Maryland Hemp Businesses Allege That New Cannabis Licensing Regime Violates Maryland’s Declaration of Rights

Foley Hoag LLP - Cannabis and the Law

Foley Hoag LLP - Cannabis and the Law

Adult-use cannabis is now legal and available in Maryland, but as so often happens, a group of businesses have filed a lawsuit because they do not like the way legalization has been implemented. Led by the Maryland Hemp Coalition, a group of farmers, retailers and consumers of hemp-derived products containing high concentrations of THC have sued the Governor of Maryland, the Maryland Cannabis Administration, the Maryland Alcohol, Tobacco and Cannabis Commission and numerous individuals in their official capacities as employees of those entities. The Coalition claims that the licensing scheme that was designed by the Maryland state legislature and is being implemented by the Maryland Cannabis Administration creates an illegal monopoly that will force certain hemp farmers and retailers out of business.

Leaving aside the question of whether or not limited license regimes create monopolies, the Coalition is right to be concerned that these farmers and retailers have been (or will be) excluded from the newly legalized market. Not for the reasons that the Coalition claims, but because these farmers and retailers appear to have previously missed out on an opportunity to fully participate in a legal market and appear to be on the verge of missing out on future opportunities to participate in the adult-use market.

According to the Coalition’s complaint, the dispute arises from the fact that the hemp derived-products that the plaintiffs previously produced, distributed and consumed now require a cannabis license and the plaintiffs believe that is an infringement of their rights. The complaint correctly points out that prior to July 1, 2023, the State of Maryland had no laws prohibiting the sale or distribution of products derived from hemp that contained Delta-9 THC levels of less than 0.3%. The complaint also states that the laws regarding what constitutes hemp remain unchanged and that it is still lawful to grow hemp in Maryland. However, it appears that the plaintiff retailers have been selling products that contain THC concentration greater than 0.3%, albeit products containing Delta-8 THC and not Delta-9 THC.

It appears that the Coalition relied on a legally ambiguous distinction between Delta-9 THC, which was previously the exclusive form of THC used to measure the distinction between cannabis and hemp, and Delta-8 THC, which is now included when determining that distinction in Maryland. The plaintiffs relied on a loophole in the cannabis laws that allowed them to sell products with high concentrations of THC without holding a cannabis license and were caught completely unprepared now that the loophole has been closed. Cannabis licenses are now required to sell all products in Maryland that contain THC concentrations greater than 0.3% regardless of the form of THC the products contain. Instead of acknowledging that they have been operating in a legally grey area that is now clearly outside the legal bounds, the Coalition is demanding that these farmers and retailers be granted special treatment and be granted licenses on an expedited or priority basis.

The Coalition’s complaint provides no explanation as to why these farmers and retailers could not or did not seek licenses under the previous medical cannabis licensing regime in Maryland. If they had medical cannabis licenses prior to July 1, they would have been allowed, like all other license holders, to convert their medical cannabis licenses to dual-use adult-use and medical licenses. They would have been able to fully participate in the legal medical cannabis market and they would be allowed to continue to fully participate in both the medical and the adult-use markets. But all of that is in the past and there’s nothing that can undo past mistakes.

Instead, the Coalition and the other plaintiffs should be focused on the upcoming opportunities to applying for one of the new adult-use and medical cannabis licenses. At some point this Fall, Maryland is going to open Round 1 of the new licensing program that will include 120 new standard licenses and 70 new micro licenses. Next year, likely sometime in the summer, Maryland will open Round 2 of the licensing program and issue additional standard and micro licenses. The Coalition correctly points out that Round 1 is limited to qualified social equity applicants based on a set of criteria laid out in the statute, but instead of putting together a team that meets these qualifications, the plaintiffs state without any support that all of them would be excluded from Round 1 since none of them qualify as social equity applicants and, inexplicably, also state that they would be excluded from Round 2 despite there not being any limitations on applicants in Round 2.

Admittedly, Round 1’s social equity criteria is intended to limit the number of applicants and provide preferences to communities that have suffered disproportionate impacts from the War on Drugs, but there are still plenty of opportunities for individuals and entities to partner with qualified applicants to put together an application that meets all of the criteria. Rather than missing out on the opportunity to participate in Round 1, the plaintiffs, and anyone else interested in securing a license, should be working now to put together a team and preparing an application packet that will satisfy the minimal requirements to qualify for Round 1. Assuming there are more applicants than the available licenses, there will be a lottery to determine the winners of the conditional licenses, but failing to submit an application for Round 1 is the only guaranteed way to not win a license.

Even if an applicant does not win a license in the Round 1 lottery, all qualified applicants will be eligible to automatically be entered into consideration for Round 2. Submitting a qualified application in Round 1 gives you TWO chances to win a license. Failing to submit a qualified application is just wasting an opportunity.

The Coalition claims that the new licensing regime violates their rights under Maryland’s Declaration of Rights, and it is unfortunate that farmers and retailers face closing their businesses while they wait for the new licenses to be issued, but that is no reason to declare themselves ineligible to participate in Round 1, nor is it a reason to declare it impossible to win a license in the upcoming lottery. With some hard work, business ingenuity, proper guidance, and a little luck, the plaintiffs could be amongst the aspiring business that are awarded licenses in Round 1 and will shape the future of the cannabis market in Maryland.

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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