Connecticut to Legalize, Regulate and Tax Cannabis for Adult Use, Completing the ‘Tri-state Legalization Puzzle’

Like the laws recently enacted in N.Y. and N.J., S.B. 1201 features an innovative approach to business licensing, including a strong social equity component, and other provisions aimed at repairing damage caused by cannabis prohibition

 

Vicente Sederberg LLP, which has been shaping and navigating cannabis laws and regulations for over a decade, will host a free ‘Tri-state Cannabis Update’ webinar June 29 — *Register Now*

 

HARTFORD, Conn. — State lawmakers passed a bill Thursday to legalize, regulate, and tax cannabis for adult use. Gov. Ned Lamont is expected to sign S.B. 1201 into law, making Connecticut the 19th state to adopt such a law and the sixth to do so since November 2020.

“S.B. 1201 represents the end of cannabis prohibition in Connecticut and the final piece in the tri-state legalization puzzle,” said Michelle Bodian, a Connecticut native and senior associate attorney in the New York office of national cannabis law firm Vicente Sederberg LLP. New Jersey and New York enacted adult-use legalization laws in December and late March, respectively.

“Like New York and New Jersey, Connecticut adopted a law that reflects regional coordination efforts but also includes its own unique take on the process,” Bodian said. “It features an innovative approach to licensing that includes a strong social equity component. The tri-state area is poised to become a major hub for cannabis commerce, innovation, and social responsibility.”

Vicente Sederberg will host a free webinar June 29 at 2 p.m. ET to review Connecticut’s new law and provide updates on implementation in New Jersey and New York. Presenters will include Bodian and other local and national firm leaders who have been intimately involved in shaping and implementing cannabis laws and regulations across the country. Register now and find more information at http://bit.ly/vs-tri-state-update.

S.B. 1201 will take effect July 1, at which time possession of up to 1.5 ounces of cannabis will become legal for adults 21 and older. Legal sales to adults are expected to begin in May 2022. Home cultivation will first be allowed for medical cannabis patients, then for adults 21 and older. The bill also includes several provisions aimed at mitigating the collateral consequences of cannabis offenses and repairing damage previously caused by cannabis prohibition.

The Connecticut Department of Consumer Protection (DCP) will create and enforce rules aimed at protecting public health and safety, preventing youth exposure, and avoiding diversion into the illegal market. It will also be responsible for issuing licenses to cultivators (15,000 square feet or more), micro cultivators (2,000–10,000 square feet), retailers, hybrid retailers, product manufacturers, food and beverage manufacturers, product packagers, and delivery services or transporters.

The number of licensed cannabis retailers is limited to one per 25,000 residents until June 30, 2024, then state regulators will set a new maximum. Local governments can prohibit licensed cannabis businesses and deliveries within their jurisdictions, or they can set reasonable limits on the number of businesses, locations, operating hours.

Beginning in September, existing medical cannabis dispensaries can apply for “hybrid retailer” licenses to also serve adults 21 and older. They will be required to submit a conversion plan and pay a $1 million fee, which could be cut in half by creating an equity joint venture with a social equity applicant as majority owner. Existing medical cultivators can also begin cultivating adult-use cannabis later this year by paying a fee of up to $3 million.

If the application period for a license type closes and DCP receives more than the maximum number of applications, a third-party lottery will be used. Applicants for new cannabis businesses will have to pay a small fee to enter, then a larger fee if they receive a license. Licensing fees for qualified social equity applicants will be 50% lower, and equity applicants will receive a 50% discount on renewal fees for the first three years. The law also creates $50 million in bonding for the cannabis business accelerator program, workforce training developed by the Social Equity Council, and start-up capital for equity applicants.

“Connecticut established a thoughtful licensing scheme that is intended to create a diverse, accessible, and robust cannabis industry,” said Bodian, whose firm has worked on social equity and small business policy matters and programs around the country. Vicente Sederberg also provides pro bono and reduced-fee legal assistance to a wide variety of equity and economic empowerment program applicants and participants.

“Eight classes of licenses will lend to a wide array of opportunities and other benefits for Connecticut businesses, large and small,” Bodian said. “A regulated adult-use cannabis market will create a wave of new jobs and generate significant tax revenue for the state and local governments. It also bodes well for all the ancillary industries that will supply these cannabis businesses with products and services.”

Adult-use cannabis will be subject to the state’s standard 6.35% sales tax, as well as a separate state sales tax based on THC content. Additionally, a 3% municipal sales tax was authorized to direct revenue to local governments for specific community reinvestment purposes. All state tax revenue from adult-use sales will be directed to the state General Fund through June 30, 2023. Beginning July 1, 2023, 25% will be directed to the state Prevention and Recovery Services Fund. Sixty percent will be directed to the Social Equity and Innovation Fund; this portion will gradually increase over the next five years to 75%, where it will remain. All remaining state tax revenue will be directed to the General Fund.

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