Bill to Expedite Delaware’s Adult-Use Cannabis Sales Launch Now in Governor’s Hands

Delaware Democratic Gov. John Carney, who opposed adult-use cannabis legalization when lawmakers enacted legislation without his signature last year, now gets to decide if the state’s existing medical cannabis companies will have a pathway to the forthcoming market.

The state’s General Assembly sent new legislation, House Bill 408, to Carney’s desk June 27, following a 16-5 vote in the Senate and a 29-11 vote in the House. The legislation aims to create temporary conversion licenses for existing Medical Marijuana Compassion Centers to operate for adult-use cannabis purposes.

Under Delaware’s Marijuana Control Act, the adult-use legalization bill passed by Delaware lawmakers last April, there’s no path for medical cannabis licensees to transition to adult-use operations automatically.

Rob Coupe, Delaware’s marijuana commissioner whom Carney nominated in June 2023 to lead the Office of the Marijuana Commissioner (OMC), helped lawmakers draft H.B. 408 this spring to potentially stand up a commercial adult-use retail market by March or April 2025.

RELATED: Delaware Marijuana Commissioner Works to Include Medical Operators to Kickstart Adult-Use Sales

Specifically, Delaware has six vertically integrated medical cannabis licensees that operate a dozen compassion centers. When initiating the framework for H.B. 408 earlier this year, Coupe told Cannabis Business Times that a “really strong foundation of performers” would help get the forthcoming adult-use market up and running.

“They’re already established here,” he said. “They’re good businesses that were established in Delaware based on our need. They’ve been contributing to our employment; they’ve been contributing to taxes; they’re providing the service to the patients. So, it’s good business for us to create a pathway for them.”

Under H.B. 408, sponsored by Rep. Ed Osienski and Sens. Trey Paradee and Kyra Hoffner, Delaware’s medical cannabis licensees would have to pay a base conversion fee of $100,000 for manufacturing, retail and testing permits and $200,000 for cultivation permits to transition to adult use. These fees could be paid quarterly over 12 months—or over 18 months with a 10% increase.

Lawmakers earmarked the proceeds from these fees for financial assistance to social equity applicants, according to the legislation.

“House Bill 408 has potential to raise up to $4.2 million in licensing fees,” Paradee said June 27 on the Senate floor. “That money will then be used to help launch and support the social equity licenses in the form of grants.”

Since the legislation included these new licensing fees, it required a three-fifths vote from each chamber to pass: It received 72% support in the House and 76% in the Senate.

H.B. 408 also specifies that the marijuana commissioner can begin accepting applications for conversion licenses Aug. 1, 2024. These licenses would need to be issued by Nov. 1, 2024, and would expire after 24 months, at which time the license may be renewed as an open license, according to the bill.

The state’s medical cannabis licensees must meet the following conditions to apply:

• Eligibility for renewal in the Delaware medical cannabis program
• Documentation showing current ability to meet medical market demands, plans for continued service, and plans for supporting the social equity program
• A signed labor peace agreement with a legitimate labor organization
• Submission of facility dimensions for cultivation facilities, if applicable
• Payment of the conversion license fee
  

Although Delaware’s Marijuana Control Act passed last year requires state regulators to begin issuing 30 adult-use dispensary licenses—including 15 for social equity and 15 for open license applicants—on March 1, 2025, the concern among state officials is that these new operators won’t have the necessary supply to serve an adult-use consumer base without allowing existing medical cannabis cultivators to participate.

“[H.B. 408] will allow sales to start as early as April of 2025, giving us the tax revenue from sales,” Osienski said June 18 on the House floor. “Without this bill, sales would not likely start till April of 2026. So, we’re getting a jump on the retail sales. We're getting product to our new license holders for social equity—and our other license holders for retail and manufacturing—until the brand-new cultivators can get up and running.”

The OMC plans to issue 60 new cultivation licenses, including 20 each for social equity, microbusiness and open license applicants, by Nov. 1, 2024. The office also plans to issue 30 new manufacturing facility licenses, including 10 for each applicant type, by Dec. 1, 2024.

But Osienski said it could take 18-plus months for these new cultivation licensees to find and fit out a facility and grow their crops for the adult-use marketplace. Meanwhile, the existing compassion centers already have that infrastructure up and running.

In addition to expediting an adult-use sales launch, H.B. 408 includes an amendment from Rep. Sherry Dorsey Walker that “all funds derived from the issuance of conversion licenses” must be solely used as financial assistance to social equity applicants.

While lawmakers included provisions for a social equity program under the Marijuana Control Act passed last year, Osienski said the legislation lacked a funding mechanism to assist qualifying operators.

“Now we have startup funding for that,” he said on the House floor. “This will allow those that are coming in that were disproportionately affected by the prohibition on marijuana to have financial assistance just like many of our companies and corporations throughout Delaware when they apply to expand here or move here. So, this will provide that resource for them and also allow them to get up [and running].”

The other main component of H.B. 408 is to protect the integrity of Delaware’s medical cannabis program by requiring medical cannabis licensees seeking a conversion license to:

• Provide an attestation that they will serve medical cardholders in accordance with the Medical Marijuana Act;
• Continue operating their retail facilities as medical dispensing locations, prioritizing the distribution of cannabis products to qualifying patients, maintaining or increasing the diversity of medical cannabis products available;
• Provide product and pricing information to the marijuana commissioner within seven days of increasing the maximum price for any cannabis or cannabis product or a new product being offered;
• Abide by an agreement to continue medical cannabis operations and to maintain an adequate and diverse supply as well as justifiable pricing with respect to medical cannabis and cannabis marijuana product; and
• Provide monthly wholesale pricing information to the marijuana commissioner.
  

Paradee said in a June 21 press release that when lawmakers passed the Marijuana Control Act last year, they intended to “replace an illegal market that has overwhelmed our court system and damaged lives with a legal, regulated and responsible industry” that will provide a positive economic impact on the state.

He also said the state needs to protect the jobs created by existing medical cannabis licensees as well as the needs of the patients they serve. He reiterated this stance on the Senate floor last week before passing H.B. 408.

“Maintaining the health and efficacy of the medical program is of critical importance to myself and the primary sponsor, Representative Osienski,” Paradee said. “[Compassion centers] must prioritize sales to qualifying medical patients, including suspending sales to recreational consumers in the event of a shortage.”

Once bills are officially presented to his office, Carney has a 10-day constitutional window (Sundays excluded) to sign, veto or take no action.