Washington DC poised to create new licensed recreational cannabis market

The Washington DC City Council is set to lay the groundwork Friday for a long-delayed recreational marijuana industry, now that Congress appears ready to step out of the district’s way and permit a $200 million market.

Although the district has had a quasi-legal recreational marijuana “gifting” business since voters legalized adult use in 2014, a full-fledged industry has been on hold because of roadblocks placed by congressional Republicans over the past seven years.

Those roadblocks now appear to be ending. And city leaders are eager to establish a regulated recreational market in lieu of the loosely controlled gray market currently in place.

The launch could come as soon as August 2022, according to MJBizDaily sources.

The process will start with a full-day City Council hearing Friday.

That’s when local lawmakers will consider a bill from the council president to launch a licensed adult-use market as well as a measure to expand the district’s medical cannabis program.

A recreational marijuana market in the capital would generate $50 million in sales in its first year and upwards of $200 million by the fourth year, according to MJBizDaily projections.

“It’s been long awaited,” said Olivia Naugle, legislative analyst for the Marijuana Policy Project, who is scheduled to testify Friday in support of the bill.

Hurdles ahead

To be sure, obstacles remain.

And policy questions linger over the market’s structure and who could participate.

Industry stakeholders don’t anticipate an immediate vote Friday on the council president’s proposed ordinance.

Rather, Friday’s hearing is viewed as a starting point as local officials consider how the market should be organized.

In addition, Mayor Muriel Bowser has proposed a separate ordinance to establish a licensed industry.

For now, the City Council must wait for Congress to finalize an appropriations bill for 2022.

Until now, each spending bill dating to 2014 has contained a “budget rider” that prohibited the district – which Congress has jurisdiction over – from allowing licensed recreational sales.

Although the budget rider has been stripped from the House and Senate appropriations bills, Congressional Republicans have objected.

And the two chambers’ spending packages must be reconciled by a conference committee before full passage.

Justin Strekal, political director at DC-based NORML, said Congress might not take up the appropriations bill until January – meaning it’s possible a new adult-use market will remain in limbo for another month or two.

Strekal said it’s also possible the prohibitionist budget rider could find its way back into the pending appropriations legislation.

“This could still go awry, and now is the time for folks to contact their lawmakers,” Strekal said.

But Eleanor Holmes Norton, the district’s representative in Congress, is optimistic the rider will be removed. According to a news release from her office Thursday, the Democrat “is closer than ever” to achieving that goal.

Such optimism is giving local cannabis industry officials hope.

“When we saw that (the prohibitionist rider) wasn’t (in the appropriations bills), we had our first real inclination that an adult-use market might be on the horizon,” said Chanda Macias, CEO of National Holistic Healing Center, one of the city’s seven licensed medical marijuana dispensaries.

“Once the budget passes and that rider isn’t attached, it opens the possibility.”

More uncertainties

Congressional delays aside, other uncertainties abound, including:

• A precise timeline for when adult-use sales might begin.
• The exact number of recreational marijuana business licenses – and the types of permits – the district would authorize.
• If or when there will be a path to licensure for hundreds of quasi-legal “gifting” marijuana companies that are currently operational in the district.
• How social equity applicants would be defined and identified.

At the soonest, sales would likely begin in August or September 2022, said attorney Josh Sanderlin, who represents cannabis clients in the district and in other states.

“The way it’s set up now, the agency has six months to do the regulations,” Sanderlin said, referring to the district’s Alcoholic Beverage Regulation Administration, which would be the industry overseer under the bill that will be discussed Friday.

Sanderlin added it would take the city another two to three months for recreational marijuana licensing, after which sales could begin.

But under the current bill, only the existing seven licensed medical marijuana dispensaries could offer adult-use sales for the first 12 months of the new program.

That’s a major sticking point for hundreds of gray-market businesses currently operating in the district.

“For the medical guys, it’s not going to change much. It’s going to empower them to make a lot more money,” Sanderlin said. “For the (gray market), it’s going to be a sea change.”

Gray-market hurdles

By some estimates, the city’s gray market includes more than a thousand different small cannabis businesses that use the “gifting” model to sell marijuana.

Under that model, customers pay extra for a common item, such as a lighter or T-shirt. The purchase comes with a “gift” of an eighth of cannabis flower or another type of marijuana product.

That’s because the 2014 ballot measure, Initiative 71, resulted in the legalization of possession, consumption and sharing marijuana among adults.

When Congress halted licensed adult-use businesses, entrepreneurs took advantage of the legal loophole that allowed adults to give cannabis to each other.

To have an opportunity to land a legal permit, anyone currently doing business in the gray market would have to cease operations for at least 12 months, said Mark Nagib, the owner of Pink Fox, one of the gifting businesses.

Nagib said he believes the gray market could be as large as 1,500 operators.

“For people like me, we’re not really excited about someone getting an 18-month head start when they’ve already had a six-year head start,” Nagib said.

John Schroyer can be reached at john.schroyer@mjbizdaily.com.