Maryland Releases Draft Cannabis Regulations in Preparation for Legalization on July 1, 2023

Foley Hoag LLP - Cannabis and the Law

Foley Hoag LLP - Cannabis and the Law

Last week the Maryland Cannabis Administration (MSA) released its draft emergency regulations for the state’s adult-use marijuana market which is set to come online on July 1. The draft regulations are subject to review by the Joint Committee on Administrative, Executive, and Legislative Review (AELR) and do not go into effect until approved by the AELR Committee and printed in the Maryland Register. The approval could come as soon as 10 business days after the AELR received the draft regulations. Once approved, the emergency regulations remain in effect for up to 180 days.

The 41-page draft regulations set definitions, codify personal possession limits, lay out responsibilities for regulators, explain the upcoming licensing protocols—especially for social equity applicants during the upcoming application window—clarify enforcement authorities and penalties and outline packaging and labeling requirements.

There is significant focus in the draft regulations on converting existing medical marijuana licenses to dual medial and adult-use licenses, which is required in order for existing businesses to continue operating after July 1. The regulations also cover the permissible activities and fees for all of the different license types, including standard licenses, micro licenses, incubators, and on-site consumption facilities.

Highlights of the draft regulations include:

  • 17.02.03 – Details the requirements for converting an existing medical-only license to a dual medical and adult-use license, including:
    • How the conversion fee will be calculated;
    • When the conversion fee needs to be paid and how to establish a payment plan if the licensee does not want to pay the fee all at once;
    • Restrictions on the legal name for license holders seeking to convert; and
    • A prohibition on the transfer of a converted license for 5 years.
  • 17.04 – Details the requirements for the ongoing medical cannabis program, including:
    • Requirements that dispensaries must provide exclusive access to the dispensary for patients and consumers either during designated hours instore or via a dedicated service line;
    • Permits the sale of high potency products only to patients and caregivers; and
    • Exempts cannabis sold to patients and caregivers from any sales and use tax assessments.
  • 17.05 – Further details the application process for new licenses as laid out in the Cannabis Reform Act of 2023, including:
    • The types of available licenses;
    • The number of applications that may be submitted;
    • The use of lottery if there are more applicants than available licenses; and
    • The process of issuing conditional licenses to lottery winners that allows them 18 months to establish a location, gain zoning or business planning approval, register with the Maryland Department of Assessment and Taxation, and otherwise be ready to become operational.
  • 17.06.04 – Prohibits the transfer of a controlling interest in a license prior to July 1, 2028, except in the case of death, disability, incapacity, bankruptcy, or receivership in accordance with a lending agreement or a court order.
  • 17.06.05 – Permits management agreements, but requires them to be pre-approved by the MCA.
    • The MCA may prohibit a management agreement if it constitutes an invalid transfer of ownership interest in or control of a license.
  • 17.12.06 – Requires dispensaries to make a good faith effort for at least 25 percent of product available for sale for retail sales to be grown, manufactured, extracted, or otherwise produced by a licensee that has no common ownership interest or control with the dispensary licensee.
  • 17.12.08 – Permits an online order system for placing pre-orders for pick-up or delivery for patients and caregivers, but only pick-up for adult-use consumers.
    • 17.09.04 prohibits delivery to adult-use consumers before June 30, 2024; and
    • 17.20.02 prohibits direct-to-consumer internet sales of adult-use cannabis or cannabis products on or before July 1, 2025.
  • 17.17.03 – Permits secured creditors, as defined by the regulations, to take a secured interest for a loan in the proceeds from an MCA-approved sale of a cannabis license.
    • In order to qualify as a secured creditor, the lending institution must meet the qualifications for secured creditor under the Financial Institutions Article, §1-101, Annotated Code of Maryland.
    • A copy of the security agreement must be submitted to the MCA and the MCA must pre-approve both the secured creditor and the security agreement.

Key Dates of Interest in Maryland:

July 1, 2023 – Existing Maryland medical cannabis license holders who chose to convert will be authorized to cultivate, manufacture, or dispense cannabis or cannabis products for adult-use consumers and qualifying patients and caregivers. Existing Maryland medical cannabis license holders who chose NOT to convert will be required to cease operations.

Sept. 2023  –  Begin a 30-day application period for new standard or micro cannabis licenses. In Round 1, the MCA may only award licenses to individuals and businesses that qualify as social equity applicants, and the MCA may only issue up to the following number of licenses in each category:

  • For standard licenses:
    • 20 grower licenses
    • 40 processor licenses
    • 80 dispensary​ licenses
  • For micro licenses:
    • 30 grower licenses
    • 30 processor licenses
    • 10 dispensary licenses
  • 10 incubator space licenses

On or before Jan. 1, 2024 – The MCA must notify selected Round 1 applicants of the award of conditional licenses.

No earlier than May 2024 – The MCA will announce Round 2 for standard and micro cannabis licenses, including on-site consumption licenses.

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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