Recreational cannabis has been legal in Maryland since July 2023, but that doesn’t mean there still aren’t significant challenges for retailers and cannabis entrepreneurs.

From left, Jacquie Cohen Roth (CannabizMD), Dorothy Kolb (Planet Earth CFO Advisory), Christina Betancourt Johnson (Standard Wellness Maryland) and Leah Heise (Gemini Twin Consulting) spoke at the Maryland Cannabis Industry Symposium in February. (Photo: Derrick L. Davis Photography)

Industry experts addressed the current retail landscape in February during the Maryland Cannabis Industry Symposium in Lanham. The event was hosted by CannabizMD, a cannabis science, education and policy consulting business that supports the growth of Maryland’s emerging cannabis industry.

“Cannabis is much more complex and different from most other industries,” acknowledged Tahir Johnson, director of Social Equity and Inclusion for the national Marijuana Policy Project. “It’s highly regulated and highly competitive, and understanding the rules makes a big difference.”

Johnson emphasized the importance of education, credentials, and advocacy in a newly legal industry that is constantly changing.

He also emphasized the responsibility that cannabis entrepreneurs have inherited.

“It’s an opportunity to take something used to criminalize people and turn it into restorative justice through entrepreneurs who are now returning money to communities and offering good paying jobs to people who need them,” Johnson said.

Equity issues

Maryland held lottery drawings for its first round of new social equity cannabis licensing on March 14, aimed at businesses that are at least 65% owned by one or more qualified social equity applicants.

Although the program is aimed at leveling the playing field for disadvantaged and minority cannabis business owners, “It’s going to be harder for these applicants to ramp up in time because there’s already existing competition in the market,” said Venroy July, a partner with the Detroit-based Dickinson Wright law firm.

Michael McQueeny, a partner in the Foley Hoag law firm, noted that Section 280E of the Internal Revenue Code prohibits a costs of goods deduction from gross income associated with Schedule 1 substances, effectively pushing the tax rate to 70% or more unless businesses find a reporting workaround.

“Most of the opportunities for social equity justice are on the retail side, and they are going to get crushed the most under 280E,” he said.

It’s still possible that the Biden administration could reschedule cannabis from Schedule 1, defined as drugs with no accepted medical use and high potential for abuse, to a Schedule 3 drug with a moderate to low potential for physical and psychological dependence, or deschedule it altogether. Both options sound beneficial, but neither is painless.

“There will be litigation from opponents … and the delay would be months or years until rescheduling took effect,” said Jonathan Wachs, founder of Offit Kurman’s Cannabis Law Group.

Descheduling could also have some unintended consequences.

“If it’s federally legal overnight, the borders come down and outdoor-grown California cannabis comes in at a substantially lower price, which could threaten Eastern and Northeastern cultivators,” McQueeny said. “Theoretically, Schedule 3 keeps up those borders. If we don’t do things thoughtfully, it could hurt a lot of businesses that are building with these infrastructures in mind.”

In terms of advocacy, Offit Kurman represents growers, processors, dispensaries, testing companies, landlords, lenders, and software companies, and helps with applications, business transactions, compliance, networking and education.

“We’ve also been doing a lot of webinars and update people in developments in our program space through blogs,” Wachs said.

Financing hurdles

Cannabis is still federally illegal, which makes it difficult for entrepreneurs in the industry to get loans or even find banking partners willing to open an account for them.

“I don’t even touch product and work on the advocacy side, and banks still don’t want to work with me,” said Jacquie Cohen Roth, founder and CEO of CannabizMD.

The list of cannabis-friendly banks in Maryland is fairly small, she said, and includes Severn Savings Bank, CFG Bank, Bulldog Federal Credit Union and Nymeo Federal Credit Union.

With so few options available, it’s easy for cannabis businesses to fall prey to predatory lending practices.

“It’s difficult to execute on high interest rate loans and make payments, and it’s detrimental to the businesses,” July said, adding that cannabis business owners should also be wary of potential partners offering to fund them. “It will likely be impossible to meet financial covenants in the timeline provided because you might not even be operational by then.”

Leah Heise, founder and president of Gemini Twin Consulting, cautioned that even some well known funds offer egregious terms hidden inside of documentation that could result in signing away control of a business without explicitly spelling out those terms.

“Red flags are people coming after you aggressively,” she said. “You have to have an attorney go through contracts, and ask for proof of funds. We’re seeing a real ramp up in predatory practices.”

Startups frequently have a desire to bootstrap, said Dorothy Kolb, founder and CEO of Planet Earth CFO Advisory, but cannabis is incredibly expensive and there are challenges at every level, particularly when it comes to community acceptance.

“I’ve seen companies spend millions on litigation just to be in a location that the Zoning Board says they’re allowed to be in,” Kolb said. “You’re probably going to need a lot more money than you think.”