Maine’s Marijuana Biz Set for Major Overhaul

Big Picture:

• A major bill that would overhaul Maine’s marijuana regulations is moving through the State House, with $100s of millions — if not billions of dollars — on the line
• The fight pits large businesses against small businesses, adult-use recreational operators against medicinal providers, and multi-state operators against local businesses
• Changes to age-restrictions around who can work in the industry may cause banks to reconsider working with marijuana businesses, which would cause huge logistical headaches and security vulnerabilities
• The changes to regulations now in place for adult-use cultivators, processors, and dispensaries could allow illicit Chinese-owned operations to further proliferate in Maine, according to the Mills Administration
• While all the details have continued to fluctuate throughout an extended public hearing and two work sessions, the rules around Maine’s fastest growing cash crop are poised for a major shift

Maine lawmakers continued on Wednesday to hash out the details of a massive piece of legislation that would fundamentally reshape how Maine regulates the cultivation, processing, and sale of what is quickly becoming Maine’s top cash crop, the stickiest of the icky: legal cannabis.

While much of the State House talk in 2024 has centered on culture war issues around transgenderism and abortion, gun control, and migrants, the cannabis bill (LD 40) has massive implications for the future of an industry that has already become one of Maine’s most important economic sectors.

According to Office of Cannabis policy data, the adult-use program accounted for $216.9 million in sales in 2023, while the medical side generated $276.7 in taxable sales. Those sales figures don’t include second-order impacts from wages and employment, either.

For comparison, the Maine Department of Labor pegs the total impact of the potato industry on Maine’s economy at $540 million. Although lobster prices tend to fluctuate, the industry brought in $586.6 million in 2022.

In short, cannabis is already one of Maine’s biggest industries, is quickly becoming perhaps the biggest, and — if federal legalization occurs, as most anticipate will happen — it could become a multi-billion dollar industry if Maine weed becomes a coveted brand nationwide.

Yet very little attention outside of the industry has been paid to the effort to drastically rewrite the rules governing the sector.

Although support for legalized cannabis in Maine has been broad since the state voted 50.26 percent to 49.47 percent to legalize the cultivation, use, and sale of the mind-altering flower, the business environment that blossomed since the legal recreational market officially came online in 2020 has fostered sharp divisions between and among marijuana business operators and regulators.

Understanding the divisions between pro-cannabis contingencies when it comes to LD 40 requires, first, understanding the differences between Maine’s two marijuana programs: adult-use recreational and medicinal; and second, how the bill would modify the regulatory regimes at play for both industries.

And, of course, since you’re reading this at the Maine Wire, you understand that the whole debate is unfolding as Chinese criminal organizations operate vast illegal grows at more than 300 properties across mostly rural Maine.

Adult-Use Recreational vs Medicinal

The bill has sharply divided members of Maine’s recreational and medicinal marijuana industries, and drawn strong reactions from law enforcement officials as well as officials from Maine’s Office of Cannabis Policy (OCP), the regulatory body that oversees marijuana production and sale in Maine.

Although Maine voted via a citizens initiative in 2016 to legalize cannabis cultivation, sale, and use for adults, lawmakers did not create a framework for the legal cannabis industry until 2020.

At the time, the state created a two-track system for cannabis sales: adult-use recreational vs medicinal. Although both programs sold the same sticky flower and its derivatives, the rules governing the cultivation and sale of the drug through the separate programs were totally different.

It may sound counterintuitive, but Maine’s medicinal marijuana market is vastly under-regulated in comparison to Maine’s adult-use market. More than one marijuana industry participant has described the medicinal community to the Maine Wire as the “Wild West of Weed.”

That’s because the “medicinal” nature of the program has allowed participants to take advantage of the privacy protections usually afford to doctor-patient relationships. The location of medicinal grows and their manufacturing facilities are shrouded in secrecy, as are the records of who is buying and selling medicinal marijuana in bulk.

What little information OCP does make available about its oversight of the medicinal market has given cause for concern.

OCP found in an Aug. 2023 audit testing of medicinal cannabis products that 42 percent contained banned or harmful substances, including yeast, mold, pesticides, “filth,” and heavy metals. Several samples tested positive for Myclobutanil, a pesticide that becomes cyanide gas when burned.

“Alarmingly, one medical cannabis sample’s myclobutanil concentration was as high as 58,600 ppb, which is 293 times the pass/fail threshold,” the report said.

Which medicinal grower produced the flower that had 293 times the level of cyanide-producing pesticide? Which dispensary sold it? Maine law currently says you’re not allowed to know.

When it comes to the more highly regulated adult-use recreational side of the equation, the rules are far more stringent, including so-called “seed-to-sale” tracking of all cannabis products.

Rather than the medicinal market’s “audit testing,” which can occur as infrequently as once-per-year, the adult-use side is subjected to mandatory regular testing — the cost of which is paid by the business.

According to OCP data, there are 479 active, conditional, or pending conditional licenses for marijuana businesses in Maine’s adult-use market, including: 141 cultivation businesses, 110 manufacturing facilities, 223 dispensary stores, and five testing facilities — all of which would face massive regulatory changes under LD 40.

A common theme at initial public hearing among adult-use industry participants was complaints about capricious and punitive enforcement of labyrinthine rules on growers, manufacturers, and dispensaries.

Although only limited information is available under Maine’s Freedom of Access Act to assess these complaints, the OCP did make available some information about enforcement actions it had taken against marijuana businesses.

According to the OCP, the agency investigated 177 complaints against adult-use license holders, 130 of which were deemed to be compliance violations. The majority of those — 120 cases — were resolved through “technical assistance,” whereby the OCP helps operators comply without penalizing them.

Ten of those issues resulted in monetary penalties. Per OCP, the penalties against adult-use businesses in 2023 included the following:

• VertiKal, a cultivation facility, paid $105,000 in fines related to two major violations and one minor violation. The major violations “involved the sale of untracked cannabis to non-program participants and repeated instances of not entering products into the inventory tracking system.” The minor violations involved a failure to separate medical versus adult-use plants in a shared facility.
• Cannabis Haven, a retail store operator, was fined $7,500 for two major violations involving false information being entered into an inventory system. Rather than destroying product that was ordered held, the company instead gave the cannabis to employees.
• Elevation 207, a retail store, was fined $7,500 for “intentionally obscuring the lens of a security camera,” though the report does not detail how inspectors reached the conclusion that the “obscuring” was intentional.
• Mystique, which engages in both cultivation and manufacturing, was fined $2,000 for two minor violations, both tied to the construction of new facilities for growing and storing pot.
• Core Empowerment, a retail store, was hit with a $500 fine for having an employee without an Individual Identification Card.

According to the information OCP gave to lawmakers, the following violations were found related to unauthorized changes to the ownership structure of marijuana businesses:

• NPG, a company that operates a cultivation site, two manufacturing facilities, and four retails stores, was cited for seven major license violations and 35 minor violations in 2023. The company paid a total of $105,000 in fines. According to OCP, those fines were related to non-compliant management structure changes the company made without proper pre-approval.
• The Hashery, which operates two manufacturing facilities, had eight minor violations, which resulted in $22,500 in fines in 2023. Per OCP, the fines were also related to ownership changes.
• The Healing Community LabCo, which operates a manufacturing facility in Lewiston, had one minor violation. According to the OCP fact sheet, the violation was related to an unapproved or undisclosed ownership change.
• MedGro LLC, a retail store, faced a $4,000 fine for a minor violation for non-approved ownership changes.

Cannabis Civil War

For years, the fight over marijuana was primarily between the dope-smoking libertarians and hippies, on the one hand, and the puritanical teetotaling D.A.R.E. instructors preaching about a “gateway drug,” on the other.

That may be a gross simplification, but the in the post 2016-legalization world, far more complex battlelines have been drawn.

Right now, Maine is a marijuana battlefield where the traditional tension between those in favor of heavy-handed regulation versus a more libertarian approach are duking it out.

At the same time, small businesses and large businesses, along with adult-use businesses and medicinal businesses, are competing to address their grievances — or gain advantages — within the current proposal. Then are well-funded multi-state entities looking to build national empires after federal legalization.

Everyone is fighting for advantages within a coming regulatory overhaul where a sentence here or a clause there could mean differences of hundreds of millions of dollars.

The complex debate is reflected in the diverse array of interest groups and associations that have a seat at the table.

Just look at the panoply of groups that showed up to speak their piece on LD 40 at the public hearing: the Maine Craft Cannabis Association, the Maine Cannabis Union, Liberate Maine Cannabis, CannabisME, and Medical Cannabis Patients. Then there were dozens of dispensaries, manufacturing businesses, a representatives from testing companies, like Nova Analytic Labs and MCR Labs. Plus the usual players who often turnup in the State House halls: the Maine CDC, Maine Medical Association, the Maine Sheriff’s Association, and the Maine Chiefs of Police Association.

So What Does LD 40 Do?

Like other major pieces of legislation introduced in the present session, the bill (LD 40) was originally a concept draft that had a massive amendment tagged on days before the March 4 public hearing by the sponsor, Sen. Craig Hickman (D-Kennebec).

As of Wednesday evening, after a public hearing and two major work sessions on the bill, the full text of the amendment and a new, adjusted amendment were still unavailable to the public via the legislature’s website. The updated language has only been distributed to those who are subscribed to legislative updates from the Veterans and Legal Affairs Committee.

So it would be premature to say with any certainty what exactly the bill would do, other than to say the changes would be significant.

The Mills Administration, testifying via Department of Administrative and Financial Services (DAFS) Commissioner Kirsten Figueroa, testified in opposition to LD 40 at the public hearing. (It’s worth noting, OCP technically falls under DAFS.)

Figueroa said the proposal “completely upends the cannabis regulatory system” established over the past five years, potentially making Mainers less safe.

Figueroa accused the bill’s backers of endorsing “the recreational use of cannabis by children” and criticized changes made to age-based restrictions contained in existing regulations.

“It’s not ‘reefer madness’ to acknowledge the precarious legal space that Maine’s legal cannabis programs occupy,” she said.

According to Figueroa, LD 40 would also “hinder the State’s ability to distinguish between the legal cannabis businesses and large-scale illegal cannabis grows that law enforcement has busted nearly every day for the last several months.”

“Not only will passage of this bill allow large-scale illegal cannabis grows to proliferate and undercut the legal market, but greater permeability between the illicit and legal markets may cause banking and insurance industries to reassess their risk around providing business support services to Maine’s cannabis industry,” she said.

Mark Barnett, representing the Maine Craft Cannabis Association (MCCA), provided testimony in strong support of the bill along with recommended changes.

For Barnett, the bill would represent a shift away from a “Drug War” mentality toward an embrace of cannabis industry with the traditional spirit of American entrepreneurship. By reducing operational hurdles and selective enforcement threats, MCCA contends that LD 40 will clarify the rules and allow for freer, fairer competition among the legal operators.

From MCCA’s perspective, structuring OCP should be structured in a way that promotes support over policing, with parallels to the Department of Agriculture, Conservation, and Forestry’s role in staple crops.

“We believe this bill represents a historic moment in the history of cannabis policy in Maine and the United States–for consumers, for small businesses, and for advocates of de-emphasizing the role of law enforcement in a legal, safe, well-regulated industry with no discernible pattern of major threats to the public safety,” Barnett said.

Most everyone in the industry agrees with decreasing fines and penalties, as well as clarifying some portions of the original statute that have, in practice, not worked well.

But not everyone in the cannabis business supports LD 40.

CannabisME, a trade group that represents some large adult-use businesses in Maine, testified against LD 40.

Malina Dumas, a Dentons attorney who represents CannabisME, said that while the group supports some of the minor changes and clarifications made within the bill, it opposes the larger, structural changes that the bill would make.

“The problem with L.D. 40 is not the smaller more targeted changes, but changes to fundamental health and safety regulations that have been adopted across the country as regulatory best practices,” Dumas said.

“These changes are likely have significant unintended consequences that will harm adult use cannabis businesses, including small craft cannabis businesses, in the long term,” she said.

According to Dumas, the changes to Maine’s cannabis product tracking regulations could have the unintended consequence of eliminating track-and-trace altogether.

“The bill would create a group tracking program that would be unique to Maine and, thus, there may not be a service provider that can or is willing to develop software that would only apply to a single state,” Dumas said. “This creates an enormous risk that L.D. 40 effectively eliminates seed to sale tracking in Maine’s adult use program.”

CannabisME agreed with Figueroa’s assessment that falling out of step with the best practices followed in other states could mean that Maine businesses lose access to professional services, like banking and insurance, and are prevented from engaging in interstate commerce in the future.

Here’s a copy of the latest amended version of LD 40, which is almost certain to have changed by the time you’ve read this: