryland’s planned sales tax on recreational cannabis would begin at 6% and increase by 1% each year until it hits 10% in 2028.
That’s on the lower end compared to other states that have approved taxes on recreational cannabis.
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Virginia, which legalized cannabis possession and home cultivation in 2021 but has not yet set up its retail market, for example, had proposed a 21% sales tax. Tepe said taxes that high could push consumers to the black market.
“I think Maryland aptly recognized that yes, there is an opportunity to develop revenues for the state off of the adult-use sales,” Tepe said. “But looking at it as a windfall or a lottery ticket for the state is the absolute wrong way to look at it.”
Some legislators and industry experts want to see more of the sales tax money dedicated to public health education about cannabis. The bill passed by the House allocates 1.5% of that money to the Cannabis Public Health Fund, but Hayes said the Senate is likely to increase that amount.
Cohen Roth, who testified in favor of increasing money for public health education, wants to ensure that first-time cannabis users aren’t walking into a dispensary misinformed about what cannabis can do for them.
Regulating delta-8
Alongside recreational cannabis legalization, legislators are also considering how to address delta-8.
Delta-8 is one of more than a hundred closely related compounds found in the cannabis plant called cannabinoids. Its chemical structure is nearly identical to THC, the main psychoactive component in cannabis.
Delta-8 was accidentally legalized when Congress passed rules on hemp in 2018. But it’s not currently regulated in Maryland, and it’s led to hospitalizations across the country.
More than 20 states have regulated or banned the sale of delta-8. Earlier this year the Maryland Medical Cannabis Commission Maryland recommended restrictions including testing for dangerous substances like pesticides, listing possible side effects on the packaging and licensing requirements.
Because the legislation would set a cap on any products that contain THC, anyone who sells a product above that THC cap — like delta-8 and CBD sellers — would need to get a Maryland cannabis license.
“Many of the individuals that benefited from the hemp industry growth through the Farm Bill feel as though by being pulled into the licensing scheme around cannabis, it puts them at a disadvantage and potentially put them out of business,” Hayes said.
Nicholas Patrick, who leads an industry group for hemp-derived products, is an advocate for delta-8 regulation, but believes the cannabis bill goes too far. Instead, he’d like to see a separate class of licenses that would allow stores to continue selling CBD and delta-8 products and be regulated without an adult-use or medical cannabis license.
If the legislation passes as is, delta-8 advocates believe the recreational cannabis bill will end their industry.
