By Peter S. Murphy, Attorney at Saul Ewing

On November 8, 2022, Maryland and Missouri residents voted to legalize adult-use cannabis. Similar ballot measures failed in North Dakota, South Dakota and Arkansas, leaving some to wonder whether the overall result is a setback for the legalization movement.  It is not.

While only two of the five initiatives were successful, Maryland and Missouri residents accounted for 70% of voters considering cannabis legalization this month. This brings the total number of states that have legalized adult-use cannabis to 21, and the overall US population with access to adult-use cannabis to 155 million – nearly half of all Americans.[1]

In the span of ten years, the adult-use cannabis industry has grown from a largely West Coast experiment into a multi-billion dollar colossus despite financial and legal challenges unimaginable in other highly regulated markets – e.g., lack of access to bank loans, prohibition on interstate commerce, and oppressive tax treatment due to 26 U.S. Code § 280E.

And while the Biden administration contemplates rescheduling, (or the less likely, descheduling) of cannabis under the Controlled Substances Act, the industry continues to march forward eyeing new markets for expansion; which brings us to Maryland and Missouri.

Timing and Implementation: Missouri Before Maryland

Maryland lawmakers approved legalization legislation (HB 837) earlier this year to take effect upon a successful amendment to the state constitution. HB 837 permits adults 21 and over to possess up to 1.5 ounces of cannabis and cultivate two plants for personal use beginning July 2023.

The bill does not, however, consider matters of licensing, taxation and regulation of adult-use cannabis sales. Rather, Maryland House Speaker Adrienne A. Jones has convened the Cannabis Referendum and Legalization Workgroup to determine the regulatory, licensing and oversight structure of the production, sale, and possession of legalized cannabis, including the licensing application process, the number of licenses, and equity in ownership of marijuana facilities.

By contrast, Amendment 3 to the Missouri Constitution focuses on speed to market and state officials are anticipating adult-use sales to begin as early as February 2023.[2]This is accomplished by allowing existing medical cannabis facilities the option to request immediate conversion of their licenses to adult-use and requires the Missouri Department of Health and Social Services to take action on the request within 60 days. Conversion requests not processed within 60 days of receipt will be deemed approved.[3]

Those not already licensed under Missouri’s medical cannabis program, however, have limited options: (1) apply for a marijuana microbusiness facility license, or (2) apply for a comprehensive marijuana facility license upon expiration of a 548-day waiting period.[4]An undefined “lottery selection process” will be used to award new microbusiness and comprehensive licenses.

Missouri’s approach relies heavily on conversion of medical facilities into adult-use facilities to meet market demand. A common criticism of this approach is it creates a potential drain on existing supplies of medical cannabis to the detriment of patients. Amendment 3 attempts to mitigate this risk and provides: if Missouri regulators have reason to believe that conversion of a license will limit or restrict medical access, they can require a written plan from the medical facilities that explains how the applicant will maintain adequate supply for qualified patients.[5]

Market Access Alternatives – Brand and Technology Licensing

Traditionally, cannabis businesses have expanded into new markets state-by-state, through competitive licensing schemes. Sometimes affectionately called Cannabis 1.0, this venture approach is capital intensive and involves significant upfront investment to assemble the people, properties and business plans needed to give an applicant an edge over its competitors. Both Missouri and Maryland employed competitive licensing schemes to stand up their medical cannabis programs.

As noted above, currently there are limited short-term opportunities to apply for and secure an adult-use cultivation, processing or retail license in either Maryland or Missouri. In the absence of Cannabis 1.0 market access, operators can immediately employ a brand or technology licensing model to bring their products to Maryland and Missouri.

The concept of licensing brands and technology is centuries old and is being used effectively in the cannabis space to allow businesses to expand across states that have legalized cannabis yet are prohibited from engaging in interstate commerce. Boulder-based Wana Brands, is a great example of how a brand can quickly gain market share across adult-use states by licensing its brand and technology and avoiding the application risks and infrastructure costs inherent in a Cannabis 1.0 strategy.

Social Equity Considerations

Maryland lawmakers have not yet decided how social equity considerations will be prioritized in its adult-use application process, but several components of HB 837 suggest social equity and justice will be front and center.

By way of example, the Maryland law authorizes the creation of the Cannabis Business Assistance Fund, which will: offer grants or loans to minority-owned business; provide application assistance and training to encourage participation in the industry; and, make grants to Historically Black Colleges and Universities (HBCUs) for cannabis-related programing. The law also establishes a Community Reinvestment and Repair Fund aimed at supporting organizations that serve communities most impacted by uneven enforcement of cannabis prohibition. It would not be surprising to see specific carveouts or a minimum percentage of new licenses reserved for applicants who can demonstrate having suffered from the failed war on cannabis.

Contrast with Missouri, where “while not required as a prerequisite to participation in a license lottery,” applicants must submit voluntary plans to promote and encourage industry participation “by people from communities that have been disproportionately impacted by [cannabis] prohibition.”  In a similar vein, Missouri regulators will limit microbusiness licenses to: businesses majority-owned by those living in or among poverty and unemployment; disabled veterans; or those who have been arrested, prosecuted or convicted for non-violent marijuana offenses.

Local Control

We will have to wait to see the extent Maryland law will give municipalities control over adult-use businesses beyond regulations governing the time, place and manner of operations of adult-use facilities.  Missouri Amendment 3, however, authorizes local governments to prohibit the operation of all adult-use businesses through local ballot questions or citizen petition. While municipalities have the ability to opt out of adult use operations, the law prohibits local governments from enacting ordinances or regulations that makes transportation of adult-use cannabis through the municipality unduly burdensome.

Employer Considerations

Once again, it is unclear where Maryland law will land when it comes to employer and employee protections.  A safe assumption is Maryland employers will be permitted to treat cannabis use similar to alcohol use and thus retain the right to discipline or terminate employees who demonstrate impairment while on the job.

Missouri Amendment 3 makes clear that legalization “does not require an employer to permit or accommodate” cannabis use “in any workplace or on the employer’s premises.” Missouri employers are not prevented from “refusing to hire, discharging, disciplining, or otherwise taking an adverse employment action against a person . . . because that person was working while under the influence of marijuana.”

Under Missouri’s medical program, however, an employer is prohibited from discriminating against a person based on their status as a Missouri medical cannabis patient. Accordingly, when making staffing decisions, Missouri employers will need to consider not only whether an employee may be impaired, or under the influence of cannabis; but also whether the employee’s cannabis use is protected the medical cannabis statute.

Conclusion

Based on experience and available information, the adult-use rollout in Missouri will be swift and driven by conversion of existing medical cannabis facilities to meet market demand.  As legalization takes shape in Maryland we anticipate a licensing approach that seeks to balance early market access for those most impacted by cannabis prohibition against the immediate need to increase supply to meet consumer demand.

For more information regarding Maryland or Missouri adult-use cannabis markets, or if you have any questions regarding an issue raised in this article, please contact the author or the attorney at the Firm with whom you are regularly in contact.

[1]Natalie Fertig, Mona Zhang and Paul Demko, Nearly half of Americans to reside in states where marijuana is legal, Politico, Nov. 9, 2022 (available at: https://www.politico.com/news/2022/11/09/half-americans-state-marijuana-legal-00065987).

[2]MJBiz Daily Staff, MO could begin recreational marijuana sales by early February, official says, MJBiz Daily, Nov. 15, 2022 (available at, https://mjbizdaily.com/missouri-could-begin-recreational-marijuana-sales-by-early-february/).

[3]Mo. Constitution, Art. XIV, § 2, cl. 4(16).

[4]Supra Note 5 at cl. 4(17)

[5]Supra Note 5 at cl. 4(20).