Critics Say Delaware’s Retail Marijuana Sales Launch Is Unfair, Prioritizing Existing Medical Operators
From toxifillers.com with love
“Patients, consumers, industry workers and new and small equity businesses will all pay the price for having the fledgling market sold out to six companies.”
By Brianna Hill, Spotlight Delaware
The recent announcement that Delaware would launch its long-awaited recreational marijuana industry in August has sparked tensions over who gets to participate in that initial launch—and how that will affect the industry over the long term.
Last week, the Office of the Marijuana Commissioner, the body in charge of regulating the new industry, announced that the adult-use market would officially begin on August 1. But, the only retail shops allowed to open their doors to recreational customers on that date are ones that previously existed to provide medical marijuana dispensaries.
The dozens of new retail businesses that have received, or are still awaiting recreational marijuana licenses, will have to wait before they’re allowed to launch, as none have satisfied all state regulatory approvals, such as shop inspections.
Additionally, while two new micro-cultivation businesses that exist outside of the medical marijuana system will launch on the August 1 start, their products will not be available for several weeks or even months.
Medical marijuana companies and some new licensees argue that this rollout is the only way to get the long-delayed recreational market off the ground, but other advocates and licensees say the state is failing to create an equitable and competitive market.
Morgan Fox, political director of the National Organization for the Reform of Marijuana Laws (NORML), said he is confused about why local entrepreneurs who have been granted conditional licenses are not being allowed to open.
“The state had more than enough time to set up this program,” Fox said.
The long wait
Last year, the Office of the Marijuana Commissioner awarded 125 licenses through a lottery system to people seeking to participate in the incoming industry as marijuana cultivators, testers, manufacturers or retailers.
Of those licensees, 47 were earmarked for social equity applicants or individuals with past marijuana-related convictions or those from areas with disproportionately high marijuana enforcement.
Delaware’s six retail medical marijuana operators, who have been active in the state since 2015, also secured conversion licenses to take part in the recreational industry. They received their licenses last year after paying hefty conversion fees—$100,000 for retail or manufacturing licenses and $200,000 for cultivation. The businesses needed to secure a license for each location in which they operate, numbering up to three for some.
Those fees were used to create a $4.5 million reimbursement grant to support social equity licensees.
Since March, all operators have been waiting on guidance from the Office of the Marijuana Commissioner about when sales can legally begin, after the state delayed its originally projected April launch date due to regulatory setbacks.
A key holdup stemmed from the state’s failure to secure FBI approval to conduct background checks on license applicants—a requirement for issuing conditional licenses. That issue wasn’t resolved until May, further stalling the process for new operators hoping to enter the market.
Although the August 1 launch date offers more clarity, major obstacles remain for marijuana shops, including local and county zoning restrictions, and difficulties in securing investors.
Several shops also still await their licenses to operate.
According to the commissioner’s office, 62 operators have completed their background checks and 33 operators have received their conditional licenses.
State regulators have also said that one cultivation and four manufacturer licenses were voluntarily returned back to the state.
A promise of fairness
Stakeholders on both sides agree on one thing: The state has moved too slowly.
Had Delaware fixed its regulatory issues and opened its adult-use market sooner, some believe the state could’ve already collected tax revenue, attracted investment and gotten ahead of the zoning issues.
James Brobyn, president of Delaware Cannabis Industry Association and owner of Field Supply medical dispensary, said marijuana industry officials told the state years ago that obstacles, such as land-use restrictions, would arise if they didn’t take action soon.
“The state waited all this time for no damn reason, honestly,” he said.
Given the continued challenges that operators face and what some say is a first-in advantage given to medical marijuana businesses, some question whether Delaware’s cannabis rollout truly reflects its promises of equity and fairness.
Delaware’s new Marijuana Commissioner, Joshua Sanderlin, who began his role early last month, described the current rollout as a “pretty traditional path forward.”
He plans to have licenses administered to all operators within the next two months.
He also noted that licensees have struggled to secure capital and private investments in an industry that has not yet launched.
“To us, it was really important to start to shake that stigma off and show that the industry is moving forward, that we are committed to the industry,” Sanderlin told Spotlight Delaware.
He also said the launch of recreational marijuana would combat some of the voices in the state “who look poorly upon the industry.”
‘The big six’
Due to how medical marijuana businesses were required to be established over the past decade, each has a “vertical license,” requiring them to cultivate, manufacture and sell cannabis products.
That makes the legacy medical shops distinct from new licensees, who had to apply to each distinct piece of the industry.
And, as already established operators, medical cannabis businesses are currently the only entities technically equipped with the infrastructure to launch and support the recreational market.
But some argue that allowing medical operators to launch first gives them an unfair head start and cements their dominance in Delaware’s recreational cannabis landscape.
“If the ‘Big Six’ start sales before new businesses, then patients, consumers, industry workers and new and small equity businesses will all pay the price for having the fledgling market sold out to six companies that don’t want to have to play by the same rules as everybody else,” said Zoe Patchell, president of the Delaware Cannabis Advocacy Network, who helped pass the state’s legalization law.
Because the six medical marijuana operators will be the only businesses able to sell on August 1, Patchell argued they could set higher prices and consumers could face longer lines. Those two factors could cause customers to continue to shop for marijuana in nearby states or in the illicit market.
High prices were also a point of contention in 2021, when Delaware residents protested low supplies of particular cannabis strains at the state’s medical dispensaries, which caused inflated pricing.
Medical operators later opposed a marijuana legalization bill that same year, saying the proposal, which initially would have forced them to go through the same licensing process as other new operators, could cause an oversupply of marijuana in the state and force them out of business.
Today, some worry that the rollout of the recreational industry will trigger an undersupply for Delaware’s 28,000 medical patients.
“There were a lot of patients who weren’t able to get their medicine when the medical marijuana program started because there weren’t enough dispensaries at the time, and I feel the exact same thing could happen this time around,” said Nicole Chick, who received a social equity manufacturing license in New Castle County and a micro manufacturing license in Sussex County.
In neighboring New Jersey, where it took almost two years to kickstart their adult-use market, industry officials experienced similar issues in shortages to meet the demand in both medical and recreational sectors. And while mature recreational industries have progressed to liquor store-type, walk-in sales, many newer recreational state industries still operate on an appointment-only basis.
But Delaware medical operators say that they are well equipped to handle the incoming industry.
Emily Wilkins, vice president of First State Compassion, says that she and others are prepared for the anticipated demand and emphasized that Delaware law mandated that operators provide an inventory control plan that required them to set aside products for medical patients.
She says First State Compassion will be setting aside 20% of their inventory for medical card holders
“We’ve been gearing up for this moment for a very long time,” she said.
Other licensees say the demand for recreational marijuana may be lower than people think.
Urvesh Patel, who was awarded one of the first active cultivation licenses in Delaware last week, is preparing to set up his operations and grow plants at his New Castle County facility.
Patel, who’s also owned a retail marijuana shop in New Jersey for two years, believes that with Delaware’s high 15 percent sales tax on marijuana, it could be difficult for the dozens of licensees to keep a customer base. He said surrounding states sell their products at a lower price than what he expects to see in Delaware.
“It is an overkill. I hope everyone just makes it out, and no one loses a significant amount of money trying to compete,” he said.
Patel also said that medical operators may be difficult to compete with. He noted that when he launched his business in New Jersey, it was challenging to build a customer base and even harder to work with medical companies, who often refused to sell certain products because they viewed newer operators as competition.
But medical operators, some of which have been actively working with other licensees to help them set up their businesses, say that they want those operators to be successful.
Wilkins, from First State Compassion, said she wants recreational producers’ products on her shelves too.
Launch date spurs new support
Despite concerns from advocates and licensees, others see the August launch as an opportunity to finally start building a market and a strong industry in Delaware.
One social equity licensee, Tracee Southerland, said she received phone calls from two investors on July 1—the day that the state announced the cannabis market’s August launch. Before that announcement, Southerland hadn’t been able to find anyone who was interested in investing into her business.
“Having that progress and having a date was a giant relief for me,” Southerland said.
Other licensees also believe that even if everyone opened their stores at the same time, many of the new businesses wouldn’t be ready to operate because marijuana harvests would still be two or three months away.
Still, Patel, the New Castle County grower, said he should have his first harvest before the end of the summer.
Sanderlin also said he believes that the industry will be more competitive than people think as it moves forward.
“Cannabis in the recreational market is not like cannabis in the medical market. If you have product that is of a better quality, more easily accessible and even better at a price point, you’re going to drive customers to you,” he said.
But overall, all stakeholders seem to want the same outcome.
“They want safe access to cannabis, but they all say it in seven different ways, and then it comes across like we’re all arguing. You know, I don’t want none of that. I just want to keep moving forward,” said Patrick Galloway, a newly licensed grower.
This story was first published by Spotlight Delaware.
Photo courtesy of Mike Latimer.
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