While the 2020 election was one of the most partisan battles this country has faced, one issue crossed the great divide: Cannabis. Cannabis was on the ballot in New Jersey, Arizona, Montana, South Dakota and Mississippi, winning approval from voters in all five of these states. Approving recreational marijuana initiatives in New Jersey, Arizona, Montana, and South Dakota, and medical marijuana initiatives in South Dakota and Mississippi, voters spoke loud and clear. Now, more than 1/3 of Americans will have access to adult-use marijuana in their home state.
In this post, we break down the ballot initiatives in each of these states and provide cautionary tales for state and local regulators and businesses alike.
Nearly 60 percent of voters approved Proposition 207, which allows adults 21 and older to purchase and possess up to one ounce of cannabis, as well as to grow up to six plants at home for personal use. Arizona’s adult-use marijuana program will be regulated by the Arizona Department of Health, which already oversees the state’s medical marijuana program. Under Prop 207, Arizona must launch its adult-use program by June 1, 2021. Interestingly, Prop 207 will keep Arizona’s vertical integration requirement intact and will require the Department of Health to issue licenses to businesses to cultivate, process, and dispense adult-use cannabis. The licensed medical marijuana operators in Arizona will have an advantage in that they will be considered early applicants to these new licenses. Furthermore, Prop 207 will require the state to impose a 5.6 percent sales tax and a 16 percent excise tax on adult-use cannabis, with a portion of the proceeds required to be used to fund public health, expungement efforts, nonprofit services, and social equity efforts. Some believe Arizona’s adult-use program could result in almost $300 million in sales in 2021.
67 percent of New Jersey voters approved Public Question No. 1, a ballot referendum to legalize adult-use cannabis for adults 21 and older. New Jersey’s adult-use ballot initiative did not lay out a regulatory framework for New Jersey to implement adult-use marijuana cultivation, processing or sales. New Jersey’s Cannabis Regulatory Commission, which was first established to oversee the state’s medical marijuana program, will also be responsible for regulating the state’s adult-use marijuana program. All adult-use marijuana sales would be subject to the state’s sales tax. The amendment takes effect on January 1, 2021; however, lawmakers must first legislatively determine details for the program, which includes but is not limited to restrictions and regulations, as well as the licensing process. New Jersey Governor, Phil Murphy, has been a strong proponent of Public Question No. 1, and has indicated he would like to see the New Jersey Legislature immediately take up legislation to implement the referendum. New Jersey’s adult-use program will not impact the state’s medical marijuana program and is estimated to result in more than $350 million in sales in 2021.
Approximately 57 percent of Montana voters approved MT Initiative 190 and MT Constitutional Initiative 118, a package of referendums to legalize adult-use marijuana cultivation, production, and sale to adults 21 and older. The referendums will take effect on January 1, 2021, and will immediately permit adults 21 or older to possess up to one ounce of cannabis flower and up to eight grams of concentrates. Additionally, Montana will now permit residents to possess up to four mature plants and four seedlings per individual (with a maximum of eight plants per household) for home grow/ personal consumption purposes. The Montana Legislature will now be tasked with implementing regulations, restrictions, and licensure procedures. Montana will tax adult-use cannabis at a flat rate of 20 percent and there will be a one-year moratorium on new licenses for out-of-state companies. Many estimate adult-use sales will not begin until January of 2022.
Voters made history by approving ballot measures to legalize both medical and adult-use marijuana for the first time. Amendment A will create a taxed and regulated adult-use cannabis market for adults 21 or older. Taking effect July 1, 2021, Amendment A requires the state legislature to adopt rules and regulations for the adult-use program, including licensure requirements. Adult-use sales of cannabis will have a 15 percent excise tax imposed with proceeds being used to fund implementation of the cannabis program. Simultaneous with passage of adult-use in South Dakota, approximately 70 percent of voters approved medical marijuana in the state. Under the medical marijuana initiative, the state Health Department has 120 days to enact program rules, including regulations and licensure requirements for the cultivation, processing, and sale of medical marijuana to patients suffering from various chronic or debilitating diseases or medical conditions.
In one of the clearest indications that cannabis legalization efforts are agnostic to political ideology, approximately 74 percent of Mississippi voters approved Initiative 65, which legalizes medical marijuana in the state. Under Initiative 65, the Mississippi Department of Health will be responsible for developing regulations for the program by July 1, 2021, and issuing approved patient cards by August 15, 2021. The initiative approves medical marijuana use for Mississippi residents who have at least 1 of 22 qualifying conditions.
Excitement Must be Met with Baited Breath
It’s not all “sunshine daydreams” for these five states. Industry participants must anticipate both regulatory and legal challenges that could delay implementation of state programs.
New Jerseyans don’t have to look further than their own medical marijuana program to understand how costly licensing delays can be. Issuing Executive Order 6 in January 2018, Governor Phil Murphy directed the Department of Health to review New Jersey’s medical marijuana program with the goal of expanding access to medical marijuana. In July 2018, the Department of Health said it would be opening an application process to award six additional licenses to businesses to cultivate and sell medical marijuana. But after the Department evaluated and awarded those six licenses in December 2018, several unsuccessful applicants appealed the Department’s determination and just recently won a decision from a state appellate panel that requires the Department of Health to reconsider applications submitted by these unsuccessful companies.
While that litigation was pending, Governor Murphy signed the Jake Honig Compassionate Use Medical Cannabis Act into law in July, 2019, creating 108 new licenses which garnered excitement across the industry. This application process was again plagued by litigation when five applicants were penalized due to a glitch in the Department of Health’s review system, filing a lawsuit to stay the review process. This litigation is still pending.
As of December 5, 2020 – approximately eighteen months after the availability of 108 ad
ditional licenses were announced – not a single license has been awarded.
In addition to flawed scoring systems, state and municipal-imposed residency requirements have also spawned contentious litigation in jurisdictions that have permitted recreational marijuana. Maine, for example, included a provision in its adult-use marijuana legislation largely prohibiting non-residents from receiving adult-use marijuana licenses or from owning a majority of any company that holds an adult-use license. In March, 2020 Wellness Connection – a Delaware corporation – filed suit to challenge this residency requirement, arguing that it violated the dormant commerce clause. Shortly after suit was filed, Maine dropped this residency requirement.
That didn’t stop the City of Portland from promulgating rules that favored Maine residents in the application process for an adult-use dispensary licenses. In its scoring rubric to determine which business would win one of the 20 adult-use retail store licenses, the City of Portland was to award five of the total 34 points if the applicant is “at least 51% owned by individuals who have been a Maine resident for at least five years.” Four additional points were to be given if the applicant was “owned by individuals who have previously been licensed by the State of Main or a Maine municipality for non-marijuana related businesses . . . for a minimum of 5 years.”
Wellness Connection sued the City of Portland, again arguing this scheme violated the dormant commerce clause. A Federal Court agreed with Wellness Connection’s arguments, granting its motion for a preliminary injunction and enjoining the City of Portland from applying those two criteria in its scoring matrix.
Regulators and businesses must take notice of these lawsuits, learn from the mistakes of other states, and avoid lengthy and costly litigation that could very well delay the start of an entirely new industry within the state.