2022 was another eventful, chaotic year for the cannabis industry, both in the state of California and in the greater United States of America. There were some big wins (New York legalized recreational use!) and some even bigger wins (President Biden requested the Federal Government evaluate Cannabis’ qualification as a Schedule I drug!).
Despite the high taxes and illicit market continuing to flourish (and in some cases crush the legal market), in the spirit of staying positive and looking forward to the changes that 2023 will bring, we highlight the Top Five Developments in Cannabis from 2022 below.
1. California Passed Symbolic Cannabis Legislation.
In 2022, California passed a significant number of cannabis related bills. Below are the most consequential.
Assembly Bill 195: AB 195 was also known as the Budget Trailer Bill signed by Governor Gavin Newson in June 2022. This bill achieved several significant changes within the cannabis industry. First, the bill eliminated the cannabis cultivation tax, which essentially means that cannabis now “enters the commercial market” once the cannabis passes the required laboratory testing and quality assurance review (as opposed to the harvested cannabis).
Additionally, the bill corrected a large pain point for operators by deviating the point of collection and remittance for the cannabis excise tax from distributors to retailers. Finally, the bill adjusted the requirement for licensees to enter a Labor Peace Agreement from 20 employees down to only 10 employees. Consequently, cannabis operators, particularly retail licensees must be aware of and assess the effects of this legislation.
Assembly Bill 2188: AB 2188 amends the California Fair Employment and Housing Act now prohibiting employers from “discriminat[ing] against a person in hiring, termination, or any term or condition of employment, or otherwise penalize a person, if the discrimination is based upon the person’s use of cannabis off the job and away from the workplace or, with prescribed exceptions, upon an employer-required drug screening test that has found the person to have nonpsychoactive cannabis metabolites in their urine, hair, or bodily fluids.”
This bill states that, as of January 1, 2024, California employers can no longer terminate an employee for their personal use of cannabis outside of the workplace. A significant piece of legislation!
Assembly Bill 2568: AB 2568 specifically states that it is no longer a crime for individuals and firms licensed by the California Department of Insurance to provide insurance and other related services to persons legally licensed to engage in commercial cannabis activity. Although this bill doesn’t sound that exciting, it is also quite a shock to know that only just this year this became the law of the State of California, given that cannabis has been legal cannabis in the state for the past six years.
Similarly, Governor Newsom signed Assembly Bill 1885, which now prohibits the California Veterinary Medical Board from “disciplining a veterinarian who recommends the use of cannabis on an animal for potential therapeutic effect or health supplementation purposes, unless the veterinarian is employed by or has an agreement with a cannabis licensee.”
Essentially, vets are now free to recommend cannabis to animals so long as the vet is not receiving kickbacks from licensed cannabis companies. Vets also remain prohibited from being employed by a cannabis licensee and recommending cannabis usage to an animal.
Senate Bill 1326: Also signed in September of 2022, SB 1326 authorizes the Governor of California to enter into an interstate agreement whereby entities licensed under the laws of another state would be authorized to conduct medicinal and/or adult-use commercial cannabis activity between entities licensed in California. This bill is a clear signal that the State desires to engage in lawful business with other states’ legal cannabis markets. A huge statement, but it remains without much teeth until federal legalization or the ability to legally transact business through interstate commerce.
2. Four States Legalized (some form of) Cannabis for a TOTAL of 47 States, DC and ⅘ U.S. territories.
In 2022, four additional U.S. states legalized medical and/or recreational adult-use marijuana. Three states legalized recreational adult-use cannabis: Rhode Island, Missouri, and Maryland and one southern state legalized medical cannabis: Mississippi.
With the passage of legalization in these states, this brings the total of 21 U.S. states, 2 U.S. territories and D.C. (as of writing) that have both adult-use recreational and medical cannabis. However, these additions bring the nationwide total to 37 states, D.C., and 4 of 5 U.S. territories that now have some sort of legal cannabis (including hemp or CBD), either medicinal or fully recreational.
- New Medical States
On January 26, 2022, the Mississippi Legislature, in what is considered to be the most conservative state in the country, approved the Mississippi Medical Cannabis Act (SB 2095) creating a medical cannabis program for the state. At this time, there are no caps on business licenses, but there are potency caps on cannabis flower which cannot exceed 30% THC and tinctures which cannot exceed 60%. Cannabis will be taxed at wholesale of 5% of the price plus sales taxes.
Finally, in a move that will certainly affect practitioner participation, the bill imposes extensive continuing medical education for practitioners who prescribe cannabis and forces patients to try opiates and other treatments before they are allowed to try cannabis.
- New Adult-Use Markets
In Rhode Island, recreational adult-use cannabis was legalized on May 25, 2022, through a state bill signed by Governor Dan McKee. The bill allows adults to possess up to 1 ounce of cannabis (and cannabis product) and allows for cultivation of up to three plants. The cannabis program in Rhode Island is overseen by the Rhode Island Department of Cannabis Regulation (“DCR”). Recreational sales began on December 1, 2022, with five authorized recreational marijuana dispensaries open to the public. The first week of recreational sales amounted to about $786,000. A notable difference from the medical program is the taxation rate: recreational marijuana is taxed at 20%, while medical marijuana is taxed at 7%. With a population of only 1.096 million, the DCR has indicated they will allow up to 33 stores statewide.
Moving from medical-only to adult use in November 2022, Missouri voters approved Amendment 3 which now allows adults over 21 years of age to legally possess up to 3 ounces of marijuana flower and grow up to 6 plants at home (with a registration card). The state has indicated that there will be a 6% tax on the retail price of cannabis and legal recreation sales will likely begin in late 2023 as the Department of Health and Senior Services needs to promulgate regulations for dispensaries. Current medical marijuana dispensaries will be able to convert their licenses to recreational. However, these license conversions have a sunset date of February 6, 2023, so the state will need to take regulatory action soon. Additional recreational licensees will be selected by a lottery process.
Finally, the Amendment created a pathway to expungement (you must petition!) for those with specific non-violent cannabis related crimes.
Maryland voters also approved a ballot measure, Question 4, in November 2022 which legalized adult-use and possession of cannabis for those over 21 years of age. Under supplemental legislation passed in the General Assembly, Maryland adults will now be allowed to possess up to 1.5 ounces. The bill also provides an option for expungement and resentencing for those convicted of specific cannabis offenses. Also notable, was the repeal of the term “marijuana” and the replacement with the term “cannabis” in all government publications. The General Assembly is currently working on creating a regulatory scheme for taxation, cultivation and sale of cannabis and legalization will begin on July 1, 2023. Given the disastrous, inequitable rollout of the medical marijuana program in the state in 2014, regulators are intent on licenses being equitably distributed this go around.
3. Federal Movement on Cannabis Policy and Reform (finally!).
On October 6, 2022, President Biden issued a three part plan to set in motion a reform of the current federal marijuana policy. This policy statement announced three important points: (1) a full and unconditional pardon for approximately than 6,500 individuals who had been convicted of marijuana possession under federal law, (2) strong words of encouragement to state governors to follow suit with similar state marijuana pardons and (3) that his administration would review the current status of marijuana as a Schedule I drug, the same schedule as heroin and LSD.
For those affected by marijuana prohibition, this statement felt like a small step in the right direction, when most were hoping for a leap. However, this proclamation on marijuana reform is still quite notable and thrusts U.S. cannabis policy into the spotlight.
- Federal Medical Research Bill – H.R. 8454 (Medical Marijuana and Cannabidiol Research Expansion Act)
This monumental research bill cleared through the House in July and finally, through the Senate in November and was signed by President Joe Biden on November 25, 2022. The intention of the bill is to make it easier for there to be scientific research conducted on the marijuana plant. Research universities (including those that receive federal funding) and private companies can now acquire a license from the U.S. Drug Enforcement Administration which will allow them to grow and handle cannabis in order to conduct research on the plant.
Furthermore, the legislation requests the federal government, specifically the Department of Health and Human Services (DHHS), conduct research into the potential therapeutic benefits of marijuana. This guidance for further federal research is directly correlated to the October 2022 statement that President Biden made requesting that the DHHS Secretary review the current scheduling of marijuana. With more federal research and data at their disposal, it is only a matter of time before the federal government removes the label placed on cannabis that there is “no currently accepted medical use and a high potential for abuse.”
- Safe Banking +
UPDATE – Unfortunately, Congress failed to include any of the cannabis banking provisions in its end of the year $1.7 trillion government funding bill. Essentially, this move dooms cannabis companies to remain operating outside of the traditional banking system for the foreseeable future.
Under current federal banking law, financial institutions who provide banking services to legal licensed cannabis businesses under their respective state laws are still subject to criminal prosecution under federal statutes, including “aiding and abetting” a federal crime and money laundering. This means that legal, legitimate cannabis businesses are shut out of having a checking account, any access to credit, cannot accept debit or credit cards and cannot pay their taxes except in bags of cash. The excess of cash on hand at dispensaries and other licensed operators also presents a unique vulnerability to crime. The provisions introduced would remove and alleviate the above barriers for legal, licensed cannabis operators.
Representative Ed Perlmutter, D-Colo., a longtime supporter of cannabis banking access, first introduced a version of the Safe Banking Act, nearly a decade ago, in 2013. Over the past decade, it has become clear that the lack of access to traditional banking services and access to credit has contributed to the demise of many cannabis businesses. Despite this, there remain staunch opponents within the Republican party, namely Senate Minority Leader Mitch McConnel, R-Ky., who do not want to see this legislation pass. In fact, the fiscal 2023 defense reauthorization bill that was released the first week of December 2022 completely excluded any cannabis banking provisions, as lawmakers were unable to compromise on terms.
Additionally, there remain opponents within the Democratic party, who believe that cannabis banking provisions should be part and parcel of a larger cannabis legislative bill, not tacked on to some defense bill. These Democrats would like to address the disproportionate impact the War on Drugs more comprehensively has had on Black and Latino communities.
Unfortunately, this legislation did not pass and we will have to wait to see what the next legislative session brings us on this time sensitive issue.
4. New York Issues Regulations and Licenses, Also Faces Lawsuits.
In 2021, former Governor of New York, Andrew Cuomo, signed the Marihuana Regulation and Taxation Act, which allows individuals of the age of 21 to possess up to 3 ounces of recreational cannabis. The state established two regulatory bodies to manage the sale of adult-use marijuana: Office of Cannabis Management (“NYS OCM”) and the New York State Cannabis Control Board (“NYS CCB)
On Nov. 21, 2022, the NYS CCB released the draft regulations, which created a regulatory scheme and a robust and unique economic Social Equity program. The Social Equity program aims to prioritize those New York communities that have been disproportionately impacted by the War on Drugs’ cannabis prohibition in addition to “other underrepresented groups including minority and women owned businesses, distressed farmers, and service-disabled veteran-owned businesses.” To set precedent in the Empire State, the agency set a goal that 50% of all adult-use licenses were to be awarded to Social Equity applicants. On that same day, the OCM awarded the first dispensary licenses to qualified applicants.
However, these licenses were slightly thwarted by a suit filed eleven days earlier, on November 10, 2022. Here, U.S. District Court Judge Gary Sharpe granted a temporary restraining order (“TRO”) against five regions in the state (Brooklyn, Central New York, the Finger Lakes, the Mid-Hudson area and Western New York) challenging the Social Equity program’s residency requirement. The lawsuit was filed by a Michigan based corporation, Variscite NY One, Inc., arguing that the requirement that the cannabis related conviction must be based under New York law was a violation of the U.S. Constitution’s Dormant Commerce Clause.
Eleven other regions in the state were not affected by the aforementioned suit, and on November 21, 2022, the OCM approved 36 of the 175 potential licenses. Thirteen of the awarded licenses are to be based in New York City: four in Manhattan, four in Queens, three in the Bronx and two in Staten Island. For a total license allotment of 150 for private business and 25 for nonprofit organizations (70 specifically allotted to New York City), the OCM reported that 884 individuals and businesses and 19 nonprofit groups applied for those licenses. The non-profit organizations must “specifically [be] organizations with a history of serving justice-involved individuals and creating vocational opportunities for them.”
5. Nevada Awarded Cannabis Consumption Lounge Licenses.
On November 30, 2022 the Nevada Cannabis Compliance Board (CCB) issued 40 cannabis consumption lounge prospective licenses, half of which went to social equity applicants. The application window was open for the month of October and the state agency received 99 complete applications from applicants in 13 different U.S. states. This licensing period was the first open application period since the Nevada cannabis industry first began in 2018.
Those selected as a prospective license holder have a 120-day window to provide the required documentation for review and investigation by the CCB. Cannabis Consumption Lounge licensees must pass a final building inspection and obtain CCB approval and licensure before engaging in commercial activity. In addition, licensees must meet all applicable requirements and approvals stipulated by their local jurisdiction (i.e., city and/or county rules and regulations).
The CCB has estimated that the first cannabis consumption lounges will likely open, on a rolling basis, before Summer 2023. Supporters of the lounges envision cannabis comedy clubs, yoga studios, massage parlors and cafes in the State. Nevada is already home to cannabis stores the size of Costco so it should be interesting to see where these Nevada licensees take this.
Looking forward to another year in this exciting industry.
Happy Holidays from Manzuri Law!
Photo by Nick Fewings on Unsplash