Significant changes to DC’s medical cannabis program are currently unfolding after the Medical Cannabis Amendment Act of 2022 (MCA) went into effect last month. Previously, DC’s medical cannabis program licensed dispensaries, cultivation centers and testing laboratories, but there has been a proliferation of unlicensed establishments that take advantage of a loophole in the current laws. So-called “gifting” shops do not sell cannabis, but instead the shops sell common goods like art and clothing and give “gifts” of cannabis. The MCA, among other things, establishes a process for these unlicensed establishments to obtain a license, creates new license categories and endorsements, and promotes social equity in the medical cannabis market in DC.
The first thing the legislation did was to change the name of DC’s cannabis regulator. The Alcoholic Beverage Control Board (commonly known as the ABC Board) has been renamed the Alcoholic Beverage and Cannabis Board and the Alcoholic Beverage Regulation Administration (commonly known as ABRA) has been renamed the Alcoholic Beverage and Cannabis Administration (to be known as ABCA).
The biggest changes under the new legislation all address the types and availability of medical cannabis licenses. Previously, DC offered limited numbers of licenses for dispensaries, cultivation centers and testing laboratories. Each type of license was capped by Ward and all available dispensary and cultivation center licenses had been issued. Under the MCA, the caps have been all removed and additional license types have been created for internet retailers, manufacturers and couriers.
Previously, DC only allowed for eight dispensary licenses, with no more than two located in a single Ward, 14 cultivation center licenses, with no more than six located in a single Ward, and two testing laboratories in each Ward. But now those license caps are gone.
Going forward, there will be no limits on the total number of licenses that ABCA can issue, but there will be limits on how many licenses a single licensee may hold.
A single licensee will be allowed:
- Up to two (2) cultivation center licenses and either a retailer license or an internet retailer license;
- Up to three (3) retailer licenses (including internet retailer licenses).
- There will be no limit on the number of manufacturer licenses that a licensee may hold.
- A licensee holding a testing laboratory license is not permitted to hold a cultivation center, manufacturer, retailer, internet retailer, or courier license.
HOWEVER, no later than September 18, 2023, the ABC Board is required to establish processes and procedures for requesting, reviewing, and implementing a cap or moratorium on the issuance of cultivation center, retailer, or internet retailer licenses that may operate in a Ward, ANC, or single member district of an ANC.
In addition, starting March 22, 2023, the ABC Board will also be allowed to limit the number of cultivation centers, retailers, or internet retailer licenses that may operate in a Ward, ANC, or single member district of an ANC based on supply and demand considerations.
The dispensaries that currently hold licenses will be eligible to receive a cultivation center license and a manufacturer license upon approval of an application and payment of an annual fee.
Existing Cultivation Centers
The cultivation centers that currently hold licenses will automatically receive a manufacturer license provided that the annual fee is paid and shall be eligible to receive a retailer or online retailer license upon approval of an application and payment of an annual fee. Cultivation center licensees will also be eligible, upon ABC Board approval, to physically expand the licensed facility into adjacent property for the purpose of increasing production if the licensee owns or has a valid lease for the adjacent property.
Testing Laboratory Licenses
Testing laboratory licenses are the only license type with an open application period, currently. ABCA began accepting applications for two testing laboratories registrations on January 9, 2023, and no deadline has been announced.
Internet Retailer Licenses
An internet retailer license will permit the licensee to operate a cannabis business in DC through the use of the internet, a mobile application, or similar technology program. The internet retailer license allows for the provision of delivery services but the licensee is prohibited from having a physical location that is open to the public.
NOTE: Internet retailer license holders may provide delivery services for their own products, but a courier license is required to provide delivery services for other businesses.
A manufacturer license will permit the licensee to operate a cannabis business in DC for the purpose of (A) processing medical cannabis from cultivation centers into medical cannabis concentrates and medical cannabis-infused products, (B) packaging and labelling medical cannabis concentrates and medical cannabis-infused products for dispensing at licensed retailers and internet retailers, and (C) sell medical cannabis concentrates and medical cannabis-infused products at wholesale to licensed retailer and internet retailers.
A courier license will permit the licensee to operate a cannabis business in DC for the purpose of delivering medical cannabis, medical cannabis concentrates, medical cannabis-infused products, or medical cannabis paraphernalia on behalf of a licensed medical cannabis retailer or internet retailer to qualifying patients or caregivers. Courier license holders must contract directly with a holder of a retailer license or internet retailer license, but courier license holders are permitted to facilitate the sale of medical cannabis or medical cannabis products through the use of the internet, their own mobile app, or a similar technology platform.
No licensee that holds any other type of cannabis license in DC (retailer, internet retailer, manufacturer, cultivation center, or testing lab) is permitted to also hold a courier license.
ABCA has location restrictions that apply to all licensed cultivation centers, manufacturers, retailers, internet retailers, couriers, and testing laboratories in DC. Those restrictions include the following prohibitions:
- Being located within 300 feet of a preschool, primary or secondary school, or recreation center.
- Being located within a residential district.
The 300 feet restriction does not apply when the main entrance to a school or recreation center, or the nearest property line of a school or recreation center, is actually on or occupies ground zoned for commercial or industrial according to the DC Zoning Commission.
The MCA authorizes ABCA to issue one-year conditional licenses for a cultivation center, retailer, internet retailer, manufacturer, or courier license applicants that do not currently have a proposed location. Under the conditional license, the applicant shall have one year from the date of ABC Board approval to submit:
- A lease or something similar;
- A security plan;
- A certificate of occupancy;
- Any remaining fees; and
- Any other documentation requested by the ABC Board.
Unlicensed establishments may not apply for conditional licenses and one-year conditional licenses cannot be transferred to new owners.
In addition, the Mayor is authorized to create additional license categories, including but not limited to, a transporter license, tiered cultivation center licenses, different types of manufacturer licenses, and shared facility licenses that allow licensees to share existing space and equipment.
Unlicensed Establishments Transition
An unlicensed establishment is defined as a sole proprietorship, partnership, or other business entity that sells, exchanges, or delivers cannabis, operates or delivers from a location in DC and is not licensed by ABCA. Starting November 1, 2023, unlicensed establishments will have a 90-day open application period to apply for licenses and must demonstrate that the location:
- Has a valid business license issued on or before December 31, 2022, and has been in continuous operation at least since then;
- Has a valid certificate of occupancy issued prior to the date on which the application is submitted; and
- Can demonstrate that business taxes were paid to the District for each year after following the issuance of a certificate of occupancy or business license.
New retailers must not be located within 400 feet of an existing cannabis retailer but unlicensed establishments can relocate to a compliant location before submitting their application. ABCA will review the applications on a first-come, first-serve basis. Once an application is approved and a license is issued, the licensee will be required to open the establishment within 120 days.
At least half of all licenses that are issued to unlicensed establishments are required to be issued to social equity applicants.
Social Equity Applicants
Going forward, at least 50% of all new licenses will be issued to social equity applicants (does not apply to cultivation centers who receive a manufacturer’s license). A social equity applicant must meet at least two of the following criteria:
- The applicant has at least one owner who is a DC resident, who individually or collectively owns at least 50% of the business, and is a returning citizen.
- The applicant has at least one owner who is a DC resident, who individually or collectively owns at least 50% of the business, and is married to, in a civil union with, has a child with, is the child of a person, or has a non-parent legal guardian, who is or has been incarcerated for a cannabis or drug related offense; OR
- The applicant has at least one owner who is a DC resident, who individually or collectively owns at least 50% of the business, and has an income that does not exceed 150% of the median family income as set forth by the US Department of Housing and Urban Development, adjusted for household size, at the time the applicant submits the housing application.
Social Equity applicants must submit an affidavit with their application attesting to:
- The number of owners who meet the social equity criteria;
- The ownership interest, income, and net worth of all owners;
- The location of the principal office of the applicant;
- The residency of all owners, employees and contractors; and
- The location of the assets and percentages of the assets in each location.
For new social equity applicants, ABCA is waiving up to 75% of any nonrefundable license fees, including any nonrefundable application fees and annual or renewal license fees associated with receiving a medical cannabis facility license to operate for the first three years.
A license issued to a social equity applicant cannot be transferred to a new owner until three years after its issuance unless it is transferred to another social equity applicant. After three years, if the license is transferred to an entity that is not a social equity applicant or certified business enterprise, the new owner must repay any grants or loans DC may have provided, in addition to any waived licensing and application fees.
Medical Cannabis Certified Business Enterprises
A Certified Business Enterprise (CBE) is a business headquartered in DC and is approved by the Department of Small and Local Business Development. An applicant seeking a certified business enterprise must submit an affidavit with their application that attests to the number of owners who are economically disadvantaged individuals or individuals who have been subjected to racial or ethnic prejudice or bias because of their identities as members of a group without regard to their individual qualities, the ownership interest, income, and net worth of any owners, the location of managerial employees in principal office, residency of owners, employees, and contractors, and the location of assets and percentage of assets in each location.
Retail Delivery Endorsement
A holder of a retailer license can apply for a delivery endorsement, which allows the holder to offer curbside pickup and deliver medical cannabis directly to a qualifying patient or the qualifying patient’s caregiver at residential and commercial building addresses located in DC. Curbside pickup or delivery of medical cannabis can only occur during the hours of 9 am to 9 pm, seven days a week.
If an internet retailer license is held, then there is no requirement to obtain a delivery endorsement to be permitted to deliver medical cannabis.
Safe-Use Treatment Facility Endorsement
A holder of a retail license can apply for a safe-use treatment facility endorsement, which allows the facility to sell medical cannabis and products at the retailer and it can be administered onsite within designated consumption areas. The designated consumption areas must be separate from the remainder of the premise by a secure door and have separate ventilation, A safe-use treatment facility can offer to sell food that does not contain cannabis and offer recorded or background music. It also allows a qualifying patient or caregiver to remove unused products from the premise.
Summer Garden Endorsement
A holder of both a retailer license and a safe-use treatment facility endorsement can apply for a summer garden endorsement, which allows the facility to conduct operations in a summer garden, including the sale, service, and consumption of medical cannabis on outdoor private space. A summer garden endorsement may be authorized to conduct business operations in the summer garden only between the hours of 8 am and 12 am, seven days a week.
Education Tasting Endorsement
A holder of a retail license can apply for an education tasting endorsement, which allows for the offering of cooking and how-to classes and demonstrations, and tastings for educational purposes to qualifying patients and caregivers. Educational activities may be offered between 7 am and 9 pm, seven days a week.
Finally, the MCA allows medical cannabis businesses to claim any tax deduction or credit on their DC income taxes that would be prohibited for purposes of filing federal income taxes under §208E of the Internal Revenue Code.
If you have any questions about the MCA or the DC medical cannabis program, please reach out to your contact at Foley Hoag or contact Austin A.B. Ownbey or Tyrus Jackson.