On July 1, 2021, Connecticut became the nineteenth state to legalize the possession and use of cannabis for recreational purposes. With the conversion of medical marijuana growers’ existing licenses within the next few months and the conversion of medical marijuana dispensaries this fall, the manufacture, sale and distribution of adult recreational cannabis will also be legal.
Connecticut Legislature Leaders and Governor Lamont have touted the new Connecticut law as the nation’s most comprehensive and socially progressive law because it provides for the cancellation of criminal convictions for past ownership and penalties for educational institutions, and for deciding on procedures to support communities disproportionately affected by previous drug laws with social justice programs.
For those focused on getting involved in what is sure to be an emerging Connecticut industry, here’s what you need to know.
Existing licensees must convert their licenses
From July 1, 2021, licensed growers will be allowed to apply to grow recreational and medicinal marijuana. This conversion application will cost $ 3 million, subject to a discount for those who work with social justice applicants or sponsor or participate in mentoring programs with a social justice applicant.
On September 1, 2021, existing pharmacies can apply to convert their licenses to a hybrid retail license to continue selling medical marijuana and serving the adult recreational market.
There will be two groups of licensees for new applications
Beginning in mid-2022, the Department of Consumer Protection (DCP) will begin accepting applications for a variety of licenses for the cultivation, retail, transportation, and delivery of recreational marijuana. Initially, however, only individuals or groups who meet the statutory criteria for social justice and a newly established quasi-state institution – the Social Equity Council – are eligible to apply. The law currently sets certain eligibility criteria based on household income and the applicant’s residence (or residence) in a disproportionately compromised community. It remains to be seen whether the catalog of criteria will be expanded in any way to include race and ethnicity.
Social justice applicants must be awarded 50% of the licenses in each category based on the total number of licenses determined by DCP. Only then can applicants not qualified for social justice apply for admission.
The current criteria for social justice
The law requires that companies seeking social justice be owned and controlled by individuals who:
- You have an average household income for the past three years no more than three times the average Connecticut income. [Currently that is approximately $186,000]; and
- You have lived in a disproportionately affected community for either 5 of the last 10 years or 9 years of your first 17 years of life.
A “disproportionately affected” community is one where the unemployment rate is above 10% or has an abnormally high rate of drug arrests and convictions compared to other communities.
Applicants will likely be selected by lottery
The law stipulates that the DCP first determines how many licenses are issued in each category and that 50% must be held by applicants with social justice. This means that if more than the number of applications allowed by the DCP is submitted, the DCP must run a lottery first for social justice applicants and then for those who are not qualified for social justice. It is therefore likely that two lotteries will be run for each application category.
Municipalities have the right to decide whether to participate
Any municipality that wishes to ban the establishment of cannabis companies in their city can vote against it through a city-wide referendum. Communities that allow such businesses retain local control over the location of such businesses and should review their regulations to ensure the oversight and control they desire. Only one retailer and one microcultivator are allowed in each municipality for every 25,000 inhabitants. This population limit must be reassessed by DCP on July 1, 2024. The law incentivizes communities to allow facilities in their cities by giving communities the right to levy 3% sales tax on such businesses and by giving each community an approved retailer up to $ 50,000 for community costs to invoice that arise in the first few days after the opening of a facility.
The state of Connecticut will charge retailers an excise tax related to the THC potency of the cannabis and state sales tax of 6.35% on each retail sale.
Initially, the bulk of the tax revenue will be used to fund the Social Justice Council and its programs through contributions to the Social Justice and Innovation Fund, with a smaller portion being paid into the cannabis regulatory and investment account, which will serve as seed capital for one Industry incubator program and investment fund controlled by the Ministry of Economic and Community Development. Only a small part of the tax revenue goes to the General Fund.
Investment opportunities for entrepreneurs
There will be numerous opportunities for individuals or mutual funds to invest in companies that are eligible for social equity and in companies without social equity. There will be numerous applicants looking for sources of capital, and the state of Connecticut has granted Connecticut investors an income tax credit of up to 40%.
For the full text of the new Connecticut Act, see the relevant materials below.