Maryland marijuana operators prep for launch of $2 billion adult-use market

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Image of Remedy cannabis store in Columbia, Maryland

Medical marijuana patients visit the Remedy dispensary in Columbia, Maryland, in advance of the store's impending conversion to adult-use sales. (Photo courtesy of Remedy)

Cannabis industry executives and other stakeholders have high expectations regarding Maryland’s launch of adult-use marijuana sales, which kick off Saturday.

And for good reason.

The market will be the newest on the East Coast and one of the region’s largest, with recreational cannabis sales expected to approach $2 billion within a few years.

Like Missouri, the limited-license market will open with nearly every existing medical marijuana retailer, cultivator and processor converting their licenses to serve adult-use customers.

Nearly 100 MMJ dispensaries, for example, have converted to recreational license holders, according to state and industry data.

But they will continue to serve medical customers, too.

In one of several unique characteristics of the Maryland cannabis program, operators were required to convert to recreational licenses before July 1 – or they can’t open their doors.

Maryland retailers are expecting a busy weekend, with customer foot traffic expected to double in some areas and surge as much as tenfold in other parts of the state.

The July Fourth holiday and related travel will provide another boost of customers from the northern reaches of the Eastern Seaboard to as far south as Florida, sources told MJBizDaily.

Given Maryland’s geography and borders with several states and big cities without adult-use retail, operators in the state are expecting a rush of consumers from Pennsylvania, Virginia and West Virginia, among other states.

“Maryland is one of those markets that’s set to go in the win column,” Jeremy Unruh, senior vice president of public and regulatory affairs at Illinois-based PharmaCann, told MJBizDaily.

“I think operators will ultimately see a tremendous amount of success.”

The vertically integrated company has two medical marijuana dispensaries in the state, where it has operated since Maryland launched its MMJ market in December 2017.

The 2023 MJBiz Factbook projects that recreational retail sales in Maryland could hit $275 million this year and $2.1 billion by 2027.

Market landscape

The launch of recreational retail in Maryland was set in motion less than eight months ago, in November, when voters overwhelmingly approved legalizing possession and adult-use cannabis sales.

Subsequent legislation, which included capping the state sales tax at 9%, wasn’t approved by legislators until early May, leaving less than two months for follow-up rulemaking.

That shortened timeline didn’t provide the Maryland Cannabis Administration (MCA) enough time to draft comprehensive regulations, so it “opted for more of a Band-Aid approach,” according to Justin Bedford, regulatory analyst at Simplifya, a Colorado-based compliance service and software provider.

“The MCA’s newly proposed regulations rely heavily on existing medical cannabis regulations, which now retroactively apply to all adult-use operators,” Bedford said.

Those regulations include:

  • A ban on concentrates for adult-use consumers.
  • A 10-milligram THC maximum on individual edibles for consumers, compared with a 40-milligram THC maximum for medical patients.

Maryland’s recreational market also will launch with no social equity license holders, a rarity compared to other markets, most notably New York, which pinned its entire launch on social equity operators.

But the absence of social equity provisions in Maryland’s cannabis program will soon change.

The first batch of new adult-use licenses, which by law must be awarded before Jan. 1, are reserved exclusively for social equity applicants.

According to state and Simplifya data, 94 of Maryland’s 97 retailers have converted to adult-use licenses, as have 38 of 39 growers and processors.

The new law allows for up to 300 new retail outlets.

“It is rare to see a state recycle its medical cannabis regulations in this way, but it makes sense in the context of Maryland’s licensing structure and the rollout timeline,” Bedford said.

Ramping up for Day 1

Curio Wellness, a vertically integrated state operator, has been planning for the business boom since November’s legalization victory.

Using Missouri’s recreational retail expansion as a guide, the company started tripling production runs on cannabis products in March to serve new customers at its Far & Dotter store in suburban Baltimore as well as wholesale retail clients.

“We’ve spent the majority of Q2 building our inventory,” said Rebecca Raphael, Curio’s chief revenue officer.

About a year ago, the company boosted investments in automated systems to increase batch sizes to handle inventory demand from dispensaries.

In the past few months, Curio increased hiring, added a second production shift and initiated “storm” days when everyone at the company pitches in.

On a recent Saturday morning, the family-run business “packed like 550 cases of Chews for a few hours,” according to Curio co-founder Wendy Bronfein, Raphael’s sister.

Massachusetts-based multistate operator MariMed also expanded staff in Maryland, added an extra production shift and authorized overtime pay.

The company operates a 180,000-square-foot cultivation and processing facility in Hagerstown near the border of Pennsylvania and West Virginia as well as a retail store in Annapolis, on Chesapeake Bay.

On the wholesale side, MariMed supplies every dispensary in the state with its product brands such as Bubby’s Baked and Betty’s Eddies.

“With the increase in production we’re confident we’ll be ready to go on July 1,” Jeff Jones, MariMed’s director of operations, told MJBizDaily.

On the retail side, MariMed expanded its vault to hold more inventory on-site.

“It’s hard to predict the future in sales volume, but we’re prepared to meet this surge,” Jones added.

July 1 promises to be a festive day in Maryland, even if weather forecasts call for rain and hot, humid conditions.

For those waiting in line, Chicago-based MSO Green Thumb Industries plans to have live music and free donuts at its four Maryland stores.

Green Thumb CEO Ben Kovler is tempering expectations but said expanding the market twofold is a reasonable assumption.

The company:

  • Boosted production to meet demand from wholesale customers.
  • Tidied up logistics and traffic flow on the showroom floor, leveraging its experience expanding into adult-use sales in Connecticut, New Jersey and Rhode Island.

“We’ve done a lot of prep. We’ve done a massive ramp-up,” Kovler said.

“On Saturday, July 1, we just need to make sure we’re focusing a lot on the details.”

Border business bump

Maryland’s geographic position, particularly its long northern border and gateway to the South, should help attract shoppers from neighboring states.

“Maryland is well positioned to realize the benefits of sharing a very long, skinny border with Pennsylvania and other states without adult-use sales,” PharmaCann’s Unruh said.

Retailers in border towns and cities, especially those far from other recreational sales outlets in nearby states, have tended to perform well nationwide regardless of regulatory hurdles or market size.

Maryland retailers are fairly distributed throughout the state, and dozens are located near Delaware, Virginia, Washington DC and West Virginia – all of which lack adult-use sales.

West Virginia, which launched a medical cannabis program in 2021, still has some of the harshest MJ laws in the country, according to the Marijuana Policy Project.

Unruh expects “about a tenfold increase in foot traffic at our store in New Market,” located about a 30-minute drive from the Virginia and West Virginia borders.

Maryland-based Remedy, another early entrant in the state’s MMJ market, has been planning to expand into adult-use sales for years.

The company opened a Baltimore dispensary on April 20 last year and expanded its Columbia retail operation into a new 10,000-square-foot location in December.

Remedy co-CEO Brandon Barksdale projects foot traffic to triple from the 600 to 700 consumers who visit the shops daily.

He expects the Baltimore location to attract shoppers from Pennsylvania, Virginia and Washington DC.

An extended holiday weekend could bring visitors from as far as Florida and Maine, said Barksdale, who expects another business bump from an unlikely source: the U.S. government.

The federal government is Maryland’s largest employer, and several agencies have recently taken a more relaxed stance on drug testing and marijuana restrictions, according to media reports, potentially opening the market to thousands of new customers in the Capital Beltway and elsewhere.

“We’ll start to see some of those individuals explore and venture into the recreational market and out of the grey market,” Barksdale said.

Deadline deals

In another unique aspect of the Maryland launch, operators have been exiting the market right before hundreds of thousands of new customers enter it.

  • K&R Holdings said in June it is selling its Kannavis dispensary in Frederick to vertically integrated state operator Culta, which has a dispensary in Baltimore and a wholesale distribution business. Kannavis executives are refocusing on corporate real estate.
  • Culta also announced in June a definitive agreement with Growing Ventures to acquire its Greenhouse Wellness store in Ellicott City.
  • In April, New York-based MSO Ascend Wellness closed a $19 million cash-and-stock deal to acquire four Maryland medical marijuana dispensaries from Devi Holdings.

A key regulatory restriction might be the reason for such movement.

Under recently adopted rules, companies are prohibited from selling a controlling interest within five years after converting to adult-use sales.

That’s a much lengthier stipulation compared to other markets, according to legal sources, and a potential hazard for companies with cash-flow issues, mounting debt or credit problems.

The financial monsoon is pummeling countless operators nationwide.

The moratorium has drawn plenty of industry concern and questions as the deadline nears and regulators weigh more than a dozen deals in the pipeline, according to Philadelphia-based cannabis attorney Joshua Horn, who represents both buyers and sellers in the market.

“There’s a lot of unknowns here,” said Horn, who co-chairs the cannabis law practice for the Fox Rothschild law firm.

“That’s why there’s been a mad rush to get deals done.”

Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.