Why Should Delaware Care?
Delaware’s recently established recreational marijuana industry was initially set to take off this April. But as a result of regulatory delays, the industry’s set date is in limbo, causing a toll on future business operators and possibly the state.
Recreational marijuana establishments are unlikely to open in Delaware this spring due to regulatory delays, causing concerns among marijuana business licensees.
“They just keep kicking the can,” said James Brobyn, a license holder and president of the Delaware Cannabis Industry Association.
State regulators are reportedly still in the process of conducting background checks for licensees and are currently waiting for the Federal Bureau of Investigation to approve their application for fingerprinting authorization.
As a result, applicants who were awarded licenses through last year’s lottery have yet to receive their conditional licenses to operate, leaving them with only the lottery selection notifications they received.
The delay follows months of debate among municipalities as they weigh the decision of whether to permit marijuana stores within their boundaries.
Under Delaware’s marijuana law, counties cannot ban marijuana businesses, but they can restrict where they operate. Meanwhile, municipalities can set either zoning restrictions or prohibit shops entirely if they choose.
So far, about a third of Delaware’s cities and towns have banned the cannabis shops outright, while other cities like Wilmington are still deciding on where to allow them.
The state legalized recreational marijuana in 2023 and had originally set a launch date in April for the industry to open, However, the Office of the Marijuana Commissioner (OMC), the state agency created to regulate the industry, has yet to provide an updated timeline.
Licensees stuck in limbo
Over 1,200 individuals applied for marijuana business licenses, competing for just 125 available licenses across cultivation, manufacturing, lab testing, and recreational sales in the state. The winners were selected through a lottery process at the end of last year.
Entering the licensing lottery alone required individuals to submit detailed applications and fees. Most application fees cost $5,000, with the active license itself costing up to $10,000.
Those selected then had to submit a secondary application with detailed information on their business plan, financial and personal background, which are now being reviewed by the newly developed Marijuana Enforcement Unit within the Delaware Division of Alcohol and Tobacco Enforcement.
“Upon successful completion of the background review, selected applicants will be issued conditional licenses and granted an 18-month period to become fully operational,” said Keila Montalvo, communications relations officer of the OMC.
The delay has frustrated licensees, who say it’s pushing customers to more established markets in nearby states like Maryland and New Jersey while causing them to bear financial losses on investments they’ve already made, including real estate.
Urvesh Patel, who holds a cultivation license in all three counties, was counting on the market opening this spring. He secured real estate in New Castle County and has been paying rent on it for the past three months.
“We have to pay for all the ongoing expenses that are already occurring, the security systems, the camera systems, internet, etc.. Everything you think of that a business needs to run properly without actually having any inflow of money coming in or revenue coming in. So, that’s a huge problem,” he said.
Brobyn, who already owns a medical marijuana business in New Castle, was awarded a conversion license, a provision worked into Delaware marijuana law last summer, which allows medical dispensaries to transition to recreational sales.
Although he’s ready to operate, he and the state’s six other medical converters are still waiting for the OMC to approve their applications as well.
“While Senate marijuana advocates from New Castle and Kent counties strongly oppose activating conversion licenses ahead of the 125 adult use recreational market licensees, OMC reserves any decision on the activation of medical conversion licenses to the next commissioner,” Montalvo wrote to Spotlight Delaware.
That decision is now on hold since the OMC has yet to appoint a new commissioner following the resignation of Rob Cope in January, right before Gov. Matt Meyer took office.
For medical operators looking to transition to recreational sales, the cost wasn’t cheap, costing
Medical marijuana operators like Brobyn between $100,000 and $200,000 to do so.
That money was then used to generate a $4 million fund for social equity licensees, or individuals with past marijuana-related convictions or those from areas with high marijuana enforcement.
The state established the fund to support social equity licensees in launching their businesses. However, the funds won’t be available to them until sometime this month, potentially causing further delays for those relying on them to secure real estate and purchase products.
“Again, it gets back to that question: ‘What is the state trying to accomplish with the program if it’s not to open up and get all these good things going that we’ve all spent time, energy, and money trying to develop with the state, in partnership with them?’” Brobyn said.
How delays are costing Delaware
Beyond hurting business owners, Brobyn warned that the delay is costing the state tax revenue and allowing the unregulated cannibis market to persist, as he says that some tobacco shops are now telling customers that they have recreational weed – but they are likely selling untested cannabinoid derivatives that are now under the microscope by regulators.
Delaware has planned to impose a 15% sales tax on recreational marijuana, but until businesses can operate legally, that potential revenue remains untapped.
Brobyn also said the delay is preventing job creation. Many license holders, including himself, have received interest from job seekers but can’t hire anyone without a functioning business.
Despite frustrations, some say these issues are common when states launch cannabis industries for the first time.
Peter Murphy, a Wilmington attorney who has spent almost 10 years representing cannabis companies both in and out of state, notes that nearly every state experiences some form of delay when establishing these businesses due to the industry’s complexity.
“I think it’s easy to quickly attribute that to something kind of nefarious. I tend to not think so. I think it’s the nature of government and administrations and just getting a complex thing like cannabis to a state of regulated sales. It’s not an easy lift,” Murphy said.
However, he acknowledges that one of the biggest challenges for business owners — beyond regulatory holdups — is securing real estate.
On top of the on-going municipal bans that have limited options for licensees, many commercial buildings are financed through banks, which often view marijuana operations as a risk since the industry is still illegal at the federal level, Murphy said.
Murphy believes some of the concerns people have will ease over time as more people see how the industry operates in Delaware. In addition, he said Delaware has an advantage due its small-business culture.
“Delaware has the benefit of its geographic location, but also it’s home to so many small, even craft-like, brands and businesses that have incredible local loyalty,” he said. “And I expect that to happen with cannabis too. It just might take some time.”
If delays persist, Murphy said lawsuits from frustrated licensees wouldn’t be surprising. However, he hopes it doesn’t come to that.
In the meantime, Brobyn said the Delaware Cannabis Industry Association is advocating for licensees by engaging with state legislators and pushing for solutions.
The organization is also planning a rally in Dover when the General Assembly returns from its break this month.
“We’re trying to follow the rules. We work with the state, we pay the state, we do everything we’re supposed to do, and I guess they don’t care. That’s what it feels like,” he said.
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