Nearly 4 years after the vote to legalize adult-use marijuana, Mainers are still awaiting the launch of the State’s recreational marijuana market. According to the Marijuana Business Daily, industry projections show it’s recreational market capable of producing over $300 million per year, although the coronavirus outbreak has made the industry a hard one to forecast with much of the data relying on Maine tourism levels expected in years unlike 2020.
An end is in sight, however, for the industry’s delayed start. The launch of the recreational market, originally expected in March 2020 and pushed to June 2020, is now set to begin this fall. Erik Gundersen, Director of the Maine OMP, alluded to an industry startup while appearing before the State of Maine Revenue Forecasting Committee on August 12th. He informed the committee that tax revenues from adult use establishments should be expected in 2020.
The highly-anticipated news came on August 14th, when the OMP announced its intention to issue the first active licenses to recreational cannabis businesses on Tuesday, September 8, 2020, and, beginning October 9, 2020, retail sales of adult-use marijuana will begin.
“Today’s announcement is a major milestone in honoring the will of Maine voters and a significant step toward launching a new industry in the state. Many of the business owners we have spoken with during the application process are ready and eager to commence operations” said Erik Gundersen.
Why the hold up?
State residency issues have been a major factor. In an effort to give Maine residents a “leg up” in the business, Maine’s Marijuana Legalization Act included a 4-year residency requirement, which banned licenses from being awarded to out-of-state applicants until June 2021. The Maine Office of Marijuana Policy (OMP) subsequently dropped the requirement without judicial or state legislative action. On May 29, 2020, the Maine Marijuana Coalition filed a lawsuit claiming the state is in violation of its own Marijuana Legalization Act laws.
The City of Portland recently set a cap on retail establishments at 20, and placed stricter rules on business locations, requiring 250 feet between adult-use outlets or medical marijuana dispensaries. The city has also implemented a point system for determining license approval, which has slowed down the process and is hindering some applicants. Additional points are awarded to applicants that have been Maine residents for at least five years, to those who have a retail location secured through ownership or a long-term lease, as well as those with at least $150,000 in liquid assets. These marks are hard to hit for aspiring small businesses.
Wellness Connection of Maine pulled a lawsuit filed in March when the OMP dropped the requirement; however, when the ordinance for the “points matrix” was established in May, Wellness Connection followed up in June by filing a federal lawsuit against the city of Portland. They argued the residency requirement was “discriminatory” and “unconstitutional.” On August 14th, a U.S. District Court judge sided with Wellness Connection, agreeing that the advantage given to Mainers wouldn’t do any favors for a Maine cannabis retailer owned by a Delaware corporation.
The current coronavirus crisis has imposed further delays on the recreational front, with local approval at a crawl, the licensing processes previously at a halt, and municipalities still deliberating on adopting the industry. Only 10% of Maine’s municipalities have opted in. On the bright side, those who have opted in include the State’s largest cities, Portland, Lewiston, Bangor, South Portland, and Auburn. Some cannabis-related businesses have spent an overwhelming amount of money in securing a business location and paying rent in anticipation of the launch of the recreational market.
“With the support of the public health community, municipalities across the state, and the industry we regulate, we have used the last few months to ensure this new industry is introduced to Maine consumers in a manner that is as responsible as possible” said Erik Gundersen.
As of August 3rd, the OMP reports 173 pending applications for adult use establishments. These applicants have submitted their application and are still in the various stages that come before conditional approval, such as criminal history records checks and obtaining their Individual Identification Cards. The OMP reports 178 applications for adult use establishments that are in conditional status, with 29 that have obtained local authorization.
SAFE Banking Act
The cannabis industry also faces hardship in securing access to traditional banking services, a fact which has only been underscored by the current crisis. Since marijauna isn’t federally legal, federally chartered financial institutions are reluctant to work with cannabis-related businesses. To date, these institutions have faced the threat of losing their charter or facing civil or criminal penalties for providing services to cannabis-related businesses. This means these businesses are forced into cash-only operations, causing unnecessary cash-counting time and effort, increases in exposure to theft and criminal activity, denial of potential revenue from purchases made online or with credit cards, and lack of access to loans, bank accounts, and credit lines. Access to alternate financing options couldn’t come at a better time for an industry that has had no access to the Small Business Administration’s (SBA) relief programs. The influx of new banking business would also lead to a competitive and affordable banking market
The Secure and Fair Enforcement (SAFE) Banking Act of 2019, the standalone bill passed by the House last September, was drafted to rectify these issues. Since that time, the bill remained with the Senate Banking Committee for negotiation until its reintroduction in the House’s proposed Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act in May 2020. The House bill contained additional emergency considerations, such as the need to reduce cash transactions to ensure public safety.
To date, the House and Senate have, unfortunately, not been able to reach an agreed-upon version of a legislative aid package, meaning, once again, the proposed SAFE Banking Act legislation is in limbo. Still, it should be considered a move in the right direction toward eventual change. The conversation has been revived, advocacy has been reignited, and congressional leaders are taking action. The pressure on the Senate Banking Committee will only be greater to negotiate the terms of the SAFE Banking Act.
Positive Legislation for Hemp-Related Businesses
On June 29th and August 3rd, the Financial Crimes Enforcement Network (FinCEN) issued guidance for financial institutions in an effort to expand the financial services available to hemp-related businesses and increase reporting transparency. Since December 2019, financial institutions have not been required to file a Suspicious Activity Report (SAR) simply because a business grows or cultivates hemp, but certain requirements have remained murky. Under the new guidance, the requirements have been clarified, as have the requirements for Bank Secrecy Act and Anti-Money Laundering (BSA/AML) regulatory requirements surrounding customer due diligence and the reporting requirements for cash payments over $10,000. The issuance of this guidance can only increase the willingness of financial institutions to engage with hemp-related businesses.
The ARB Cannabis Services Group is a pioneer and trusted advisor in your industry. Whether your business is hemp, medical marijuana, CBD, or looking ahead to recreational marijuana, our team is here to help cultivating, packaging, distributing, and sales businesses with compliance issues. Contact us for more information, or for any other accounting and advisory needs you may have.
At ARB, we’re also dedicated to updating our clients and community as the legislative implications of the COVID-19 pandemic continue to unfold. Visit our COVID-19 Financial Resource and Tax Center for additional information on related matters.
by Karla Brannen, CPA