Delaware’s High Hopes: Market Delays and Municipal Bans

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Up until January, the Delaware Office of the Marijuana Commissioner maintained a fairly good pace with the timeline it set for itself in order to launch Delaware’s recreational marijuana market by this spring.

The office awarded its final set of licenses in December, which included 15 retail dispensary permits for the entire state. There were over 529 applicants competing for those licenses.

State Rep. Ed Osienski (D-Newark), who led legislative efforts to create the recreational industry and remains a stakeholder in the process, says the next step has been conducting federal background checks on all of the license holders.

Once holders clear their federal background checks, they will be issued an official conditional license and granted an 18-month period to become fully operational in the First State.

But in his talks with acting Marijuana Commissioner Paul Hyland, Rep. Osienski learned those checks are not being completed at the anticipated rate.

“It’s in the legislation that we drafted and passed that every applicant would have to complete that background check to make sure they don’t have any criminal history and drug dealing and different things like that, so we need that national background check that the FBI performs. [Hyland] said that’s been a delay, and I can imagine what’s been happening in Washington, with the new administration in Washington, and the layoffs and elimination of jobs with the FBI – I can see this dragging on. So I’ve actually started looking at ways that we can maybe deal with that,” Osienski said.”

He says while the office still ultimately needs the background checks, he’s looking into the option of having license holders sign affidavits stating they do not have any criminal history in order to move the process along.

Osienski says if the background checks come through and unveil an undisclosed history, license holders could potentially lose their permits after the fact.

“I have heard – I’ve been hearing the concerns. I know it’s delaying what we were hoping to see by now. So I’m definitely looking into what we need to do to maybe get around this just temporarily, but still hold true to the law and the requirements.”

And those concerns only grow as a potentially significant revenue source for the state is put on hold amid serious economic concerns, and license holders are unable to see a return on the thousands of dollars they invested to obtain their permits.

Tracee Southerland holds the state’s only testing lab social equity license with permits for New Castle County and Sussex County. When we spoke with her in December, she was the owner and operator of a trucking and logistics company.

She says that business has since gone under due to extreme repairs needed for her fleet, and while she’s fine for now, she thought by this time her testing facility would be well on its way to getting up and running.

“It’s like a double-edged sword. I’m not blaming it on that. Like, if the trucking company was still going, I wouldn’t be as strapped. But my timeline – I expected the lab to be gearing up. I still got a little bit saved to keep me afloat, but it’s like the timeline that I thought was going to happen isn’t happening anymore,” Tracee said.

As a social equity applicant, Tracee had to either have resided for at least 5 of the preceding 15 years in an area with high rates of marijuana arrests, been convicted of a marijuana-related offense, or have a family member who was convicted of a marijuana-related offense.

Tracee happened to meet two of the three criteria and was able to apply for her licenses at a reduced rate, but she explains she still had to shell out a lot of money upfront.

“I do not try to take the pity as me, but I just– I’m starting to feel like, ‘Man, they really set social equity applicants up for failure,’ because you’re a social equity applicant, so you already are assuming that they’re disproportionately impacted, don’t have all the advantages, and then you had them still pay. Like I’ve put out like $15,000 total because I also did apply for manufacturing licenses – my husband, not me, because I could only apply for one of the other, but just considering our money together – and we didn’t get that either. So in total, I did about $15,000 and that’s a lot of money.”

She says the application and license fees have kept her from having the funds to retain a lawyer or an accountant to be able to attract investors, and while she should be receiving a social equity grant soon, she worries it’s not enough.

“We wanted to take advantage of the social equity opportunity, but all it did is kind of drain our pockets as of right now. I’m hopeful that it’ll still end up being better. But even the social equity grant; they’re giving you a $175,000 grant for a business that you need like $2 million to start. I was like, if I need $100, and you gave me 50 cents, I’m probably not going to say thank you. I’m going to be like, what else? Like, where’s the rest of the help?”

The funding for the social equity grant program came from fees collected by conversion licenses. Although not initially a part of Delaware’s recreational marijuana industry framework, legislators passed a bill last year allowing existing medical marijuana dispensaries to also sell recreationally for a hefty $200,000 fee.

While those licenses have already been granted, medical dispensaries are not allowed to start selling recreationally until a number of new recreational dispensaries are open for business to try and maintain competitiveness.

But Executive Director of the Delaware Cannabis Advocacy Network Zoë Patchell remains concerned about the business-related threats allowing medical dispensaries to grow and sell recreationally could pose to the new market.

“Not one new business received the license in cultivation, manufacturing and retail, which is the vertically integrated model that the medical marijuana dispensaries are allowed to operate with it. So the medical marijuana licenses have a number of unfair competitive advantages that the new businesses are not offered, including a larger grow canopy. So they’ll have a larger area to cultivate, which of course, allows them to cultivate at a lower cost than new businesses that only have a smaller area to cultivate in that space,” Zoë argued.

Proponents of conversion licenses argue it would allow an established industry to begin selling cannabis products to new retailers while other cultivators get off the ground, but only time will tell as the entire industry remains gridlocked.

Kirsten McGuigan holds a Sussex County cultivation license with her husband Andrew Kleinstuber. While she says the delays are certainly disappointing, they’ve allowed for more preparation time that the couple hopes helps them hit the ground running when conditional licenses are issued.

“In some ways, it’s been obviously a little bit frustrating because we just don’t know – we don’t have a timeline. But on the other hand, for us as a smaller producer, it’s been able to give us just a little more time almost, to get things up and going before the market actually starts. So just on our end, that means site preparation, construction, things like that. So it has given us a chance for that end, but obviously we can’t actually go ahead and be cultivating until everything is open. So obviously we’re eager for the market to go ahead and open up,” Kirsten said.

Her family operates a seasonal restaurant that she says the couple could fall back on if they can’t make a livelihood right off the bat with cannabis cultivation, and she and Andrew also own Forest Flower Orchards in Dagsboro, providing a diversified crop source.

While Dagsboro opted to ban marijuana business entirely and Sussex County has implemented a three-mile buffer zone between marijuana sites and sensitive locations, such as churches, schools and rehab centers, Kirsten and Andrew’s farm falls outside town limits and does not violate the three-mile radius.

The enacting recreational marijuana legislation allows towns to completely ban marijuana business if they so choose. While it does not allow the same for the counties, zoning restrictions are up for grabs.

Virtually every town in Sussex County has opted to ban cannabis business and some Kent and New Castle municipalities have followed suit.

While Tracee thinks she has finally settled on a location in Newark after pivoting from Middletown following their shutdown of marijuana-related business, she’s advocating for legislative change to help relieve some of the location restrictions.

“Other people, they are still very much struggling because there’s nowhere to go. And the very few places that there are, they’re going to be so expensive. The maps – like there’s a map for New Castle County, there’s a map for Sussex County – the few places, it’s just– it’s not possible. So we did the rally to set a [recreational] open date, but also to fix the zoning issues because a lot of the legislators were just shocked by the map,” Tracee explained.

Perhaps the most surprising of considerations is from the City of Wilmington, which just opted for a three-month dispensary ban while it mulls over regulation possibilities.

The consensus from the city council and Mayor John Carney – who let recreational marijuana become law without his signature during his tenure as governor – appears to be that the 90 days will allow the city to properly consider its own zoning requirements.

But an ordinance introduced by Council President Trippi Congo, with the support of at least two other council members, would ban marijuana business in the city completely, which Zoë reiterates is one of the state’s largest areas disproportionately impacted by marijuana prohibition.

“Banning legal licensed and regulated businesses within city limits will only make it less safe for the communities and consumers, and it’ll certainly compound current problems like over-enforcement and continued elicit market activity that we’re seeing in Wilmington. And it’s really a shame because instead of embracing legalization, Wilmington is actually continuing enforcement.”

While Rep. Osienski says the state does not plan to try and override any of the city-wide bans, there is legislation in the works that would alter how far county-wide buffer zones can go.

“Sen. Paradee has informed me that he is working on legislation to kind of equal the zoning requirements in each county, so they would all look similar instead of having different. More like the way it is for alcohol, instead of having all these different zoning requirements and restrictions to make them more in line. So I know he’s working on that. We should be seeing something soon from him I hope on that,” Osienski said.

The City of Wilmington also sent a formal request to the General Assembly asking for a direct cut of the proceeds from the 15% state tax on cannabis products.

As outlined in the state’s marijuana law, 7% of revenues will go into the Justice Reinvestment Fund for criminal justice reform work. After that appropriation and covering any overhead costs, remaining profits will be distributed at the discretion of the General Assembly, with the idea of some trickling down to the cities.

Rep. Osienski argues Wilmington has the most to gain from the Justice Reinvestment fund as a disproportionately impacted area.

He says he’s not interested in looking into a specific revenue carveout for Wilmington, especially while they’re considering a ban that could keep them from generating any sort of profit for the city.

“The City of Wilmington, more so than other municipalities – they have a wage tax. So not allowing these businesses to operate within the city boundaries, they’re missing out on the wage tax that that would create, and of course, any licensing fee. All municipalities would have licensing fees for any businesses that operate in their jurisdiction. Wilmington has been known as a business-friendly municipality, and here’s a legal business that I think would benefit greatly to be located in certain sections of the city, and they’re not even giving them an opportunity.”

While Wilmington continues to mull over its recreational marijuana plans, Rep. Osienski says the state is also working hard to get back on track.

In addition to his potential affidavit plan to temporarily work around the background check process, Rep. Osienski says the governor’s office is currently in the process of finding a new marijuana commissioner following the resignation of Rob Coupe in January.

Prior to his stepping down, Commissioner Coupe signaled that opening the market could take an additional month or two into the summer.

“I hope it’s not that far back. I mean, I really want this to be closer. The mentioning of April was just a goal. And I’ve heard a lot of people say, ‘Oh, that’s what the date was,’ and there was a date set out there, but it was just a goal to try to reach. It doesn’t look like it’s going to happen April 1, but I hope it happens soon after, and if we can address this background check phase of it, then I think this thing can move quite quickly to get the market open.”

“}]] Delaware issued its last round of recreational marijuana business licenses to hopeful applicants in December, but those license holders haven’t begun dispensing recreational cannabis just yet.April 1st – a month later than the initial target – has been circulated as the new date to have the First State’s recreational marijuana market up and running, but delays in federal background checks have put that timeline into question. As license holders anxiously wait for the go-ahead to bring safe and legal cannabis to Delawareans – and as the state looks for a new marijuana commissioner – uncertainty looms over the recreational market.In episode two of Delaware’s High Hopes, Delaware Public Media’s Sarah Petrowich checked back in with license holders and discussed concerns over these delays with an industry advocate and the legislator behind the legalization of recreational marijuana.  Read More  

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