How Does Recreational Cannabis Legalization Impact the Future of Medical Cannabis?
by Chane Leigh
The cannabis industry has been on a progressive incline for the last few years and 2021 is no exception. In fact, this year looks set to be one of the most successful years for cannabis reform in the United States so far.
Among the many recent developments that are occurring in the industry, such as the Drug Enforcement Administration’s (DEA) push to review cannabis research applications and the House-approval of cannabis-focused spending legislation, the legalization of recreational cannabis in four particular states is having a profound impact on the industry at large.
Rather than a ballot initiative, Connecticut, New Mexico, New York, and Virginia legalized the plant for adult-use purposes via a legislative process. They follow in the footsteps of Vermont, which became the first legislative-driven legal cannabis state back in 2018.
Collectively, the four aforementioned newly legal states are projected to earn $4.5 billion in annual sales by the fourth year of operation. This is based on sales forecasts published in the MJBizFactbook.
Furthermore, with medical cannabis having been legalized in Alabama — thanks to efforts from the governor and lawmakers — an additional $500 million in annual sales revenue are expected to be pumped into the U.S. economy as time progresses.
The growing number of states celebrating a victory for recreational cannabis indicates how governors and lawmakers are steering legalization in the right direction; as opposed to states merely relying on citizens to vote for legal cannabis.
Let’s take a look at some key business details and projections for those newly legal states:
At some point next year, New York will kick-start its recreational cannabis market. Analysts predict that the industry will reap as much as $2.1 billion in annual sales by the fourth year of operation.
The state’s existing medical cannabis operators are invited to participate in the recreational cannabis market if they pay a one-time “special licensing fee.” This fee — which is designed to support social equity programs — is required to convert up to three medical cannabis dispensaries into dual medical-recreational facilities.
In addition to this, microbusinesses can establish vertical cannabis operations, which will essentially aid them in scaling their business to a larger target market. Vertical integration is prohibited for other cannabis companies, with critics believing that this business model could unfairly grant existing medical cannabis operators a leading edge.
All cannabis products sold through New York’s recreational market will be taxed at 13%, with 9% being allocated for the state and 4% for localities.
Social and economic equity applicants will have the chance to apply for 50% of all adult-use cannabis business licenses in New York. Based on the opinions of experts, these applicants will be given priority status to apply for a delivery or microbusiness license.
Furthermore, 40% of tax revenues earned through adult-use sales will be distributed among communities that have been hardest hit by the failed war on drugs. Waivers and low- or zero-interest loans shall be made available to social equity applicants for the purpose of assisting with business operations and application preparation.
Another adult-use cannabis market will transpire next year in Connecticut. The market’s projected start date is May 2022. Once things are running smoothly by the fourth year of operation, annual revenue is forecast to hit $750 million.
Medical cannabis cultivators who currently operate in the State of Connecticut could apply for a recreational license as early as this summer. However, it’s important to note that — according to the Marijuana Policy Project — each applicant would be required to pay a fee of $3 million. Conversely, the fee is reduced to $1.5 million if the applicant creates a minimum of two social equity joint ventures.
Prior to receiving a final license, recreational cannabis operators in Connecticut must make a “good-faith effort” to participate in labor peace agreements with a union.
Cannabis retail sales can be outlawed by local jurisdictions through the enactment of zoning laws. On the other hand, residents can file a petition to approve adult-use cannabis stores via a local referendum.
Adult-use cannabis products in Connecticut will be subject to a state sales tax of 6.35%, not to mention taxes based on product potency. Municipalities that permit recreational cannabis sales would also collect a 3% sales tax.
Half of the adult-use cannabis business licenses in Connecticut will be reserved for social equity applicants. The majority of new licenses will be awarded via a lottery process since this will ensure that all applicants have equal opportunities to compete.
From April 1, 2022, cannabis consumers in New Mexico will be able to legally buy their bud from the state’s adult-use retail stores. By the fourth year of operation, annual sales are anticipated to top $425 million. Although municipalities can cap the number of adult-use cannabis operations, they cannot be forbidden outright.
All micro-businesses operating in New Mexico’s adult-use cannabis market can be vertically integrated. A 12% excise tax will be imposed on retail sales, in addition to local and state sales taxes that vary between 5% and 9%. As time progresses, the excise tax will climb to 18%.
In order to ensure license equality and diversity for all applicants, a plan is expected to be drawn up by the state. Regulator agreements will also be hashed out to help Native American communities participate in New Mexico’s recreational cannabis market.
With a recreational cannabis market geared up for launch on January 1, 2024, Virginians have a lot to look forward to. The economy is sure to benefit just as much as consumers, with analysts expecting annual sales of approximately $1.3 billion by the fourth year of operation.
Contingent on reenactments in 2022, specific license caps will be implemented for Virginia’s adult-use cannabis program. They are as follows:
Only small businesses will be given the opportunity to get involved in the state’s legal cannabis market via vertical integration.
In addition to this, adult-use cannabis product sales will be taxed at 21%. On top of this, a 6% standard state sales tax will be applied to all products. An additional 3% could be charged by municipalities.
During an early stage of the licensing process, social equity licenses will be awarded to applicants in Virginia. Those who qualify must maintain a business ownership stake of at least 66%. Once approved, applicants can obtain a low-interest loan that will aid them in raising the necessary capital to launch a cannabis store in Virginia.
Looking to the future, things seem a lot brighter in terms of U.S. cannabis reform. For example, it was recently revealed that President Joe Biden’s nominee for director of the White House Office of National Drug Control Policy (ONDCP), Rahul Gupta, collaborated with multi-state cannabis operator Holistic Industries last year.
Moreover, Senate Majority Leader Chuck Schumer (D-NY) has teamed up with Senate Finance Committee Chairman Ron Wyden (D-OR) and Senator Cory Booker (D-NJ) to prepare comprehensive federal cannabis reform legislation. The Cannabis Administration and Opportunity Act (the CAOA), which would deschedule cannabis and set 21 years as the minimum purchasing age, is expected to be introduced this fall.
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