Delaware's Cannabis Licensing: Opt-Outs, Equity, and Retail Plans

Delaware is making strides in legalizing cannabis. The state recently launched a recreational cannabis program that is expected to reshape the industry and balance economic opportunities with social equity considerations.

The application process, open on August 19, 2024, is set to close by the end of September. So, you still have the opportunity to get a license to enter Delaware's cannabis market.

Want to learn more about the state's licensing requirements and opportunities? This blog post will delve into the details of Delaware's opt-out provisions, examine local equity programs, and discuss the overall distribution of retail licenses. Read on!

The Path to Cannabis Legalization

Legalizing cannabis in this state has been anything but straightforward. The Delaware Marijuana Control Act went into effect on July 5, 2023, after years-long debates and legal proceedings.

This legislation served as the foundation for Delaware's regulated cannabis market. The Office of the Marijuana Commissioner (OMC) was designated as the agency responsible for regulating the recreational cannabis industry.

As part of its main goals, the OMC must safeguard public health, deter underage use of cannabis, and generate tax revenue from related businesses. Additionally, this agency should create a competitive but equitable market that eliminates illegal sales to ensure customer welfare and public safety.

Delaware Cannabis Opt-Out Retail Stores

One of the most important and distinctive aspects of Delaware's cannabis industry is the opt-out provision that allows municipalities to ban adult-use marijuana.

The Delaware Marijuana Control Act enabled local governments to choose not to allow adult-use cannabis businesses to operate within their borders.

Several municipalities have already enacted bans. This group includes Rehoboth Beach, Bethany Beach, Dewey Beach, Seaford, Dagsboro, and Millsboro in Sussex County alone, for example. However, counties themselves cannot opt ​​out, which means that cannabis is still accessible in many areas across the state, including those with local prohibitions.

Marijuana Commissioner Robert Coupe further explains this situation, saying: "I don't see that as an issue so much. It's just going to determine where these locations are set up. Obviously, if a town creates an ordinance that says 'no retail, no manufacturing, no cultivation, no lab testing,' they won't be in their towns — they'll be in county areas. Counties cannot have the option to opt out."

This approach may seem complicated but allows for legal control while still ensuring access to cannabis statewide. So, it's expected to shape the geographic distribution of Delaware's cannabis industry today and in the future.

Delaware Cannabis License: Structure and Opportunities

To create a diverse and inclusive cannabis market, Delaware is set to issue 125 licenses across several categories. The main ones are retail, cultivation, manufacturing, and testing.

All categories include provisions for open, social equity, or microbusiness licenses. Below is more information about each one.

Cultivation Facility Licenses

Up to 60 cultivation facility licenses will be available starting November 1, 2024, for those who grow and harvest cannabis, distributed as follows:

• 20 open cultivation licenses
• 20 microbusiness cultivation licenses
• 10 social equity cultivation licenses for facilities of at least 2500 square feet
• 10 social equity cultivation licenses for facilities no larger than 2500 square feet

Product Manufacturing Facility Licenses

Up to 30 manufacturing licenses will be issued for businesses that convert raw cannabis into other products starting December 1, 2024, including:

• 10 open manufacturing licenses
• 10 social equity manufacturing licenses
• 10 microbusiness manufacturing licenses

Retail Store Licenses

Up to 30 retail store licenses will be granted to businesses that sell cannabis and related products directly to customers starting March 1, 2025. They'll be divided as follows:

• 15 open retail licenses
• 15 social equity retail licenses

Testing Facility Licenses

Only 5 testing facility licenses will be available starting March 1, 2025, for laboratories that analyze cannabis products to ensure they meet safety and quality standards, including:

• 3 open testing facility licenses
• 2 social equity testing facility license

Cannabis Social Equity Assistance in Delaware

Delaware is committed to social equity, so the state's licensing program is designed to address historical injustices related to cannabis prohibition. Here's more information about the available licenses and its requirements:

Qualifying for Social Equity Licenses

To qualify for a social equity license in Delaware, you need to meet several requirements, including the following:

• Own or control at least 51% of the cannabis business you are seeking a license for
• Have resided in a disproportionately impacted area (DIA) for at least 5 of the last 15 years

Additionally, to apply for this license, you must:

• Have been convicted of or deemed delinquent of a marijuana-related offense before April 23, 2023, only if it didn't involve a Tier 3 quantity of cannabis in accordance with § 4651C of Title 16 or delivery to a minor
• Have a dependent (such as a parent or legal guardian, spouse, or child) with a drug-related conviction under Delaware law prior to April 23, 2023, with the same exceptions as the previous requirement

Microbusiness Opportunities

Delaware offers a special license for cultivation or product manufacturing facilities with smaller operations. To be eligible, you cannot hire more than 10 employees and meet the following size requirements:

• Operate in an indoor facility with a cannabis plant grow canopy area no larger than 2500 square feet
• Operate in an outdoor facility with a cannabis plant grow canopy area no larger than 1 acre

Tiered Fee Structure to Promote Diversity

In Delaware, application costs are tiered to promote diversity in the cannabis industry. Fees are non-refundable and may vary by license type but are typically as follows:

• $5,000 for open licenses
• $3,000 for microbusiness licenses
• $1,000 for social equity licenses

All licenses are valid for two years. Fees may be higher for cultivation facilities depending on their sizes. You can find more information in the OMC's application fee and license cost guide.

Delaware Cannabis License: The Application Process Explained 

Delaware announced that the license application process will be open until September 30, 2024. We know you don't want to miss out on this opportunity, but it's important that you prepare to apply for your license. 

Don't rush! Take the time to understand the complex regulatory process, collect all the documents you need to submit, and comply with all the requirements to obtain your license. 

Are you ready to apply for a Delaware cannabis license? Below is all the information you need about the application process:

Key Dates and Deadlines 

This is the timeline for Delaware's cannabis license application process: 

• August 19, 2024: Application window opens
• September 30, 2024: Application deadline
• Late October 2024: Lottery selection
• November 1, 2024: License issuance begins for cultivation facilities
• December 1, 2024: License issuance begins for manufacturing facilities
• March 1, 2025: License issuance begins for retail and testing facilities

In other words, you only have just six weeks to compile, review, and submit your application.

Required Documentation for Applications

During the application process, the OMC will assess your proposed cannabis business's viability, financial stability, security, and potential impact on the community. So, for all license types, you'll be required to submit the following documents:

Detailed Business Plan

Your business plan should outline your company's goals and include these sections:

• Pro forma financial statements
• Annual budget projections
• Market analysis
• Operating procedures
• Marketing and sales strategies
• Opportunities and challenges

Safety and Security Plan

This plan should describe the mitigating and preventive measures you'll implement to protect your products and operations from theft and diversion while ensuring your employees and customers are safe.

Operational Plans

Your application must include a document detailing your day-to-day business operations with the following sections:

• A social responsibility plan with information about your community engagement practices, positive impact initiatives, and diversity goals, including your strategies to hire people of color, veterans, women, and locals
• A training and staffing plan, explaining your hiring practices and employee development programs
• A plan describing how you'll create a work environment that addresses your employees' economic needs and occupational health and safety concerns

Regulatory History Disclosure

You must also submit a transparent account of any past regulatory issues or violations, including those encountered by other entities that you or other managing members have managed or controlled.

Capitalization Table

Every application for a Delaware cannabis license must feature a capitalization table. When crafting yours, make sure to add the following details:

• Your ownership interest and control
• Each managing officer's percentage ownership interest
• The name of each owner, board member, and officer of the parent company if the applicant business has one and their respective percentage ownership interest in both entities

Additional Requirements

If you're applying for a cultivation or product manufacturing facility license, you'll need to submit these additional documents:

• An environmental and sustainability plan with details about the strategies you'll implement to reduce your business's environmental impact, such as those focused on energy efficiency, water conservation, and waste reduction
• A quality assurance (QA) plan with information about the procedures you'll complete to ensure product consistency and safety

Each of these documents must be meticulously prepared, as they'll be key for your business development if you're selected for licensing.

The Lottery System: Ensuring Fair Opportunity

Unlike those states that use competitive scoring processes, Delaware has opted for a lottery system to allocate cannabis licenses, focusing on:

• Fairness: Regardless of their resources or connections, all qualified applicants will have the same opportunities to obtain a license.
• Reduced legal risk: In states that follow a competitive scoring system, unsuccessful applicants have filed lawsuits to challenge the scoring criteria, alleging bias. However, that isn't likely to happen in a lottery.
• Efficiency: A lottery takes less time than evaluating each business's application in detail, allowing Delaware to offer a faster turnaround.
• Diversity: When combined with social equity provisions, a lottery can help ensure licensees come from different groups.

The Lottery Process

In Delaware, the lottery process encompasses the steps described below:

1. Initial screening: The OMC will review applications to ensure all of them meet all basic qualifications and check if all participants have submitted the required documentation.
2. Qualified pool: Those who pass the initial screening will be considered for the lottery and placed into the qualified applicant pool.
3. Lottery draw: A randomized drawing for each license category will be conducted in late October.
4. Conditional approval: Selected applicants will receive a conditional license, pending final background checks and verifications.

While the system can be frustrating for those who believe they have superior qualifications, it aims to level the playing field and give all qualified applicants equal opportunities to enter the market.

Preparing for Success

The application process will remain open until the end of this month. If you're planning to participate in this program, you should consider the following strategies to maximize your chances of obtaining a Delaware cannabis license:

• Start early: Don't wait until the last minute to gather the necessary documentation and form partnerships. Complete these steps as soon as possible.
• Seek expert help: Consult with legal professionals, cannabis industry experts, and local business advisors to clarify all your doubts.
• Understand local regulations: Research state requirements and municipal regulations to ensure compliance.
• Build strong partnerships: Cultivate relationships with potential suppliers, customers, and community organizations.
• Plan for contingencies: Develop backup plans and prepare for potential disruptions or other issues, focusing on critical areas, such as alternative locations or staffing strategies.

Navigating the Challenges and Looking Ahead: Delaware's Cannabis Future

Right now, Delaware is exploring uncharted legal cannabis territory. Challenges will naturally emerge along the way. However, the state is committed to building a robust cannabis market that brings new social and economic opportunities.

Although its cannabis program is still in its early stages, Delaware is making good progress toward success, and this approach may even serve as a guide for other states planning to implement similar legislation in the future.

Balancing Supply, Demand, and Market Saturation

Delaware faces a major challenge amid cannabis legalization: finding a way to ensure sufficient supply for both medical patients and recreational consumers. The state is currently considering certain strategies to maintain this balance, such as delaying medical dispensaries' adoption of recreational cannabis sales.

About one million people live in Delaware. Therefore, 125 licenses may seem like too much for this population size. If not handled properly, this can cause market oversaturation, especially in areas that haven't opted out. So, the state must maintain the right balance to protect the industry's stability.

Addressing "Cannabis Deserts" and Federal Complications

Municipal opt-outs create inconsistencies that can lead to "cannabis deserts," which are areas without access to cannabis. To overcome local bans, many consumers turn to the illicit market or seek their desired products in neighboring jurisdictions, which may affect Delaware's legalization efforts.

Moreover, there are some discrepancies with nationwide laws. Cannabis is still classified as an illegal substance at the federal level, so Delaware licensees may face difficulties related to banking and interstate commerce.

Timeline and Economic Impact

Despite these challenges, Delaware is moving forward with its cannabis legalization plans. Retail stores are expected to open between March and April 2025, officially launching recreational sales in this state.

The legalization of adult-use cannabis is projected to impact Delaware's economy and the overall society by:

• Creating more jobs
• Attracting investors
• Generating tax revenue
• Bringing changes to law enforcement
• Attracting tourists
• Promoting new public health approaches
• Changing locals' perception of cannabis use

Delaware as a Pioneer in Cannabis Regulation

Thanks to its comprehensive approach to cannabis licensing with a unique focus on social equity and market diversity, Delaware may become a future benchmark for other states pursuing legalization.

As explained above, this state has adopted a pioneering system that prioritizes fairness, grants licenses to people from communities disproportionately impacted by cannabis prohibition, encourages diverse businesses to participate, and gives municipalities the power to opt out or embark on this legalization venture as they see fit.  

If successful, this program's impact may extend beyond Delaware's borders and be used as a case study for effective cannabis-related policies across the country.

The Future of Cannabis Legalization in Delaware

Delaware's efforts go beyond simply legalizing a plant. This state has designed a comprehensive system where everyone faces the same challenges, has equal opportunities, and can enjoy the same benefits.

Despite the obstacles posed by discrepancies with federal laws, cannabis deserts, or potential market saturation, Delaware is on the path to building a robust, legalized cannabis industry.

Right now, it's difficult to determine what the future holds for this state. However, we can say that Delaware has everything it takes to achieve success.

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