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Is Delaware's Adult Use Cannabis Business Licensing Process Worth the Wait?

In a historic move, Delaware has joined the ranks of states legalizing recreational cannabis use through the Delaware Marijuana Control Act which regulates and taxes cannabis like alcohol. This legislation not only marks a significant shift in the state's stance on cannabis but also lays the groundwork for a regulated and taxed cannabis industry akin to the alcohol sector. For dispensaries and potential entrepreneurs, this change heralds a new era of opportunity and responsibility. Cann Strategy, as a leading cannabis consulting firm, is here to provide a professional overview of what the Delaware adult use cannabis program entails for dispensaries.


Overview of the Delaware Marijuana Control Act

The Act amends existing laws to exempt marijuana-related conduct permitted under both the Delaware Marijuana Control Act and the Delaware Medical Marijuana Act from offenses and penalties. It expands the definition of a registered safety compliance facility to include marijuana produced for recreational use, aligning the oversight of cannabis with that of alcohol and tobacco.


Key provisions include allowing individuals over 21 to possess, use, purchase, or transport up to 1 ounce of marijuana. Importantly, the Act prohibits public consumption, driving under the influence, and the co-location of marijuana sales with alcohol sales. It also establishes property owners' rights regarding cannabis possession and consumption on their premises.


Preparing for Delaware's Legal Recreational Cannabis Market: The State's Overview and Goals

As Delaware embarks on the journey to establish a legal recreational cannabis market, the state's approach is marked by careful planning, collaboration, and a commitment to public health and safety. The passage of House Bill 1 and House Bill 2, collectively known as the Marijuana Control Act, sets the stage for the creation of a comprehensive framework governing the production, manufacture, and sale of recreational marijuana. This initiative is a collaborative effort led by the Department of Safety and Homeland Security (DSHS) in partnership with the Department of Health and Social Services (DHSS).


Delaware's preparation for its newly legalized adult-use cannabis market is characterized by a thoughtful and comprehensive approach. By prioritizing health and safety, engaging with stakeholders, and planning for effective regulation and enforcement, the state aims to create a recreational cannabis market that is safe, sustainable, and equitable. As Delaware moves forward with these efforts, the focus remains on protecting the public and ensuring the responsible growth of the cannabis industry.


Implementation Steps and Regulatory Framework

The state is currently in the process of laying the groundwork for the new market, with several key steps underway:


  • Development of Health and Safety Regulations: Over the coming months, Delaware will introduce new health and safety regulations concerning marijuana cultivation. These regulations are crucial for ensuring that the cultivation process adheres to the highest standards of safety and environmental stewardship.


  • Staffing and Training: The state is also focusing on hiring and training new staff who will be responsible for managing licensure and enforcement under the Act. This step is vital for building a robust regulatory infrastructure capable of overseeing the market effectively.


  • Public Involvement: Interested parties will be given the opportunity to comment on the proposed regulations, ensuring that the regulatory process is transparent and inclusive. This approach allows stakeholders, including businesses and community members, to have a say in the development of the market.


  • Licensure Applications: It is anticipated that licensure applications for participating in the recreational cannabis market will be available by May 2024. This timeline provides potential applicants with a clear roadmap for entering the market.


Goals and Mission

The overarching mission of the Office of Medical Marijuana (OMM), which will extend its principles to the recreational market, is to protect Delawareans through proactive monitoring and enforcement of cannabis-related regulations. The goals of the state's efforts include:


  • Ensuring Product Safety and Efficacy: By working closely with regulated vendors, the state aims to guarantee that safe and effective cannabis products are available to consumers. This includes stringent control of product inventory to prevent diversion and misuse.


  • Minimizing Health and Environmental Risks: Rigorous inspection of vendors and cultivation practices will help minimize risks to human health and the environment, aligning with the state's commitment to public welfare.


  • Educating and Engaging Stakeholders: The state plans to brief the medical community and involve state and local leaders in discussions about the cannabis market. This engagement ensures that a wide range of perspectives are considered in shaping the market.


  • Coordinating with Law Enforcement: Close coordination with law enforcement agencies is essential for addressing any concerns related to the operation of compassion centers and the broader market.


  • Responding to Community Needs: The state is committed to being responsive to the needs of registered patients and the general public, ensuring that the transition to a legal recreational cannabis market is smooth and beneficial for all Delawareans.


Timeline Delays for Cannabis Applications

Originally, Delaware was set to open a cannabis business license application window no later than May 2024, providing ample time for potential applicants to prepare and align with the Act's requirements.


During a recent session with the legislature's Joint Finance Committee, Delaware's Marijuana Commissioner, Robert Coupe, unveiled an updated timeline for the rollout of the state's adult-use cannabis program. According to Coupe, the regulatory framework for the recreational cannabis initiative is slated for completion by July 11, with the application process for licenses kicking off in September. The approval of licenses is set to follow a phased approach starting in October, with cultivation licenses anticipated to be the first granted in November. This will be succeeded by the issuance of manufacturer licenses in December, while retailer and testing licenses are expected to be distributed by March 2025.


Coupe also shared that draft regulations would soon be accessible on their official website, signaling a move towards transparency and public engagement in the regulatory process.


In an intriguing development, the commissioner mentioned the ongoing deliberations over the potential for existing medical cannabis dispensaries to transition to dual licenses, thereby catering to both medical patients and recreational users. Although this idea remains in the conceptual phase, with a possible implementation timeframe set for this fall, it represents a significant consideration for the future landscape of cannabis access in Delaware.


Coupe expressed a desire for the introduction of recreational retail outlets to coincide with the conversion of medical dispensaries to dual-use facilities, emphasizing the importance of equity and competitive balance within the market. [SOURCE]


License Applications and Ownership Qualifications

The Delaware Marijuana Control Act sets clear guidelines for who can own or apply for a dispensary in the state. Applicants must be over the age of 21 and comply with a series of regulatory requirements that ensure the safe and responsible operation of cannabis businesses. The Act also specifies that marijuana may not be sold in establishments licensed to sell alcohol, delineating a clear boundary between the two industries.


Licensing and Regulation

Spearheaded by Robert Coupe, the Delaware Marijuana Commissioner, the state's strategy for issuing cannabis licenses is meticulously designed to balance the needs of medical patients with the anticipated demand from recreational users.


Ensuring Market Stability and Fair Competition

Delaware's current network of 13 medical marijuana providers serves a patient base of 17,000. With the legalization of adult-use cannabis, the market is expected to expand dramatically to approximately 85,000 recreational users. Purportedly to prevent supply shortages and ensure that medical patients' needs continue to be met efficiently, Commissioner Coupe has proposed the creation of conversion licenses. These would allow existing medical marijuana providers to cater to the recreational market as well. However, to maintain fairness and avoid overwhelming these providers, the introduction of recreational sales through these converted licenses may be synchronized with the launch of new retail establishments.


This thoughtful approach underscores Delaware's commitment to a seamless transition into the recreational market, ensuring that both medical and recreational consumers receive adequate service without compromising product availability.


A Novel Licensing Selection Process

In a move to foster equity and impartiality in the licensing process, Delaware is considering the adoption of a lottery system for determining which marijuana establishments will be granted the opportunity to operate within the state. This proposed system, aimed at replacing the competitive scoring process initially outlined in the Marijuana Control Act, seeks to address concerns over fairness that have arisen in other states. By allowing companies that meet basic qualification criteria to enter a lottery for a conditional license, Delaware aims to democratize the opportunity to participate in the burgeoning cannabis market.


How Many Cannabis Licenses Will be Issued in Delaware?

Delaware plans to issue a total of 125 licenses across various segments of the cannabis industry, including:


  • 60 licenses for indoor and outdoor growing operations, catering to the foundational cultivation needs of the market.

  • 30 licenses for manufacturers of gummies, candies, oils, and other non-leaf cannabis products, addressing the growing consumer demand for diverse product offerings.

  • 30 licenses for retail (dispensary) establishments, which will serve as the primary point of sale for cannabis products to recreational consumers.

  • 5 licenses for testing (lab) facilities, ensuring that all cannabis products meet stringent safety and quality standards.


Finalizing the Framework

The Delaware Marijuana Control Office is on track with its new timeline to finalize its rules and regulations by July 11, with the application process set to commence in September 2024. This timeline provides prospective licensees ample opportunity to prepare their applications and align their business plans with Delaware's regulatory expectations and market needs.


With an estimated two applicants per license, Delaware's licensing process is not only expected to generate significant revenue from application and licensing fees but also to stimulate economic growth and job creation within the state.


Social Equity at the Forefront

The Delaware Marijuana Control Act is groundbreaking, not just for its legalization of recreational cannabis but for its strong emphasis on social equity. The Act mandates the development of financial and technical assistance programs specifically designed to aid social equity applicants. These applicants are defined by criteria that aim to rectify the historical injustices caused by previous cannabis prohibition and the "war on drugs" policies. This initiative ensures that minorities, women, and veterans, who have been disproportionately affected, have equitable access to the burgeoning cannabis market.


The criteria for social equity applicants are particularly noteworthy. The Act requires these applicants to demonstrate a commitment to environmental sustainability, community engagement, and fair labor practices, including having a labor peace agreement with a bona fide labor organization. This holistic approach ensures that the cannabis industry in Delaware not only grows economically but does so with a commitment to social responsibility and community development.


Fees and Financial Implications

Operating a cannabis business in Delaware comes with specific financial obligations. Beyond the $10,000 biennial fee for most licenses, cultivation licenses are determined by the square footage of the grow canopy area, introducing a scalable fee structure that accommodates businesses of various sizes. Additionally, the Act imposes a 15% marijuana control enforcement tax on retail marijuana, with 7% of the tax revenue allocated to the Justice Reinvestment Fund. This fund is dedicated to projects that improve the quality of life for communities most impacted by previous cannabis prohibition policies.


Taxation and Funds

A significant aspect of the Act is the introduction of a 15% marijuana control enforcement tax on retail marijuana sales. A portion of this tax revenue is allocated to the Justice Reinvestment Fund, managed by the Department of Justice, to support community improvement projects in areas most affected by previous cannabis prohibition policies.


The Delaware Marijuana Control Act also introduces state tax deductions for corporations and pass-through entities operating under the Act, leveling the playing field with other businesses and reflecting the unique federal tax challenges faced by cannabis establishments.


Tips for Prospective Dispensary License Applicants

The Delaware Marijuana Control Act delineates the operational framework for marijuana businesses, subject to licensing under Chapter 49A of Title 16, and introduces the Delaware Marijuana Control Act Oversight Committee to ensure the safe and effective implementation of the Act.


Familiarize with Licensing Requirements

The Act outlines distinct licensing requirements for retail marijuana stores, testing facilities, cultivation facilities, and product manufacturing facilities. Understanding these requirements, including the competitive scoring process and the criteria for open, social equity, and microbusiness licenses, is fundamental.


Prepare a Comprehensive Business Plan

Applicants for open licenses are required to submit a detailed business plan alongside an environmental and sustainability plan. This plan should reflect not only the operational aspects of the business but also how it intends to comply with state regulations, including security, testing, advertising, and packaging requirements.


Engage with Social Equity and Microbusiness Opportunities

The Act emphasizes support for social equity applicants and microbusinesses, offering reduced licensing fees and financial and technical assistance. Companies and investors should consider how they can contribute to or benefit from these opportunities, potentially through partnerships or support programs.


Consult with Legal and Financial Experts

Given the complexity of the regulatory environment and the nuances of the Act, consulting with legal and financial experts who specialize in cannabis law and business operations in Delaware will be invaluable. This includes understanding the tax implications, particularly the 15% marijuana control enforcement tax and the state tax deductions available to cannabis businesses.


Stay Informed and Engaged

The regulatory landscape for cannabis is evolving. Staying informed about updates to the Delaware Marijuana Control Act, including regulations adopted under new § 1331 of Title 4, and engaging with the cannabis community and regulatory bodies will be crucial for navigating the market effectively.


Prioritize Community and Sustainability

The Act's focus on environmental plans and the allocation of tax revenue to the Justice Reinvestment Fund underscores the importance of community and sustainability in Delaware's cannabis market. Applicants should consider how their business can positively impact local communities and adhere to sustainable practices.


Conclusion

The Delaware Marijuana Control Act sets the stage for a regulated, inclusive, and socially responsible recreational cannabis industry. For dispensaries, this means adapting to new regulations, seizing market expansion opportunities, and embracing their role in promoting social equity. Cann Strategy is poised to guide applicants through the process and to guide existing Delaware dispensaries through this transition, offering expert advice on compliance, business strategy, and community engagement. As Delaware embarks on this new chapter, the potential for growth and positive impact is immense, with dispensaries at the forefront of shaping the state's cannabis landscape.

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