Recreational Cannabis is Legal in Connecticut: What to Know about Getting into the Business
Please note: This article was originally published on July 7, 2021 and was updated on August 27, 2021.
On July 1, 2021 Connecticut became the nineteenth state to legalize the possession and use of cannabis for recreational purposes. Upon conversion of the existing licenses held by medical marijuana growers within the next few months, and conversion of medical marijuana dispensaries this fall, the manufacture, sale and distribution of cannabis for adult recreational purposes will also be legal.
Leaders of the Connecticut Legislature and Governor Lamont have touted Connecticut’s new law as the most comprehensive and socially progressive law in the nation because of how it provides for the erasure of criminal convictions for past possession and use, the removal of penalty powers for educational institutions, and the decision to include procedures intended to assist communities that were disproportionately impacted by earlier drug laws with social equity programs.
For those focused on participating in what will certainly be a burgeoning industry in Connecticut, here is what you need to know.
Existing Licensees Need to Convert Their Licenses
As of July 1, 2021, licensed growers are permitted to file an application to grow recreational marijuana and medical marijuana. That conversion application will cost $3 million, subject to reduction for those partnering with social equity applicants or providing funding for or entering mentorship programs with a social equity applicant.
On September 1, 2021 existing dispensaries can apply to convert their licenses to a hybrid retail license for purposes of continuing to sell medical marijuana and expanding to serve the adult-use recreational market.
For New Applications There will be Two Groups of Licensees
Beginning sometime in mid-2022 the Department of Consumer Protection (DCP) will begin to accept applications for a variety of licenses for cultivation, retail sale, transportation and delivery of recreational marijuana. Initially, however, only those individuals or groups that meet the social equity criteria established by the statute and by a newly formed quasi-governmental entity—The Social Equity Council—will be permitted to apply. The law currently identifies certain criteria for eligibility based on one’s household income and based on the applicant’s residing (or having resided) in a disproportionately negatively impacted community. It remains to be seen whether the list of criteria will be expanded to include race and ethnicity in any manner.
Social equity applicants must be awarded 50% of the licenses in each category based on the number of total licenses designated by DCP. Only then will non-social equity-qualified applicants be able to apply for licensure.
The Current Social Equity Criteria
The law requires social equity applicant entities to be owned and controlled by individuals who:
- Have a median household income over each of the previous three years which is not more than three times Connecticut’s median income. [Currently that is approximately $250,000 to $300,000]; and
- Have lived in a disproportionately impacted community for either 5 of the last 10 years or 9 years of their first 17 years of life.
A “disproportionately impacted” community is one where the unemployment rate is over 10% or that has an unusually high rate of drug arrests and convictions as compared to other communities.
The Social Equity Council has released its map of Connecticut which designates the disproportionately impacted areas. The list of disproportionately impacted areas may be found here.
Applicants Will Likely be Chosen by Lottery
The law specifies that the DCP shall initially determine how many licenses will be issued in each category and that 50% must be held by social equity qualified applicants. This means that if more than the DCP-designated number of applications are filed, the DCP will be required to hold a lottery, first, for social equity applicants and, then, for those who are not social equity qualified applicants. It is therefore likely that two lotteries will be held for each category of application.
Municipalities Have the Right to Decide About Participation
Any municipality wishing to prohibit the siting of any cannabis business in its town can opt out by holding a town wide referendum. Municipalities that elect to permit such businesses will retain local zoning control over the location of such businesses and should be reviewing their regulations to provide the oversight and control they desire. Only one retailer and one micro cultivator will be allowed for each 25,000 residents in any municipality. This population threshold is subject to re-evaluation by DCP on July 1, 2024. The law provides incentives for municipalities to allow facilities in their towns by providing municipalities with the right to impose a 3% sales tax on such businesses, and by allowing each municipality to charge an approved retailer up to $50,000 for municipal costs incurred during the initial days of the opening of a facility.
Taxation
The State of Connecticut will charge retailers an excise tax related to the THC potency of the cannabis and the state sales tax of 6.35% for each retail sale.
Initially, the bulk of tax revenues will be used to fund the social equity council and its programs through contribution to The Social Equity and Innovation Fund, with a smaller portion to be deposited into the Cannabis Regulatory and Investment Account, which is intended to provide seed capital for an industry incubator program and investment funds to be controlled by the Department of Economic and Community Development. Only a small portion of the tax revenue will be directed to the General Fund.
Investment Opportunities for Entrepreneurs
There will be ample opportunities for individuals or investment funds to invest capital in social equity eligible entities and non- social equity entities. There will be numerous applicants looking for capital sources, and the State of Connecticut has provided Connecticut investors with an income tax credit of up to 40%.
For the complete text of Connecticut’s new law, view the related materials below.