Cannabis Business in Maryland

As of January 2024, Maryland has over 138,000 registered medical marijuana patients, according to the Maryland Cannabis Administration.

In 2023, Maryland's cannabis industry recorded a total of approximately $96.5 million in sales:

• Adult-Use Marijuana Sales: $61.5 million
• Medical Cannabis Sales: Nearly $35 million

The Comptroller of Maryland reported $14.56 million in tax revenue from cannabis sales in the last quarter of 2023. These figures reflect the ongoing development and economic contribution of the cannabis industry in Maryland.

The Two Main Categories of Cannabis Businesses in Maryland

Plant-touching cannabis businesses are those directly involved in the cultivation, processing, distribution, or sale of cannabis products. They must comply with specific regulations and legal requirements due to their direct interaction with the cannabis plant.

Cannabis-adjacent businesses, on the other hand, offer services or products related to the cannabis industry without directly handling the plant. These businesses operate under a different set of regulatory and legal standards.

Understanding the type of cannabis business is important because each category faces its own set of compliance challenges and regulatory measures that need to be addressed.

Exploring Plant-Touching Cannabis Businesses

Plant-touching cannabis businesses in Maryland are directly involved in the cultivation, processing, distribution, or sale of cannabis products, maintaining a direct connection to the cannabis they handle. In Maryland, vertical integration is permitted, allowing these businesses to manage multiple stages of the supply chain. However, they must obtain separate licenses for each stage of the operation, ensuring compliance with state regulations while overseeing the entire process from cultivation to final sales.

Here are examples of different types of plant-touching cannabis businesses in Maryland and their respective roles:

• Cultivators: These businesses are in charge of growing cannabis plants, whether indoors or outdoors. They often focus on various strains and may also be involved in breeding programs to develop new cannabis varieties. Cultivators must follow Maryland's state regulations to ensure their cultivation practices meet the necessary quality standards and legal requirements.
• Processors: Processors take raw cannabis and transform it into a variety of products, such as oils, edibles, concentrates, and topicals. This work involves extraction, refinement, and sometimes the creation of entirely new cannabis products. Processors must adhere to strict state regulations to ensure that their products are safe and consistent for consumer use.
• Testing Laboratories: These laboratories play a critical role in verifying that cannabis products are free from contaminants like mold and pesticides. They conduct thorough testing to confirm the purity and potency of cannabis before it is made available in dispensaries.
• Dispensaries and Retail Stores: These establishments are where consumers purchase cannabis products directly. Dispensaries and retail stores must comply with state regulations, including age verification and adherence to purchase limits. They are also responsible for following state-mandated tracking and reporting systems.
• Distributors and Supply Chain Management: Distributors oversee the transportation of cannabis products from producers to retail outlets. They manage the supply chain, ensuring that products are transported securely and that all state tracking and transparency requirements are met throughout the distribution process.

Exploring Non-Plant Touching Cannabis Businesses

Non-plant touching cannabis businesses, also known as cannabis-adjacent or ancillary businesses, are crucial for the cannabis industry’s infrastructure and operations, even though they don't directly handle the cannabis plant. These businesses provide a wide range of essential services that help the industry run smoothly and grow effectively. Here are some examples:

• Financial Management and Accounting: Cannabis businesses encounter specific financial challenges, especially under Section 280E of the IRS Code, which limits tax deductions. Specialized accounting services are vital for navigating these complexities and ensuring accurate financial records.
• Technology and Compliance Tools: Advanced technology is critical for modern cannabis operations, including systems for seed-to-sale tracking, Point-of-Sale (POS) solutions, eCommerce platforms, and security measures. These technological tools are essential for maintaining operational efficiency and adhering to regulatory requirements.
• Branding and Marketing Strategies: Due to strict regulations surrounding cannabis advertising, businesses need specialized branding and marketing services. These services are essential for promoting products within the confines of legal restrictions.
• Insurance and Risk Management: Safeguarding cannabis businesses, their staff, and products is paramount. Insurance providers with industry-specific knowledge offer tailored coverage to protect various aspects of the business, from production to liability.
• Consulting and Business Strategy: Firms specializing in the cannabis sector offer expertise in licensing, compliance, market strategy, and operational management. They help businesses navigate the complex regulatory environment and improve operational efficiency.
• Legal and Compliance Support: Cannabis businesses must comply with a complex web of state and federal regulations. Legal firms specializing in cannabis law provide crucial guidance to help businesses stay compliant and avoid legal pitfalls.
• Banking and Payment Solutions: Due to federal restrictions, cannabis businesses have limited access to traditional banking services. Specialized financial services, including loans and payment processing, are essential for smooth business operations and regulatory compliance.
• Market Analysis and Data Insight: Data analytics plays a significant role in optimizing business operations within the cannabis industry. Analyzing consumer behavior, supply chain dynamics, and product quality allows businesses to make informed decisions and remain competitive.
• Product Packaging and Labeling: Compliance with packaging laws is essential in the cannabis industry. Companies that focus on packaging ensure that products meet state regulations, including requirements for child-resistant and clearly labeled packaging.
• Advocacy and Industry Representation: Organizations that advocate for the cannabis industry are critical at the state level. They work to influence policy, promote regulatory changes, and provide the insights necessary for the industry's continued growth and sustainability.

Differences Between Plant-Touching and Non-Plant Touching Businesses

The differences between plant-touching and non-plant touching cannabis businesses affect various aspects of their operations, particularly in areas such as regulatory requirements, financial management, and compliance. Here are the main distinctions:

State Regulations:

• Cannabis-Touching Businesses: In Maryland, these businesses must acquire specific state licenses and adhere to stringent regulations, including security protocols and product testing. They also face additional banking restrictions due to federal laws.
• Cannabis-Adjacent Businesses: These businesses typically only require standard business licenses and encounter fewer regulatory hurdles. They benefit from easier access to financial services compared to plant-touching businesses.

Banking:

• Cannabis-Touching Businesses: Due to federal regulations, these businesses often face significant banking restrictions, forcing them to operate primarily in cash and depend on a limited number of banks willing to take on legal risks. This complicates financial management and increases compliance requirements.
• Cannabis-Adjacent Businesses: These businesses generally have broader access to traditional banking services, such as loans, credit lines, and bank accounts, which simplifies their financial operations and supports business growth.

Accounting:

• Cannabis-Touching Businesses: These businesses are subject to Section 280E of the IRS Code, which restricts their ability to deduct typical business expenses, leading to higher tax liabilities. They also deal with complex inventory management and strict compliance requirements.
• Cannabis-Adjacent Businesses: These businesses can take advantage of standard tax deductions and follow simpler accounting practices. They are not subject to the stringent compliance required for cannabis inventory tracking, making their financial operations more straightforward.