Cannabis Legalization in Key States: Connecticut Becomes Fifth State in 2021 to Legalize Recreational Marijuana

RERACA allows adults 21 years and older to possess up to one and a half ounces of cannabis on their person, and an additional five ounces locked in a container at home or in a car, beginning July 1, 2021. Starting October 1, 2021, medical marijuana patients may cultivate up to three mature and three immature plants in their home (households with multiple patients may cultivate a maximum of twelve plants). Adults 21 years and older who are not medical marijuana patients may cultivate the same number of plants in their home starting July 1, 2023. Retail sales may begin as early as July 2022.

Connecticut has delegated responsibility for its cannabis business regulations and licensing framework to the existing Department of Consumer Protection (DCP). To help the DCP promote diversity in the cannabis industry, RERACA also creates the Social Equity Council (the Council) in the Department of Economic and Community Development. The Council will develop criteria for the DCP to award licenses to social equity applicants. Below, we discuss some of the key provisions that affect cannabis businesses in Connecticut.

Licensing Rules and Fees

RERACA directs the DCP to create a licensing framework and sets out nine categories of cannabis business licenses:

1. Retailers
2. Hybrid retailers (which may sell both recreational cannabis and medical marijuana)
3. Cultivators (operating not less than 15,000 square feet of grow space)
4. Micro-cultivators (cultivators that operate in between 2,000 and 10,000 square feet of grow space)
5. Product manufacturers
6. Food and beverage manufacturers
7. Product packagers
8. Delivery services (which may deliver recreational cannabis to consumers and medical marijuana to patients)
9. Transporters (which may transport cannabis between cannabis establishments)

Financial backers and “key employees” of cannabis businesses – the president, financial manager, and compliance manager – also must acquire separate state licenses (beyond the business license). Board members and other employees of cannabis businesses must register with the state, but do not need a license.

If you are interested in a license, be aware that there will be a cap on the number of licenses available in each category. Additionally, the law reserves half of the available licenses in each category for social equity applicants – entities primarily owned and controlled by residents of communities with high unemployment rates and historically high conviction rates for drug-related offenses. The Council will identify additional criteria for social equity applicants, and the DCP will begin accepting applications within 30 days after the Council issues its criteria.

There are three steps to apply for licenses. First, if the number of applications for any license category exceeds the DCP’s limit, the DCP will use a lottery to select applications. Next, applicants that the DCP accepts through the lottery may apply for a provisional license. Applicants have 60 days to complete the provisional license application, and the provisional license expires after 14 months. Finally, a provisional licensee may apply for a final license before the provisional license expires. A business may begin its cannabis operations at any time after receiving a final license.

The application fee varies by the type of license and increases in each application stage. Fees range from $250 to enter the lottery for a micro-cultivator or delivery license, to $75,000 to receive or renew a final cultivator license. Social equity applicants must pay one-half of the applicable license fee for the first three renewal cycles of their license, but then must pay the full fee.

Tax

RERACA also imposes an excise tax on recreational sales. The tax rate varies by THC content, with consumers paying 2.75 cents per milligram of THC for cannabis edibles, 0.625 cents per milligram of THC for cannabis plant material (or “flower”), and 0.9 cents per milligram of THC for other cannabis products. Connecticut will use excise tax revenue to support substance abuse prevention, treatment, and recovery services; to promote diversity in the cannabis industry; and to reinvest in communities disproportionately impacted by the war on drugs.

Consumers will also pay a three percent gross receipts tax on recreational sales. The law directs gross receipts tax revenue to the municipality where the sale occurred. Recreational cannabis sales will also be subject to the state sales tax, which is currently 6.35 percent.

Addressing Historic Inequalities

Finally, RERACA includes several provisions aimed at supporting communities disproportionately impacted by the war on drugs. As discussed, the Council will develop programs to support social equity applicants, and the law reserves half of each license type for social equity applicants. The law also creates the Social Equity and Innovation Fund, which will use excise tax revenue from recreational cannabis sales to provide business capital, technical assistance to start and operate businesses, workforce education, and community investments.

Individuals who have been convicted of low-level cannabis offenses will also be eligible to expunge their records. On July 1, 2022, RERACA will automatically expunge any convictions from January 1, 2000, to October 1, 2015, for possession of four ounces or fewer of cannabis. Individuals convicted outside of these dates or with other low-level cannabis-related convictions will then be able to petition a court for expungement beginning July 1, 2022.

Next Steps Toward Licensing

Although the new law legalizes recreational cannabis use starting July 1, 2021, recreational sales are not expected to begin until next year. In the interim, the Council will identify criteria for social equity applicants, and the DCP will begin to implement its licensing and regulatory framework.

Businesses currently distributing medical marijuana may continue to do so under their existing licenses and, beginning September 1, 2021, may apply for a hybrid license to begin selling recreational cannabis. Businesses interested in applying for cannabis business licenses should remain attentive to the coming regulations and licensing framework and begin preparing applications well before the process opens in the upcoming months. The most important upcoming development will be the DCP’s announcement of the number of licenses available in each business category. Prospective social equity applicants should also look out for the Council’s release of the applicant criteria, which will indicate that the DCP will begin accepting applications within 30 days.