Regulatory Update – April 2022
Federal Matters
MORE Act
The U.S. House of Representatives passed the Marijuana, Opportunity, Reinvestment and Expungement (MORE) Act sponsored by Rep. Jerrold Nadler (D-NY) on April 1st. The new bill contains identical language as the original MORE Act that was previously introduced to congress in 2019 by Nadler and then Senator Kamala Harris (D-CA). To sum, the MORE Act if signed into law would remove marijuana as a Schedule I Controlled Substance and implement certain social equity initiatives to redress the outcome of marijuana prohibition such as, the availability of affordable loans from the Small Business Administration to licensed cannabis businesses, a trust fund to support underserved communities and businesses that operate therein and record expungement for past marijuana related convictions. The MORE Act was previously passed by the U.S. House of Representatives in December 2020 but died in the Senate the following year. It remains uncertain whether this version of the bill will pass the Senate next.
Cannabis Banking
More financial institutions across the US are offering banking services to cannabis related businesses. The latest quarterly data on SAR filings collected by the US Department of Treasury, showed that 553 banks (roughly 11% of total US banks) and 202 credit unions (roughly 4% of total US credit unions) recorded marijuana-related suspicious activity reports (SARs) during this period. This is an increase from 2021’s first quarter data in which 510 banks and 174 credit unions reported marijuana-related SARs. Because marijuana-related SARs must be filed on accounts with suspicious activity regardless of whether or not a financial institution has an active cannabis banking program, the data infers that more financial institutions are both actively banking cannabis related businesses as well as properly identifying and removing accounts when needed.
State Matters
Colorado (Adult-Use and Medical)
The City of Denver has awarded its first social equity hospitality license to The Tetra Lounge, a premier social club where patrons can take part in cannabis consumption while enjoying music and artwork. The approval comes as the city moves towards its final stage in marijuana licensing which includes hospitality establishments and consumption lounges. Per Denver city rules, social equity applicants have priority status until July 1, 2027 for various license types in addition to waived application fees and reduced licensing renewal fees. In last month’s blog, Consumption Lounges: The Next Frontier in Cannabis, Green Check Verified reported that consumption lounges and cannabis hospitality are increasingly becoming popular and lucrative facets of the cannabis industry that financial institutions should look out for and consider when accepting new cannabis businesses. To date, Colorado has 6 licensed hospitality retailers. Total 2021 sales for the state’s marijuana industry were $2.2 billion. Denver alone reported $41.5 million in marijuana sales for the month of January 2022.
New Jersey (Adult-Use and Medical)
New Jersey’s Cannabis Regulatory Commission held its long-awaited public meeting on Thursday, March 24th, regarding the decision to allow medical dispensaries currently in operation throughout the state to start selling adult-use marijuana. It was announced at the meeting that the eight (8) Alternative Treatment Centers that applied for an expansion to begin selling cannabis to adult-use consumers age 21 or older must first be evaluated by regulators from the Cannabis Regulatory Commission to ensure that each establishment is in compliance with the regulations set forth by the state for adult-use dispensaries. To sum, state regulators of the Commission relayed that the current Alternative Treatment Centers are not yet ready to serve the influx from adult-use consumers. Factors that were weighed in this decision included patient enrollment, statewide inventory, statewide sales and production capacity.
During the same meeting, the Cannabis Regulatory Commission approved 68 new conditional license applications for cultivation and manufacturing facilities (list of companies); more than half of which are social equity applicants. This approval comes as the state ensures production capacity for its adult-use market. The fee schedule for licenses is included in the Commission’s website but a South Jersey microbusiness applicant reported that their application fees totaled roughly $90,000.
Mississippi (Adult-Use and Medical)
Mississippi’s new medical marijuana program was signed on February 2nd by Gov. Tate Reeves (R). The program is expected to move fast as the application period will open this June and there will be a 30-day review period for business license applications and a 5-day approval period for program patients. As of now, regulations have not been developed yet but the state has said thus far that there are not any license caps for the various licenses. Businesses that may be interested in applying for a license must prove 35% equity ownership belonging to those that have been residents of the state for at least 3 years. Background checks and other disclosures are required for those who directly or indirectly own 10% or more of a medical dispensary. Taxation estimates report that for the first few years of the program, Mississippi may see revenue of up to $47 million from its imposed 7% sales tax.
Michigan (Adult-Use and Medical)
Michigan’s Marijuana Regulatory Authority (MRA) has finally issued its first consumption lounge license. The license was awarded to Hot Box Social, a private event club owned by Trucenta which also owns a dispensary called Breeze in Hazel Park, Michigan. The MRA’s process of reviewing and approving consumption lounge licenses was delayed due to the pandemic which was a setback for towns across the state that had already approved businesses like these to operate. Back in 2021, city planner Alexis DiLeo of Ann Arbor approved 28 consumption lounges to be located in the college town but so far none have been licensed to open by the MRA. Michigan continues to be one of the hottest markets in the country for the cannabis industry. Medical sales for February totaled $26 million and adult-use sales were $129 million per MRA data.
New York (Adult-Use and Medical)
Earlier in March, Gov. Hochul announced that the first 100 to 200 Conditional Adult Use Retail Dispensary licenses would go to applicants with prior marijuana convictions that occurred on or before the Marihuana Regulation and Taxation Act (MRTA) was signed by Gov. Cuomo on March 31, 2021. The social equity component of the Conditional Adult Use Retail Dispensary criteria includes: residency or a significant presence in the state of New York for no less than 180 days during the current year or 540 calendar days over the course of 3 years, and persons with a marijuana conviction or persons with a parent, caretaker, spouse or dependent convicted of the same. Once approved, the licenses will be available for 4 years and business applicants that apply must have held at least 10% ownership in the business for the previous 2 years.
To combat issues surrounding capital for social equity applicants and businesses, the Dormitory Authority of the State of New York (DASNY) drafted a Social Equity Cannabis Investment Fund to be initiated in Spring 2022. The projected size of the fund is $200 million in public investment with a term of 10 years from the date fully capitalized which will be in 2024. There will be an initial 2-year investment period where interest will accrue on fund notes held by private investors. Repayment is between the licensed cannabis business and the DASNY. In addition to funding, the DASNY will also provide support to social equity businesses through identifying and helping applicants acquire retail spaces, and assisting with the construction, design and furnishing of said spaces.
Relatedly, it was recently discovered that the Office of Addiction Services and Support and Division of Criminal Justice Services have not used the $1.6 and $1.4 million in funding that has been accumulated since 2014 from New York’s medical marijuana program. New York’s medical marijuana program requires a 7% tax on sales of which 5% goes towards the Division of Criminal Justice Services and another 5% to the Office of Addiction Services and Support. There’s an additional $15 million in the state’s Medical Cannabis Collection fund as well as $8.4 million in a fund for health operators and medical oversight. The state plans to roll these funds over to the efforts set forth by the Office of Cannabis Management.
New York Indigenous Nations
Politico recently ran an article reporting that over 20 dispensaries have opened up across New York’s various indigenous tribal nations. The nations include: the Seneca Nation of Indians, the Cayuga Nation and the Saint Regis Mohawk Tribe. The Shinnecock Nation on Long Island plans to begin marijuana sales as well but they, along with the Cayuga Nation, will opt to create a central Native-owned and operated dispensary. Like most states, New York permits tribal nations to enter a pact to integrate their cannabis programs with the state’s program but the state has no authority over each tribe’s marijuana market due to tribal sovereignty. As for banking, it remains unclear as to whether these nations are using tribal-owned financial institutions or partnering with local banks and credit unions outside of their territories.
Massachusetts (Adult-Use and Medical)
MJBizDaily reported that more financial institutions in the state are offering financial services to cannabis businesses throughout Massachusetts. The institutions that were identified include Dedham Savings Bank, which sees an opportunity in cannabis banking given Massachusetts’ lucrative market. From January to March 2022, Massachusetts sold $350 million in adult-use marijuana sales and $67 million in medical marijuana sales.
Mergers and Acquisitions
Cresco Labs and Columbia Care
Cresco Labs Inc. recently acquired Columbia Care Inc. in a deal worth an estimated $2 billion. The acquisition was one of the biggest to date for the cannabis industry. Both Cresco Labs and Columbia Care are large, vertically-integrated multi-state operators (MSO’s) in the cannabis space. The 2021 full-year revenue performance for Columbia Care was $81 million and for Cresco Labs was $822 million, a 73% year-over-year growth due to increasing their number of dispensaries and acquiring smaller firms in the cannabis space. Overall, Forbes reports that the cannabis industry continues to grow exponentially with international sales predicted to reach $35 billion this year alone.
