Caution for potential adult-use cannabis players: State guidance still in flux
Entrepreneurs, employers and municipalities that are sorting out how they will approach Connecticut”™s legalized retail cannabis market next year are still facing government guidance that in some cases is incomplete, confusing or simply nonexistent.
Indeed, according to Pullman & Comley attorney Andrew Glassman, it”™s “not for the faint of heart.”
Glassman, co-chair of Pullman”™s business organizations and finance practice, was one of the presenters at the Bridgeport law firm”™s Oct. 6 “Cannabis in Connecticut” webinar.
Part of the problem, Glassman and other Pullman attorneys said, has been the slow rollout of regulations by the Social Equity Council, developed to ensure that the adult-use cannabis program is grown equitably, and that funds from the program are brought back to the communities hit hardest by the war on drugs.
“Here we are sitting and waiting, wondering what the SEC will do,” Glassman said. “It has set no guidance on the management and control of allowable capital structures.”
In addition, while a number of the firm”™s clients have been considering convertible debt to capitalize their entities, “it”™s unclear if that would satisfy SEA (social equity applicant) criteria.”
As Glassman”™s fellow co-chair Nancy Hancock explained, the SEC is due to recommend additional qualifications and to provide for expedited or priority licenses, for SEAs by Jan. 1. It is charged with establishing minimum criteria for any cannabis establishment licensed on or after that date that is not owned by an SEA to comply with a workforce development plan to reinvest or provide employment and training opportunities for individuals in disproportionately impacted areas (DIAs).
“I”™ve heard that maybe 22% to 23% of Connecticut citizens will qualify as DIA area residents,” Hancock added.
Also uncertain at this time is how the state Department of Consumer Protection will operate its lotteries ”” at least two per license type ”” to select who will be allowed to operate under the new law, something that as its name implies will depend at least in some small measure upon luck. The DCP will announce the total number of applications to be selected, and allocate 50% of them to a third-party lottery operator.
Hancock noted that 50% of the licenses will go to SEA applicants, with the result that the general lottery will not be held until a sufficient number of SEAs have been selected for that license group.
Following what seems to be a rather cumbersome process, applicants selected via the lottery will need to complete a provisional application and submit the appropriate fee; the provisional licensee will have 14 months to obtain a fully operational license.
Glassman noted that there are alternatives for those not willing to rely upon luck to get a license. Converting an existing medical marijuana license would seem to be one of the simplest, with cultivators able to convert as of July 1 and dispensaries able to do the same starting Sept. 1.
One problem? No conversion application currently exists.
A second issue is the cost of conversion; Glassman said he”™d heard that cultivators are looking at spending as much as $300 per square foot to convert, while dispensaries”™ conversion efforts will be “considerably less expensive.”
Guidance on how interested parties can skip the lottery is also still in the works; a number of joint venture possibilities, including those with an SEA. Glassman said that Pullman”™s best guess for when Connecticut”™s retail cannabis business will start is mid- to late-2022.
Gary O”™Connor, co-chair of Pullman”™s real estate, energy, environmental and land use department, reviewed the various rights municipalities have when it comes to adult-use cannabis, including the control of the production, retail sale and public consumption; the number and siting of cannabis establishments; and the consumption of the product on municipally-owned or controlled property.
Under the statutes, municipalities can in effect choose one of four zoning paths, including taking no action. However, O”™Connor warned, an enterprising retailer could apply for zoning approval in the same area and manner as a retail liquor store.
Other options include zoning for or against allowing adult-use retail ”” Greenwich has done the latter — or implementing a moratorium, as has been done in such locations as Danbury and Trumbull.
However, attorney Steve Stafstrom ”” who is also a state representative ”” cautioned that there are limits to municipal authority. As an example, he said, a dispensary in Stamford could offer delivery service to Greenwich; Stamford would therefore receive the 3% municipal sales tax as the product was “sold” there, unless Greenwich specifically prohibits such transfers.
Megan Carannante, who co-chairs Pullman”™s labor. Employment law and employee benefits department, said that employers can still maintain drug-free workplaces and prohibit employees from being under the influence of cannabis while at work ”” although she noted that there are employment protections going into effect next July 1 for those choosing to consume cannabis during non-work time and/or pre-employment.
Some employers ”” those in the construction, manufacturing, transportation, health care and educational services industries, among others ”” are exempt from such statutes, as are those working as a firefighter, EMT, police/law enforcement officer, or who requires federal Department of Defense or Department of Energy security clearance.