The segments below provide a brief overview of MACo’s advocacy on the rollout of adult-use cannabis in Maryland.
After an overwhelming share of Marylanders approved a referendum to legalize adult-use cannabis, the General Assembly passed sweeping legislation to address cannabis taxes, licensing, oversight, and many other questions about the newly legalized industry in Maryland.
MACo’s goal was to ensure that counties retained the authority to make decisions regarding establishing recreational cannabis facilities in their communities. County governments, rather than the State, are in the best position to manage local affairs, including those of the pending recreational industry.
In addition to the swearing-in of a new governor, the 445th legislative session kicked off with more relaxed health and safety measures compared to the turbulence of the last few years. This enabled MACo’s policy team to dynamically engage with private-sector stakeholders, legislators, and representatives across all levels of government. Under these more conventional circumstances, MACo’s advocacy led to a plethora of favorable outcomes for its members.
MACo supported HB 556/SB 516 – Cannabis Reform with amendments. This bill implements a wide range of matters regarding the governance, oversight, licensure, and taxation of the voter-approved adult-use cannabis industry. Counties sought multiple changes – re-framing the bill’s revenue-sharing structure, clear authority for local jurisdictions to decline to play host to related facilities, and clarifying language regarding local zoning.
Ultimately, the General Assembly passed a law that imposes a 9 percent state sales tax on adult-use cannabis, with 5 percent of the state tax revenue directed to local governments. That translates to local governments receiving a mere 45 cents for a single purchase of $100 of cannabis- the smallest in the nation. In addition, municipalities will receive half of the local revenue share for transactions within municipal boundaries (counties will retain the other half on such transactions).
While the bill makes an apparent effort to grant zoning authority to local governments, its wording may leave that intention subject to legal challenge. For example, the bill specifies that a local jurisdiction may “establish reasonable zoning for cannabis businesses” but also includes language specifying that a local jurisdiction may not “establish zoning or other requirements that unduly burden a cannabis licensee.” These phrases introduce undefined terms that would effectively defer to the courts to set the proper standard for what is reasonable or unduly burdensome. Additionally, the bill dictates where new dispensaries can be set up, at least 500 feet from a primary or secondary school, playground, library, or public park and 1,000 feet from another dispensary.
Local Zoning Authority
Most states implementing adult-use cannabis have granted deference to local jurisdictions who, through local enactments, decline to play host to certain facilities (either growing/cultivation or retail/dispensary). Even the most well-known states like Colorado and Washington – seen as vanguards of “legal cannabis” – took measures to ensure community input and a process for opting out.
However, HB 556/SB 516 includes no such provision, effectively denying this level of local flexibility. Voter support for the broadly-worded measure to legalize the use of cannabis, motivated by any number of reasons, does not necessarily translate to voter support for the placement of facilities across each jurisdiction, district, precinct, or neighborhood. MACo argued that local governments, through their public-driven processes, should retain the right to guide this implementation (facility location) at the local level.
Under the bill, local governments may establish reasonable zoning requirements for cannabis businesses. A local government may not (1) establish zoning or other requirements that unduly burden a cannabis licensee; (2) impose licensing, operating, or other fees or requirements on a cannabis licensee that is disproportionately greater or more burdensome than those imposed on other businesses with a similar impact on the area where the cannabis licensee is located; (3) prohibit transportation through or deliveries within the political subdivision by cannabis establishments located in other political subdivisions; (4) prevent an entity from converting a medical cannabis license that complies with all relevant medical cannabis regulations; or (5) negotiate or enter into an agreement requiring a cannabis licensee or applicant to provide money, donations, in-kind contributions, services, or anything of value to the political subdivision.
A cannabis licensee operating as of January 1, 2023, is not required to be submitted to or approved by a zoning board, as specified. In addition, a local government may adopt an ordinance reducing the distance from specified locations within which a dispensary may be located. However, a county or municipality must affirmatively authorize an on-site consumption establishment to operate by issuing a permit or license and may place restrictions on or prohibit the operation of on-site consumption establishments.
Revenue Sharing Nowhere Near Other States’ Systems
A proposal introduced by General Assembly leaders in the 2022 session offered local governments the option to levy a local tax at the point of sale, up to a 3 percent rate. That model – state-authorized local taxes – is the most common model employed by states that have enacted similar laws. However, the 2023 bills were introduced with a different tax scheme: replacing the local tax authority with a distribution from the state sales tax.
This revised method mirrors that used in Michigan and New York. Those states recognize that public services, including those connected to implementing and overseeing the newly legalized marketplace, are supported by a combination of State and local governments. For example, Michigan shares 30 percent of its revenues with its county and municipal governments, and New York shares roughly 31 percent. Meaning on a single purchase of $100 of cannabis in those states, the local government would receive $3 in Michigan and $4 in New York.
Local governments did not contest the policy decision to avoid overburdening this new industry with unreasonable taxes to avoid counterproductive incentives. Taxes on cannabis, under any scenario, will not create the resources to “fund the Blueprint” or any other large-scale initiative at either the state or local level. However, MACo argued for a revenue-sharing model closer to the standard set by other states that approved adult-use cannabis.
While arguments for the local government share have been characterized as a “money grab,” they are anything but. Local governments will provide the scaffolding required to stand up the adult-use cannabis industry: zoning, licensure, and maintenance or adjustment of physical infrastructure (roadway setbacks, signage, etc.), among other supporting efforts – totaling in the millions of dollars across 24 jurisdictions. MACo’s proposal would have helped offset some of these additional and necessary expenses but will in no way pad local coffers, as the term “money grab” would suggest. Instead, it would have supplemented local budgets as counties and municipalities devote fiscal and personnel resources to this effort, as directed by the people of Maryland.
Ultimately, the General Assembly passed a law that imposes a 9 percent state sales tax on adult-use cannabis, with 5 percent of the state tax revenue directed to local governments. That translates to local governments receiving a mere 45 cents for a single purchase of $100 of cannabis- the smallest in the nation. In addition, municipalities will receive half of the local revenue share for transactions within municipal boundaries (counties will retain the other half on such transactions). In addition, 35 percent of the tax proceeds will go to the Community Reinvestment and Repair Fund, a new fund for local organizations that support marginalized communities.
MACo will continue to work with lawmakers and stakeholders over the interim to work on refinements to this law, as it’s very likely the General Assembly will consider follow-up legislation in the 2024 legislative session.