With the start of a new year, cannabis companies across the country are tweaking their business models to meet changing laws and regulations that could affect sales and how they run their operations.
Expanded delivery, new packaging and labeling restrictions as well as the introduction of loyalty programs and deep product discounts top some of the biggest regulatory shifts underway in 2023.
MJBizDaily explored how these changes will affect businesses in several states with legal marijuana markets, including California, Michigan, Oregon and Utah, among others.
California
In the world’s largest marijuana market, California’s Department of Cannabis Control and state lawmakers approved several business amendments and laws that took effect in late 2022 or on Jan. 1.
Among the most influential in the retail space:
- Cannabis delivery vehicles can now carry $10,000 of product, doubling the previous amount.
- Vehicle inventory is no longer required to be allocated or pre-purchased. Under the former rules, delivery vehicles could have only $5,000 worth of product in it at any time, with $3,000 of that total pre-purchased, limiting inventory on routes. With no allocations set aside for pre-purchases, consumers will have more product choice on designated routes, an important factor given the traffic issues throughout California that slow deliveries and, ultimately, sales.
- Curbside delivery is now allowed at all licensed retailers.
- The collection of a 15% excise tax and payment to the state’s Department of Tax and Fee Administration shifts from cannabis distributors to retailers.
California consultant Hirsh Jain called the regulatory changes to delivery the most consequential policy development of the year.
“Delivery operators will be able to offer much more robust access to legal cannabis in California’s sprawling cannabis deserts,” said Jain, the principal of Los Angeles-based Ananda Strategy.
“They will also be able to carry a larger and more diverse selection of products, which better meet consumer needs, increasing demand within the legal market.”
Chris Violas, CEO of Orange County-based marijuana retail software maker Blaze, applauded the change to permanent curbside pickup and delivery, a system first enacted in the early days of the pandemic.
“I’m a big fan of omnichannel, really allowing the customer to choose where they order, how they order, where they pick up and how they pick it up,” he said.
“So reducing friction at any point on the transaction is really, really important.”
Vince Ning, founder and co-CEO of California distributor Nabis, said the excise tax shift will likely result in a near-term cash-flow crunch for retailers.
“As a result, operators will need to work together to mitigate these risks and avoid financial instability due to the abrupt nature of the transition,” he said.
Oregon
In November, the Oregon Liquor and Cannabis Commission adopted several rules aimed at improving testing standards as well as product labeling and packaging.
Marijuana producers will face hefty fines of up to $500,000 if their products pose a threat to public safety and up to $100,000 if labels contain “untruthful or misleading content.”
Under the new regulations, state operators must relabel product potency if audit testing determines discrepancies between the initial test results and follow-up findings, with violations escalating to potential product recalls.
In addition, testing labs are now required to retain samples for 30 days.
“Recalls are very expensive, so that’s definitely a concern for packaged good companies and brands across the state,” said Mason Walker, CEO of Takilma-headquartered East Fork Cultivars, a craft marijuana and hemp breeder, cultivator and product maker.
The new rules will have an impact on East Fork Cultivars.
The Takilma-based company in November acquired Peak Extracts, a cannabis extractor and product maker in Portland.
The purchase expanded East Fork’s product distribution to more than 400 retail outlets in the state, according to Walker.
In a potential boon for Oregon retailers, regulators lifted a ban on selling products below their wholesale cost while allowing customer-loyalty programs.
Before the rule change, stores were often stuck holding the bag if products didn’t sell or inventory piled up.
“Retailers are allowed to discount product down to a penny,” Walker said.
“I think we’re going to see a lot more aggressive discounting, so consumers should rejoice. They’re going to see lower costs for cannabis across the market this year.”
Utah
Medical marijuana dispensaries and manufacturers in Utah’s already restrictive MMJ market will likely face more retail challenges in the new year.
Among the new rules that took effect Jan. 1, cannabis product packaging, logos and brand names must be preapproved by the state’s Department of Agriculture and Food.
Retail operator Greta Brandt expects regulators to keep a watchful eye on product packaging, particularly regarding a requirement that logos can account for only 20% of a package’s face design.
“This is where we’re going to see a lot of change in how products are presented, as well as fluctuations as products may be pulled, reformulated and rebranded,” said Brandt, the president of The Flower Shop.
The company operates dispensaries in Logan near the Idaho border and Ogden, roughly 45 minutes north of Salt Lake City.
Michigan
In this market, what’s not taking effect will have significant fallout for some cannabis industry professionals.
Michigan marijuana operators had hoped three Republican-sponsored bills that gained bipartisan support for easing regulatory requirements would be signed into law in December.
But Democratic Gov. Gretchen Whitmer vetoed them all, arguing they were “rushed through a lame duck session,” according to media reports.
House Bill 5839 would have prevented regulators from denying license applicants based on their spouse’s job, including employment at state or federal government agencies.
HB 5871 would have granted MMJ companies more leeway in transferring and purchasing product, while also prohibiting background checks and fingerprint scans of an applicant’s spouse under certain conditions.
Douglas Mains, a cannabis attorney at Detroit-based law firm Honigman, said hesitant and concerned spouses have delayed the licensing process for several of his clients.
“Requiring the spouses of officers, owners or board members to submit to fingerprinting and background vetting when the spouse will have absolutely no involvement in the business can be an onerous and off-putting process that could preclude or deter some businesses or investors from entering the Michigan market,” he said.
“Additionally, we have had a number of clients who have applied for licensure while in the process of going through a divorce.
“In those cases, the applicant either had to wait to submit their application until the divorce was finalized or negotiate with their spouse to submit all of the required forms and documentation.”
Other markets to watch
Elsewhere, several states continue to refine their regulations, while others create entirely new frameworks.
In Colorado, House Bill 1020 would overhaul the state’s social equity program.
In New York, where recreational sales launched in late December, regulators have yet to finalize several regulatory policies and operational procedures, including product testing as well as government-supported property leasing and facility construction for social equity licensees.
Though Clark County, Nevada, approved consumption lounges in September, its most-populous city, Las Vegas, has not finalized rules and regulations for them, the Las Vegas Review-Journal reported in late December.
In late June, Nevada regulators approved their final regulations for 60-65 consumption lounges in the state. (Full Story)