Connecticut to Become 18th State to Legalize Recreational Cannabis

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On June 17, 2021, the Connecticut General Assembly voted to approve the Responsible & Equitable Regulation of Adult-Use Cannabis Act (the “Act”). With Governor Ned Lamont’s signature expected today, Connecticut will become the 18th U.S. state — and the fourth state this year — to legalize the recreational use of cannabis by individuals 21 and older.

Under the anticipated new law, beginning July 1, 20211, i.e., almost immediately, all adults 21 and over will be permitted to possess up to one and one-half ounces of cannabis. Personal cultivation rights will be available to medical marijuana patients as soon as October 1, 2021 and later to adult-use consumers on July 1, 2023. Like the state’s existing Medical Marijuana Program, the Commissioner and Department of Consumer Protection (respectively, the “Commissioner” and the “Department”) will promulgate rules to implement the Act and regulate the new cannabis retail market. The Act contemplates yet-to-be-determined limits on the number of recreational-use cannabis producers and dispensaries, as well as limits on the number of applications to be considered for related licenses. The Act also sets forth a tax structure which includes the state’s general sales tax rate of 6.25%, excise taxes ranging from 0.625% to 2.75% per milligram of total THC, and a 3% tax on gross sales receipts. In addition to legalizing the recreational use and sale of cannabis, the Act contains a number of social equity initiatives and criminal justice reforms for the benefit of individuals and communities in the state that have historically been adversely affected by the state’s prosecution of cannabis-related crimes.

THE NEW REGULATORY FRAMEWORK

The Act tasks the Commissioner and the Department with developing, administering and regulating the state’s new legalized adult-use cannabis program. Pursuant to the Act, the Commissioner must issue interim policies and procedures related to, among other things, dosing parameters, serving size limits, product packaging and labeling requirements, and laboratory testing standards. The Commissioner will also set the maximum number of dispensary facilities and producers that may be licensed in the state. As the adult-use program develops, the Commissioner will consult with other state agencies to promulgate rules, create support programs such as a business accelerator program and workforce training program, and recommend legislation for related services, including banking, mental health and insurance.

Licensing

The Act categorizes licenses as follows: (1) cannabis establishment licenses, (2) key employee licenses, (3) backer licenses, and (4) laboratory or research program licenses. Cannabis establishment licenses further include the following types: retailer, hybrid retailer, cultivator, micro-cultivator, product manufacturer, food and beverage manufacturer, product packager, delivery service, and transporter. For more information on license types and associated fees, see table below.2

For each license-type, the Department will establish not only the maximum number of licenses to be issued, but also the maximum number of applications to be considered. One-half of the maximum number of applications for consideration will be reserved for “Social Equity Applicants” and selected through a social equity lottery. “Social Equity Applicants” are defined under the Act as applicants who are at least 65% owned and controlled by an individual who (i) had an average household income of less than 300% of the state median household income over the three years prior to such application, and (ii) was a resident of a disproportionately impacted area for at least five of the ten years prior to the application or was a resident of a disproportionately impacted area for not less than nine years prior to attaining the age of 18.

If the Department receives more applications for any license type than the maximum number to be considered, a lottery shall be conducted to identify the applications for review, albeit with half of the slots for consideration reserved for Social Equity Applicants. Consideration of applications, and the granting of licenses shall not begin until the Department promulgates the rules and regulations necessary to implement the Act.

Non-social equity applicants3 must pay fees for the issuance or renewal of all licenses and registrations in accordance with the following table:

License Type License Defined License Fees
Retailer License
  • License to purchase cannabis from producers and sell cannabis to retail customers (but not to other retailers)
  • Application fee: $500
  • To receive a provisional license: $5,000
  • To receive a final license: $25,000
  • To renew a final license: $25,000
Hybrid Retailer License
  • License to purchase and sell cannabis and medical marijuana products
  • Application fee: $500
  • To receive a provisional license: $5,000
  • To receive a final license: $25,000
  • To renew a final license: $25,000
Cultivator License
  • License to engage in the cultivation, growing and propagation of the cannabis plant at an establishment with not less than fifteen thousand square feet of grow space
  • Application fee: $1,000
  • To receive a provisional license: $25,000
  • To receive a final license: $75,000
  • To renew a final license: $75,000
Micro-Cultivator License
  • License to engage in the cultivation, growing and propagation of the cannabis plant at an establishment containing not less than two thousand square feet and not more than ten thousand square feet of grow space
  • Application fee: $250
  • To receive a provisional license: $500
  • To receive a final license: $1,000
  • To renew a final license: $1,000
Product Manufacturer License
  • License to obtain cannabis, extract and manufacture products exclusive to such license type
  • Application fee: $750
  • To receive a provisional license: $5,000
  • To receive a final license: $25,000
  • To renew a final license: $25,000
Food and Beverage Manufacturer License
  • License to own and operate a place of business that acquires cannabis and creates food and beverages
  • Application fee: $250
  • To receive a provisional license: $1,000
  • To receive a final license: $5,000
  • To renew a final license: $5,000
Product Packager License
  • License to package and label cannabis
  • Application fee: $500
  • To receive a provisional license: $5,000
  • To receive a final license: $25,000
  • To renew a final license: $25,000
Delivery Service or Transporter License
  • License to deliver cannabis from retailers to qualifying individuals
  • Application fee: $250
  • To receive a provisional license: $1,000
  • To receive a final license: $5,000
  • To renew a final license: $5,000
Backer License
  • License to hold a direct or indirect financial interest in a cannabis establishment
  • To receive an initial or renewal license: $100
Key Employee License
  • License to hold a management position or equivalent title including: President or chief officer, financial manager, or compliance manager
  • To receive an initial or renewal license: $100
Employee Registration
  • Registration to be employed by a cannabis establishment including general employees, board members, and access-holders such as independent contractors
  • To receive an initial or annual renewal registration: $50
License Conversion
  • Not applicable
  • To convert from a medical dispensary facility to a hybrid retailer: $1,000,000
  • For a producer to expand cultivation from medical cannabis only to recreational adult-use cannabis: $3,000,0004

TAXATION

The state’s general sales tax of 6.25% will apply to the sale of cannabis, in addition to excise taxes ranging from 0.625% to 2.75% per milligram of total THC and a 3% tax on gross sales receipts. The excise taxes will not apply to: (i) the sale of cannabis for palliative use; (ii) the transfer of cannabis from one licensee to a different licensee; and (iii) the sale of cannabis by a delivery service to a consumer.
 
All of the cannabis tax revenue will be deposited into the state’s General Fund for fiscal years 2022 and 2023. Thereafter, the vast majority of cannabis tax revenue — approximately 85% to 100% — will be allocated between a “Social Equity and Innovation Fund” and a “Prevention and Recovery Services Fund.” The Act also authorizes municipalities to tax cannabis sales within their jurisdictions, with the tax revenue to be used for street improvements, education programs, services for individuals released from probation or parole, mental health services, youth services, or civic engagement.

SOCIAL EQUITY PROGRAM AND CRIMINAL JUSTICE REFORM

As noted above, the Act establishes a robust social equity program designed to support individuals and communities that have been disproportionately harmed by cannabis criminalization. In addition to Social Equity Applicants receiving enhanced opportunities to enter the state’s cannabis retail market and reduced license fees, the Act establishes a Social Equity Council and contemplates various program initiatives, including business accelerator programs, workforce training and development, and revolving loan programs for Social Equity Applicants and Licensees. Program initiatives will be financed by cannabis tax revenue deposited into the Social Equity and Innovation Fund.
 
The Act also features a number of criminal justice reforms to destigmatize cannabis, remedy the effect of historic discrimination in cannabis enforcement, and ensure economic opportunity for families impacted by cannabis criminalization. These reforms include expungement of certain cannabis convictions, law enforcement reforms, decriminalization of cannabis possession for minors and young adults under the age of 21, and a number of other modifications to existing criminal law.

1 Effective dates for all provisions of the Act vary and may be tied to additional action from state regulators.
2 The Act does not provide additional detail for laboratory or research program licenses. Nevertheless, a “laboratory” is defined as a facility located in the state that is licensed to research and analyze the effects of cannabis use. A “research program” means a program designed to study cannabis for the purpose of increasing available information regarding the growth, processing, medical attributes, dosage forms, administration or use of marijuana to treat or alleviate symptoms of any medical conditions or the effects of such symptoms.
3 Social equity applicants are eligible for a 50% licensing-fee reduction for the initial application and for the first three renewal cycles.
4 A producer seeking to expand cultivation may be eligible for a reduced fee of $1,500,000 if the producer participates in at least two equity joint ventures.

Katherine Thill was a contributing author to this alert.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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