John Schroyer
Now that Washington, D.C. has enacted a technical workaround to essentially circumvent the longstanding cannabis prohibitionist approach by Congress, the city’s marijuana industry is in for the biggest upheaval since its inception more than a decade ago.
In coming months, the city’s seven licensed dispensaries and nine licensed growers will be joined by an unknown number of gray market “gifting” businesses that have been operating in a quasi-legal jurisdiction for years. While some estimates put the number of gray market companies at between 1,000 and 1,500, one industry attorney estimated that only about a dozen or so will be able to join the legal market.
A bill signed by Mayor Muriel Bowser is designed to give a new pathway for at least some of the so-called I-71 companies (named after the local ballot measure that gave rise to them, Initiative 71 from 2014) to join the fully licensed industry.
Crucially, the bill also repealed most of the rules surrounding medical marijuana patient certification, and now allows any resident or visitor to “self-certify” online as needing cannabis for medical reasons, and then visit licensed dispensaries to purchase marijuana products.
Green Market Report recently sat down with a pair of cannabis executives – one from a licensed medical dispensary and another from an I-71 gifting company that hopes to gain a cannabis business permit. Both essentially said that from a macro level, the bill is a win-win-win all around: Existing companies will get the bonus of a greatly-expanded customer base, gray market companies will get a pathway to licensure, and consumers get more and easier access to cannabis.
The only losers in the situation are out-of-state operators that run I-71 gifting companies, since the new bill contains a residency requirement, and gray market operators who haven’t paid city taxes or bothered trying to obtain business permits.
However, a lot of unanswered questions remain about just how the changing market will eventually shape up, said both James Kahn, a strategic advisor to his family-owned dispensary Takoma Wellness Center, and Mark Nagib, the owner of cannabis lifestyle brand and gifting business Pink Fox.
“If this bill is truly a road map for what’s about to come, I think we’re going to see a lot of opportunity in D.C.,” said Kahn, who hailed the bill as “phenomenal” for the local industry. “The bill helps folks, and it’s cannabis positive and business positive.”
Kahn said he’d seen one market forecast which projected roughly 421% growth in sales in the next three years.
“They have us jumping from roughly just under $40 million in 2022 to $92 million, I think, in 2023. And then all the way to $218 million in 2026,” Kahn said.
Pink Fox’s Nagib and his attorney, Josh Sanderlin, both echoed Kahn’s optimism and said they believe Pink Fox is poised to make the transition to licensure. But they also said that the criteria laid out in the bill are likely going to be tough – if not impossible – for the vast majority of the I-71 companies to meet.
“Pink Fox is very excited to, ideally, hopefully, God willing, knock on wood, be able to participate in a legal licensed cannabis marketplace in Washington, D.C.,” Nagib said. “We put our puzzle pieces in place in such a way that we feel good about our prospects.”
Both companies said they hope to open up on-site consumption lounges or tasting rooms at the same property where their retail operations are housed, one of the big changes wrought by the bill.
“What is next for us is opening up a Amsterdam-style coffee shop, ideally,” Nagib said.
Key Provisions
Although the bill – technically titled the Medical Cannabis Amendment Act of 2021 – makes a number of dramatic changes to the district’s MMJ program, it won’t be creating a business free-for-all, Sanderlin said.
He estimated that only 12-15 companies from the gray market will be able to join the licensed market, because the requirements laid out by the city are still fairly strict. Those include having previously obtained a city business license, having a solid history of paying municipal taxes, and that 60% of the company is owned by a D.C. resident.
“Nobody really is quite certain how many companies will even be able to meet those requirements, because a lot of these companies either aren’t licensed – even the ones you see on the street – or have not been paying taxes. And if you haven’t been paying taxes, you’re screwed,” Sanderlin said.
The bill also has a new enforcement mechanism to go after unlicensed gray market operators, he said, which allows the city to fine landlords tens of thousands of dollars if they allow cannabis companies to be run out of their facilities.
Importantly, the bill also closed the provision in local law – established by Initiative 71 in 2014 – that allowed D.C. residents to give cannabis to each other. That means the current business model for all the I-71 shops will be phased once the city begins the application process for companies such as Pink Fox, Sanderlin said.
On top of that, the bill also created a wealth of new business permits, including for stand-alone manufacturers and on-site consumption lounges.
But the importance the local industry of the self-certification for medical cannabis patients cannot be understated, Kahn said. The process is easily completed online, costs just $30 for a 30-day medical cannabis certification, and there’s no current limit to how many times the self-certification can be used.
The city already has reciprocity, meaning any card-carrying MMJ patient from another state or country can already legally shop at licensed dispensaries, and the 30-day self-certification is free for D.C. residents.
“Right now, we are now able to serve anyone over the age of 21. There’s really very few barriers. Anyone who wants to come in, can come in,” Kahn said.
“Someone could look on our menu just after landing at a local airport, place an order and have it delivered to their hotel later that day without ever stepping foot in the store. So we’ve really lowered the barriers through this bill.”
Unanswered Questions
Despite all of the positive changes , there’s still a lot of uncertainty for everyone involved. That begins with Congress, since federal lawmakers still technically hold veto power. The institution has 30 session days to interfere before the bill is fully enacted, Sanderlin said, and after that, it’ll be a six-month wait until Washington, D.C. regulators open the new MMJ license application window for gifting businesses.
New regulations also need to be written for the on-site consumption lounge model.
And, of course, no one knows just how many of the I-71 gifting companies will even try to make the transition to licensure, how many will keep operating the way they have, and what the city will ultimately do about enforcement against such companies, said Kahn.
The underground market in Washington, D.C. definitely won’t be 100% supplanted by legal companies, said Sanderlin. Cannabis is still federally illegal, and many locals likely will forego the self-certification by the city to protect their jobs.
“You’re still gonna have a thriving illicit market, because the number one employer in the District of Columbia is the federal government. And the federal government says you can’t smoke weed,” Sanderlin said.
That will create both enforcement issues for local officials and competition questions for the additional licensed companies.
The bill also reserved the right for city officials to cap the number of business permits at some future point, Sanderlin said, meaning that it’s not necessarily going to be a wide-open free market. Kahn added that he hopes the city council will balance the supply with actual market demand.
“There’s certainly trepidation around how many licenses will enter the market,” Kahn said. “We’ve asked the council to be thoughtful about how licenses are allocated, to not just open the floodgates, because cannabis operates on incredibly thin margins already, and it’s very easy to upset the apple cart. We want to make sure that there’s enough supply before more licenses are given out, and that there’s enough demand, so those businesses can succeed.”
