On September 13, 2024, Republican Representative Kaufer and Democratic Representative Kinkade introduced House Bill 2500. From establishing dual licenses for existing operators to implementing a sales and excise tax on adult-use cannabis products to generate revenue for the Commonwealth, this bipartisan bill sets forth Pennsylvania’s foundation at developing a comprehensive adult-use market. So, will the Keystone State be the 25th state to legalize cannabis for adult-use?
Adult-Use, Home Grow, Expungements – Oh My!
If approved by the Pennsylvania legislature, adults twenty-one (21) years of age or older will be able to possess up to thirty (30) grams of cannabis flower, 1,000 mgs of THC contained in edible and non-edible products, or five (5) grams of cannabis concentrate. Further, medical cannabis patients who are residents of the state and are aged twenty-one (21) and older will be granted the opportunity to conduct home cultivation of up to five (5) plants without obtaining a license. However, home cultivation under the proposed bill is restricted to medical cannabis patients only.
The proposed bill further provides a pathway for expungements—deemed “cannabis clean slate,” for individuals arrested, charged or convicted of a nonviolent cannabis offense. Moreover, individuals currently serving a sentence for a nonviolent cannabis conviction under the Pennsylvania Controlled Substance, Drug, Device and Cosmetic Act may petition for dismissal or resentencing if deemed eligible by the courts. These provisions will protect individuals with past cannabis offenses from being penalized in industry-related background checks to ensure fair and equitable employment opportunities in the Commonwealth.
Per Subchapter K of the proposal, an 8% sales tax, as well as a 5% excise tax would be imposed on adult-use cannabis. Revenue from such taxes will be allocated as 30% to the Cannabis Business Establishment Fund, 30% to the Cannabis Regulation Fund, 15% to the Pennsylvania Commission on Crime and Delinquency (10% to local police departments to enforce cannabis regulations; 5% to be used for indigent defense services), 10% to the Department of Drug and Alcohol Programs, 10% to municipalities with cannabis establishments, and 5% to be utilized in assisting patients, caregivers, and conducting background checks.
Establishing Seed-to-Sale
In accordance with the proposed bill, the Department of Agriculture of the Commonwealth (“Department”) will be overseeing the state’s medical and adult-use programs, consolidating agency oversight. Current medical cannabis operators holding a dispensary permit will be authorized to begin selling adult-use cannabis, so long as the operator pays a fee of $100,000 prior to opening their doors.
There are four (4) license types prospective applicants can apply for: (i) Cultivation Center; (ii) Micro Cultivation; (iii) Dispensing; and (iv) Testing. The proposed bill mandates the Department to develop procedures to process and competitively score applications, as well as prioritize and promote individuals disproportionately harmed by cannabis prohibition/enforcement and small businesses. To further ensure a fair application process, prospective applicants will only be able to file one (1) application in a single application process.
In accordance with the bill’s proposed language, a “social and economic equity applicant” is one that does not generate an annual income of more than $75,000 or have financial assets exceeding $250,000, and is 75% owned and controlled by individual/s who: (i) have resided in disproportionately impacted areas in the state for at least five (5) of the preceding ten (10) years; or (ii) have been arrested, convicted, or adjudicated delinquent for a nonviolent cannabis offense eligible for expungement under the bill or are members of an impacted family. Moreover, small business owned by minorities, women, veterans or people with disabilities will be prioritized for licensure.
Prospective applicants interested in entering Pennsylvania’s proposed adult-use market should expect the need to develop a comprehensive application, including, but not limited to a business plan, security plan, inventory control plan, community engagement plan, facility plans, and disclosure of ownership and control. With the proposed bill’s language demonstrating the enforcement of a merit-based scoring process, it is paramount applicants ensure compliance with the Department’s regulations and Pennsylvania law.
Market Opportunities
According to a study conducted by Responsible PA and FTI Consulting, Pennsylvania’s cannabis market can expect up to $2.8 billion in adult-use sales in their first year of implementing the program. Moreover, the study found that the program could also generate as much as $720 million in tax revenue and create up to 45,000 jobs. From a more conservative perspective, the Representatives endorsing this bill project that the new program could bring in around $420 million in annual tax revenue, as well as establish over 33,000 jobs in the Commonwealth.
Conclusion
From implementing social equity and criminal justice reform to leveraging the Commonwealth’s agriculture and medical cannabis program infrastructure, the proposed bill poses Pennsylvania to be a booming adult-use market. Although the Pennsylvania legislature is divided, the bipartisan bill, HB 2500, hopes to establish a compromise that appeases both sides of the aisle. If you are interested in entering Pennsylvania’s cannabis market, contact us today to discuss your options.