On February 14, 2024, the Delaware Office of Marijuana Control (OMC) released draft regulations for the state’s adult-use cannabis market. Public comment is due on or before March 29, 2024. These regulations include the rules applicable to the licensing of adult-use cannabis businesses; the application process; and, the process for renewal and transfer of licenses. Additional draft regulations are scheduled to be released on a weekly basis.

WHAT YOU NEED TO KNOW:

• Delaware officials have released the first set of draft regulations, which include regulations regarding applications for and licensing of adult-use marijuana businesses in the state.
• Fifty percent of cultivation licenses are reserved for microbusiness and social equity applicants.
• Adult-use retail businesses will be permitted to sell medical cannabis to individuals possessing a valid medical marijuana card.
• Adult-use retail businesses are prohibited from selling marijuana products containing “synthetic cannabinoids” and offering delivery of products outside the retail premises.
• In the event where there are more qualified applicants than available licenses, regulators will use a lottery system to determine recipients of licenses.
• Applicants must enter into a labor peace agreement with a bona fide labor organization as a condition of licensing.

In a post accompanying the informal release, OMC Commissioner, Robert Coupe, stated the preliminary regulations are dependent upon “proposed legislative changes currently under consideration by members of the General Assembly” and may be modified “based on legislative action.” During a recent appearance before the General Assembly’s Joint Finance Committee, Commissioner Coupe indicated that retail marijuana sales may not start until March 2025, months later than initially planned.

Criteria for Social Equity and Microbusiness Licenses

Notably, the Delaware Marijuana Control Act (the Control Act) and draft regulations favor small business and Delaware residents by reserving licenses and reducing application and license fees for Social Equity and Microbusiness applicants. To qualify for a social equity license, applicants must be 51 percent owned by an individual who: (1) resided in a disproportionately-impacted area for five of the preceding 10 years; or, (2) was convicted or adjudicated delinquent in a marijuana-related offense. Microbusinesses are restricted to Delaware residents and limited to no more than ten employees. 

Lottery Process

The draft regulations propose using a lottery process to award licenses among applicants who satisfy certain minimum qualifications, which include submission of a comprehensive business plan, annual budget, and pro forma financial statements. Notably absent from minimum qualifications is the requirement that applicant obtain control of the proposed site for cannabis operations. This marks a departure from the competitive licensing scheme employed by the Delaware Medical Marijuana Act and was not contemplated by the Control Act.

Prohibitions

The draft regulations prohibit retail marijuana stores from selling any marijuana products containing synthetic cannabinoids. Under Delaware’s Uniform Controlled Substances Act, a “synthetic cannabinoid” is defined as:

any material containing any compound, mixture, or preparation that is not a federal Food and Drug Administration (FDA) approved drug and is chemically synthesized to produce a psychotropic response by binding at one or more cannabinoid receptors.

As written, this would seem to prohibit all sales of hemp-derived cannabinoid products, which many contend are legal for purchase under an interpretation of the 2018 U.S. Farm Bill. Similarly, the draft regulations prohibit all online sales and off-premises delivery of cannabis products. 

Labor Peace Agreements

Finally, like many states who have recently legalized adult-use cannabis, Delaware will require conditional licensee to submit an attestation signed by a bona fide labor organization stating the licensee has entered into a labor peace agreement. Under such an agreement, a business agrees with a recognized union to refrain from interfering with its organizing efforts and the union agrees to not interfere with the operations of the business. Provisions mandating labor peace agreements a condition for licensure gives labor valuable leverage in negotiations and could be a target for constitutional challenges.