A Local Government’s Guide to Successful Cannabis Regulation & Licensing
Cannabis regulation remains a controversial subject across all levels of government, but there’s no denying the fact that the tides are changing in favor of legalization. The 2016 election season—where a historic number of states passed ballot initiatives legalizing marijuana—seems to have been a tipping point, and the pro-legalization movement is showing no signs of slowing down.
Cannabis: A Growing Industry
According to BDS Analytics, the cannabis industry generated nearly $9 billion in sales in the US last year, equivalent to the entire snack-bar industry. More than 121,000 people work in cannabis-related jobs, and there are at least 9,397 active licenses for marijuana businesses, according to Cannabiz Media. Most importantly, public opinion is fueling this shift. As a recent Gallup survey shows, support for legalization rose from 31% in 2000 to 64% in 2017.
While marijuana has been listed as a Schedule 1 drug at the federal level since the Controlled Substances Act in 1970, individual states have passed their own laws legalizing the production and sale of marijuana in various forms, uses, and under the umbrella of different business types.
Growing evidence of the medical benefits of marijuana may lead to the federal government changing its Schedule 1 drug classification. However, even if this doesn’t happen in the near future, industry pressure and international legalization efforts (like Canada’s recent legislation) are paving the way for more cannabis-friendly regulation. There’s even a bipartisan bill currently facing the Senate that would explicitly allow states to pass their own marijuana laws without interference from the federal government.
So the question now is, how are local governments going to respond? While legalization is first enacted at a state level, individual municipalities define the lines of how cannabis businesses can operate within their borders.
In California, for example, cannabis businesses must prove they have permission to operate from their local government before they can get a license to operate from the state. Permitting, local fee collections, and enforcement also fall to the municipality, making proactive and intentional regulations all the more important.
There Is No One Solution: Local Context is Key
Regulating cannabis businesses isn’t just a question of legality—the minutia of what types of businesses, what types of products, and other regulatory limits have to be established by both state and local governments. These decisions aren’t black and white, and there is no standard blueprint. Reviewing best practices within the local context of your individual community is the best plan for creating an effective, sustainable regulatory environment.
In cases where state legalization has already occurred, local governments have responded to varying degrees. Some outright ban all cannabis-related businesses, some allow medical dispensaries but not recreational, some only allow home growers, and others open their doors to all components of the cannabis industry.
When considering incorporating cannabis businesses into the local tax base and economy, it’s also crucial to think about how to structure licensing in a way that can scale with a rapidly growing market. This process should be accessible and user-friendly, so business owners are encouraged to register correctly and in a timely manner. This ensures the city or town collects all possible tax revenue, has an accurate picture of the spread of new businesses, and can oversee a smooth rollout with minimal complications.
If you’re thinking, this research is jumping the gun because legalization hasn’t occurred in my state (yet)— understanding these details before the market opens sets you lightyears ahead. The more organized and structured you can be ahead of time, the more success you’ll find in practice and be able to see the industry evolve in the ways you planned.
Understanding the Full Scope: Cannabis Business Types
In figuring out where to begin, it’s important to understand the full scope of cannabis-related establishments as approaches to licensing, planning and zoning, and taxation will differ accordingly.
State laws recognize three main categories of marijuana use:
- Medical marijuana: prescribed or recommended by a doctor to treat a medical condition
- Recreational marijuana: for use by anyone over the age of 21
- High CBD/Low THC: marijuana plant or products with no or low THC (psychoactive ingredient) and high amounts of CBD (non-psychoactive ingredient), typically useful for medical treatments without the associated ‘high’
Commercial Operations Cultivator Plants, grows, harvests, drys, cures, grades, or trims cannabis; licenses can come in different tiers depending on the size of the land being used
Testing/Research Facility Conducts research on and quality tests marijuana; most governments don’t allow the sale of marijuana or marijuana products to retailers or the public until all required testing is completed (tests may include potency analysis, moisture content, foreign matter inspection, microbial screening, pesticide and other chemical residue screening, and residual solvents levels)
Distributor Sells and/or transports marijuana between other marijuana businesses
Manufacturer Produces or prepares cannabis or cannabis products, packages or repackages related products, or labels the container
Retailer Sells marijuana or marijuana products directly to consumers; this can be limited to selling on-site, or may include deliveries
Social Consumption Establishment An establishment or special event were cannabis is consumed
|Home Grower||Grows plants in one’s home, not for sale or distribution|
|Marijuana Cooperative||Cooperatives, also referred to as Collectives, are gardens where multiple individuals share in the costs and labor for growing plants for personal use (non-commercially); governments can distinguish between medical cooperatives and recreational cooperatives|
Regulating commercial businesses is most commonly the primary focus, but even within ‘commercial’ types, municipalities need to decide what types of operations are appropriate for their community. For example, some communities may not allow cooperatives or delivery businesses because they are harder to regulate, while others will be more concerned with odors coming from manufacturing sites.
Cannabis Permitting and Licensing Considerations
Permitting and licensing is the most important consideration when it comes to how municipalities regulate marijuana. What requirements and guidelines each business type entails has to be determined by what fits for your unique community.
Whatever the policy decision, implementation may involve multiple departments including business licensing, community development, finance, police, fire, health, and code enforcement. Early communication, a coordinated approach, and intra-departmental workflow management tools will help set the stage for success.
Below are some key considerations for this process, coupled with examples of how some local governments have effectively crafted policies.
Start simple, then expand
A rolling window for accepting applications can help promote efficient processing and turnaround by staggering the influx and helping to balance the workload of government employees.
Especially in states moving from medical to recreational legalization, it’s helpful to first consider what kinds of businesses already exist in your city. For example, when the State of Massachusetts began accepting applications for marijuana-related businesses in April 2018, they organized different categories of applicants with a staggered rollout, and those categories took into account what businesses would need the least amount of resources to begin legal operations.
The first application window opened just to businesses that qualified for “expedited review” (including medical marijuana retailers already open or possessing a provisional permit), while the second round of the rollout included applications from cultivation farms, craft marijuana-growing cooperatives, and other small businesses. A third window for retail stores, makers of marijuana-derived products, and transportation companies, included those that would likely need a more in-depth permitting and licensing process before operations could begin.
While it’s still too early to tell the overall efficacy of this system, there’s no denying that this conscious approach to accepting applications has helped more efficiently manage the resources available to departments, and set the stage to build upon and learn from each wave of applicants.
Establish zoning laws with buffers
Local planning and zoning laws are the primary tool for regulating where and how marijuana businesses can operate—specifying which zones will and will not allow specific types of marijuana-related business operations, as well as the maximum density or total number of establishments that can exist in a given area.
In Washington State, for example, Moses Lake limited manufactures to industrial zones, while Vancouver restricted all types of marijuana businesses to industrial or light industrial zones only.
Washington municipalities are also great examples of how buffer zones can effectively manage where businesses can operate. The state itself requires a 1000 ft. minimum buffer from specific entities (elementary and secondary schools, playgrounds, recreational centers, childcare centers, public parks, public transit centers, libraries, youth arcades), but towns and cities can chose to reduce the buffer down to 100 ft., except for elementary and secondary schools, as seen below:
- The City of Shelton reduced the buffer to 500 ft. for researchers, processors, and producers, but not for retailers.
- The City of Tacoma reduced retail buffer zones to 500 ft. for a slew of categories including correctional facilities, drug rehabilitation facilities, libraries, and parks, but only downtown, where businesses naturally have a closer proximity.
- The City of Shoreline incorporated development regulations for certain marijuana retailers, processors, producers, and medical cooperatives into the city’s unified development code.
- The City of Newport requires certain facilities associated with marijuana production, processing, transportation and/or sale to acquire a conditional use permit in industrial zones.
Involve the community
As noted earlier, legalizing marijuana doesn’t mean all community concerns will go away. Legalizing is the first step, but figuring out how that looks in practice within a particular city or town is a different process. Addressing environmental and public safety concerns is essential, and one proactive, transparent way to do that is by incorporating community involvement as a requirement in the licensing process.
Massachusetts requires applicants to have held a community outreach meeting (detailed in the Guidance Document) in the proposed local community within the last six months and sign a Host Community Agreement (HCA) with the municipality. There must be a public notice of the meeting describing the subject matter that will be covered and the proposed address of the applicant’s establishment. A copy of the notice is also required to be filed with the town or city clerk, the planning board, the contracting authority, and the local licensing authority for adult use of marijuana (if applicable).
There are also guidelines as to what must be discussed at the community outreach meeting including:
- The type of marijuana establishment proposed
- Information demonstrating that the location will be maintained securely
- Steps to be taken to prevent diversion to minors
- A plan to positively impact the community and information demonstrating that the location will not be a nuisance
- An opportunity for Q&A between community members and a representative of the marijuana establishment
After the meeting occurs, an HCA is generated as documentation proving the meeting occurred, signed by the contracting authorities for the municipality and the applicant.
For example, this HCA between the Town of Douglas, Massachusetts and a registered marijuana dispensary looking to also open a cultivation and processing facility, contains a commitment to hire locally when possible (section 7), make capital improvements to the property to match the feel of the Town (section 8), and work with the Town’s Police Department to best position exterior cameras and collaborate on security (section 11).
Increase inspection capabilities
As with any new establishment, the local government is responsible for making sure building, plumbing, electrical, and fire codes pass inspections before a license is issued, and that any new building that occurs is done with the proper permitting.
While not every municipality has the means to hire more inspectors, it is important to anticipate an increase in the amount of inspections necessary, especially during initial rollout when there can be an influx of businesses looking to get licensed.
Allowing for online inspection scheduling will help make the permitting process more user-friendly for new applicants, as well as help inspectors focus on their field work. Overall, an easy-to-use permitting and licensing setup will improve compliance, so an organized, accessible inspections system is a high priority.
Business specific codes
Many municipalities also create additional codes specifically pertinent to cannabis-related businesses (and even different types of cannabis-related businesses). This type of regulation covers how marijuana-related businesses must operate to be in compliance, in the same way liquor stores and other “adult-related establishments” are treated as a special class of business.
This may mean guidelines dictating what hours a retailer can be open between. It can also include rules on signage, how customers are served, restrictions on serving someone who is already under the influence, and a minimum level of security required for a business.
Additionally, these codes may limit outside growing, specify a maximum number of plants for the premises, or address whether plants can visible from off the property, and if fencing is required. Especially for manufacturers, there is concern around making sure there’s no change to air quality or a pervasive smell that could bother neighbors.
Robust software for seed-to-sale tracking
Knowing the stages of marijuana moving from production to consumption and having a centralized database with all permitting and licensing information are critical parts of effective regulation.
It becomes more difficult to crack down on illegal businesses without a centralized place to track business registration data and make that information available to all relevant departments. With a modern, centralized system, inspectors can record results and notes from the field, and anyone who needs to check on the status of an application or license has easy access to pertinent information and other staff members.
This is an issue Oregon is currently grappling with as their permitting and licensing systems have vulnerabilities that make it hard to identify if/when a subset of marijuana-related products are being diverted outside of licensed businesses, or even outside of the state.
In a rapidly evolving industry, it’s also a clear advantage to have modern, adaptable processes and softwares as rules and regulations may need to be changed as you go.
Taxation and fee collection
Municipalities are also responsible for setting and overseeing local taxes and fees. In addition to state taxes, a town or city may set local business license taxes, which may include different taxes for medical and commercial businesses. Two common structures to base taxes on are percentage of gross receipts for businesses like retail, and a dollar amount per square foot for cultivation. It’s also important to have a system for accepting payment by cash, as some businesses aren’t currently able to work with federal banks.
Having a clear schema for business operating permit fees according to different businesses is another key step. Having a user-friendly way to calculate fees and convey that information to applicants is even better (ideally, the system will automatically calculate the fees based on the applicant’s data).
Those fees can go to help cover increases in inspection and code enforcement resources needed to regulate new marijuana businesses, and taxes can be funneled back into city improvements. In Manitou Springs, CO, for example, marijuana tax revenue helped double Manitou’s general fund and pay for long-needed revitalization.
The rapidly evolving landscape of the marijuana industry is both an exciting opportunity and a challenge for local governments. As commercial enterprises continue to develop, it will be the communities that are the most proactive and organized that reap the greatest benefits. No matter how you choose to approach regulation, active communication, locally contextual policies, and modern tools to help connect departments to one another and to businesses are foundational keys to success.