Friday, September 29, 2023
Unpacking Maine Cannabis Regulations

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Unpacking Maine Cannabis Regulations

In the past two years, regulations for medical cannabis, hemp, and adult-use businesses in Maine have undergone unprecedented change. Lawmakers have enacted hundreds of pages of legislation governing cannabis businesses, and state regulatory agencies have produced even greater volumes of new rules governing cultivation, manufacturing, testing, and sales, with more regulations in the works.

Three years after voters approved the referendum to regulate and tax marijuana like alcohol, commercial distribution of cannabis for adult use is finally on the horizon.

Applications for licenses are already in process, and the first active adult-use licenses are likely to be issued in early spring 2020.

Small business owners are seeking to participate in this new market, but many face hurdles when it comes to complying with the wide variety of evolving rules for a product that will be taxed and regulated far more stringently than alcohol. Increased opportunities for cannabis businesses to scale up and serve more people have been paired with significantly expanded regulatory requirements. 

Local control of medical and adult-use cannabis businesses has significantly expanded in the past year, resulting in what the late great grower Dave Chasse called "the Balkanization of cannabis." Rules for cannabis businesses vary widely from town to town, and what is permitted for businesses in one locality may be prohibited in a neighboring town. Hundreds of Maine municipalities have enacted ordinances governing medical cannabis businesses, with a wide variety of requirements for set-backs, zoning, licensing standards, and permitting requirements. 

As of this writing, only two dozen municipalities have enacted local regulations for adult-use cannabis businesses. Unless Maine lawmakers approve legislation to allow tax revenue sharing with towns that host adult-use businesses, it's unlikely that many more municipalities will choose to opt in soon. A number of hopeful cannabis business owners have made costly investments in warehouses and retail spaces that turn out to be unusable due to changing municipal regulations. 

Increased state requirements for tracking, record-keeping, packaging, labeling, advertising, security, and tax compliance can significantly increase the cost of business. Something as simple as investing in a non-compliant brand design, inadequate packaging, or printing non-compliant labels can result in thousands of dollars in otherwise avoidable expenses. However, failure to comply with the new requirements can be far more expensive, resulting in fines and the loss of ability to continue to run a business in the cannabis industry.

Unlike regular businesses, most of these business expenses can't be written off, making them extra costly. The IRS has been giving extra scrutiny to businesses involved with sale of cannabis, and multiple recent tax court rulings have not favored cannabis business operators who took questionable deductions.

These regulations are all going into effect at a time when cannabis remains a Schedule I controlled substance, and interstate distribution of cannabis remains illegal. Failure to comply with local and state rules can place a business owner, as well as their employees and investors, at risk of criminal charges.

For business owners seeking stability and wanting to plan for the future, changing laws create significant uncertainty. Relying on social media and word-of-mouth to stay informed about complex law changes can result in costly business decisions. The line between what is protected by state law and what could result in loss of licensing or even be considered a criminal act is complex and evolving. 

In addition to investing in quality equipment and great plants, it is more important than ever to invest in quality professional guidance when developing plans for your cannabis venture. 

Take the time to find trusted professional advisors who have the experience necessary to help you navigate Maine's changing regulatory landscape and ensure you possess the knowledge required for your business to thrive in a time of uncertainty.