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Cannabis in the Southwestern US is Booming

States like Arizona and Nevada are new to the adult-use cannabis industry and there is still much to play out on the licensing front. Let's take a look at some important aspects of the Southwestern U.S. Cannabis market, including useful information for Social Equity operators.

Arizona

Proposition 207 legalized cannabis in the Grand Canyon State in 2020. Now, over 1,500 applications were filed for the 26-available social equity cannabis licenses mid-December of last year, 2021. Additionally, the Department of Health Services is reviewing the applications for random selection in Spring 2022. Arizona’s Social Equity program remains in its infancy then.


With such a large influx of applications, while only a few licenses are available, it remains to be seen if Arizona will be able to offer equitable opportunities to the large pool of applicants, even when licenses have run out. In the future, hopefully more will become available as the market continues to grow.


In the adult-use market, Arizona generated $44,533,436 from recreational cannabis sales, far exceeding expectations, meaning funding is there for licensure expansion. Therefore, these are promising numbers for the nascent Arizona recreational market, signaling opportunity for Social Equity and other general operators in the state.


California: Five Years of Failings?

California has been in the game longer than other states we’ve discussed, but changes to social equity licensing in the state continue to make an impact across the industry. California’s Attorney General is still pushing county prosecutors on their continuously delayed relief for people with prior cannabis convictions. Even though we’re going on year six of adult-use legalization in the state, cannabis companies are still struggling to survive. Excessive fees and taxes on licensed operators are largely to blame.


There are four types of taxes on flower, for example and cannabis is the only product in the world taxed at the farm level - a cultivation tax. Removing this tax is priority number one according to industry insiders. High excise taxes are impacting companies as well. The excise tax levied on the operators in California is so high that many companies are unable to compete with price points seen in the illicit market. An illicit market that has only grown larger since the passing of Prop 64. That leaves sales and city/municipality taxes, which can be the nail in the coffin for some companies. Many of these issues are a result of poorly written legislation. Going forward, legislators need to better consider the impact burdensome taxes are having on companies in the marketplace.


California has accumulated a massive tax surplus from the cannabis industry, meaning they could eliminate the cultivation tax and lower the excise and other taxes in the short term while restructuring the comprehensive tax plan. On the ground, grassroots organizations continue to work with legislators to create more economically sustainable tax policy.

On a positive note, California Governor Gavin Newsom finally and forcefully came out in favor of overhauling the state’s cannabis tax system to support cannabis business owners. Additionally, California’s Department of Cannabis Control recently announced emergency regulations that went live on New Year’s Day, including licensing fee waivers for social equity applicants, upon request.


Greenbelt provides licensing support to operators navigating issues like these, and you can submit a business inquiry here. Our team will help you save time and money throughout the application process, while freeing you up to focus on launching a successful cannabis business. Whether in more mature markets like LA and Oakland, or smaller markets with more nascent social equity programs, Greenbelt can support you across all aspects of your social equity business.


Recently California distributed $100 million in funding to help local marijuana markets, but that money only made it to 17 cities or counties, hence the disproportionate opportunities for success depending on where a company is located. As we begin this new year, it will be interesting to see how California handles these challenges in the coming months.


Nevada


Lounge Licenses for SELs


AB341 in the Nevada State Legislature authorized the state’s Cannabis Compliance Board (CCB) to license and regulate cannabis consumption lounges. According to the state’s CCB site, applications are not yet open, but there is some good news. 10 of the 20 state consumption lounge licenses will be reserved for social equity applicants, and the site suggests that social equity applicant specific information will debut soon. As for the functionality of lounge licenses, and how they will work, those terms remain to be hashed out by the state.


In another measure to protect social equity entrepreneurs, Nevada lawmakers specified that if certain municipalities within the state have different requirements, they will still need to meet a 50% social equity licensure reservation requirement for lounges. As the state moves forward, we hope to see more information about social equity assistance in additional areas other than lounge licensing.


The Future of Delivery Post-Pandemic


Due to the pandemic, the state of Nevada decided to make adult-use cannabis delivery available, where before only medical marijuana was deliverable. This decision came ahead of schedule and was a direct result of the pandemic. Cannabis businesses were deemed nonessential, meaning they could not stay open for the public to walk in. But thankfully, state officials saw the importance of keeping those recreational businesses alive in another way by allowing them to deliver, even if customers could not shop in-store.


Now that we are essentially entering year three of this pandemic, the future of recreational cannabis delivery remains subject to some unclear provisions. While we cannot predict with absolute certainty what Nevada will look like in a post-pandemic future, retail delivery appears to be here to stay.


According to Nevada’s legislation, persons 21 years of age or older or older of adult-use cannabis establishment license are exempt from state prosecution for certain acts involving cannabis, including the delivery of cannabis. That being said, the law reserves the right for the board to establish “additional requirements for the operations of an adult-use cannabis distributor,” meaning there’s room for them to make changes to delivery regulations which could hamper the process.


There’s also some tricky provisions that allow for the state or local government agencies that own or control a building where a cannabis business is operating to prohibit those delivery operations.


Additionally, the delivery MUST BE made by a cannabis establishment agent who is authorized to make the delivery by the adult-use cannabis retail store by which he or she is employed, and this also requires that the cannabis retailer has a distribution license to be able to transport the cannabis.


Even so, the law makes clear that persons delivering cannabis will not be subject to prosecution, say for example, a cannabis retailer was having an employee deliver cannabis without the retailer having a distributor license. If anything, businesses themselves will face repercussions, and companies should be aware of the nuances if they lease a building from a government entity.


“NEW” Mexico

New Mexico surprised the industry when they suddenly opened applications in December of 2021 for cannabis business licenses, ahead of what was originally scheduled for the marijuana market process. The state’s most recent plan is to have retail sales beginning no later than April 1, 2022, with it already approving the first recreational cannabis producer licenses.


They also have a plan in place to benefit social equity licensees, as there is a requirement in the law’s language to create rules ensuring licensing diversity. That said, no rules are in place yet to benefit marginalized communities but we can expect more information before the April launch. As for another minority base, the state also has a mechanism in place so that Native American communities can participate in the recreational market through agreements with regulators.

For now, the state has approved public financing through business loans of up to $250,000 to minority microbusinesses. The operational size limit is rather restrictive though, with small scale operations permitted only to sell from one retail location, or limit plant growth numbers to under 200. This request for application is set to open this month and social equity applicants should keep an eye out. Our comprehensive concierge c-suite business support serves as a vital resource to applicants and operators alike. You can read more here.


In other banking news, a New Mexico credit union was the first to receive national financial institution certification for cannabis and hemp banking protocols. This certification is a crucial step in ensuring safety in the monetary system for institutions banking and interested in banking in the hemp and cannabis industry. U.S. Eagle Federal Credit Union may set the standard and serve as a model for other banking institutions.


On a final note, NM doubled marijuana plant count ahead of adult-use sales via an emergency rule but there has been no official change to the state law at this point. The new ranges of mature cannabis plant-count limits cultivators may grow are: Level 1: 401-2,000 plants; Level 2: 2,001-6,000 plants; Level 3: 6,001-12,000 plants; Level 4: 12,001-16,000 plants.

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