D.C. Expands Medical Cannabis Program, Backs Off Gray Market Crackdown

The Washington, D.C., City Council removed proposed penalties on “gift” businesses, but the change only highlights the uncertainty and debate clouding District cannabis.

Last week, the Washington, D.C., City Council voted to expand its medical cannabis program by extending the eligibility of patients whose cards expired after March 2020. Patients with cards expiring after this date can now purchase medical cannabis through January 2022.

The move comes in response to a significant slowdown in medical cannabis sales during the pandemic. Council Chairman Phil Mendelson, who proposed the bill, says that more than half of all medical cannabis patient registrations have expired since spring 2020, in part due to a slowdown in government operations because of COVID-19. The new bill also doubled the amount of cannabis District patients are allowed to purchase each month up to eight ounces.

Included in Mendelson’s original proposal was a section penalizing “gift” businesses that skirt the law by selling legitimate items and providing cannabis for free. Dozens of such outfits have sprung up since cannabis was legalized in the District in 2015—many lease retail storefronts and pay taxes like any normal business. The original bill would have allowed these operators to face criminal charges and fines of up to $30,000.

After significant backlash, the suggested penalties were removed the day before vote. But the original proposal represents yet another example of the uneasy peace in the District’s cannabis industry, an undesirable situation created by a combination of Congressional interference and an inadequate medical program.

The District’s Gift Industry

Cannabis has been legal in D.C. since the passing of Initiative 71 (I-71), which went into effect in February 2015. But every year since, Republicans have stopped the District from spending money to set up its own adult-use industry. Thanks to Congressional oversight over D.C. spending, an annual amendment to the federal budget known as the Harris Rider – named after Rep. Andy Harris (R-MD) who created it – has prevented the formation of an adult-use industry in the capital.

To meet the untapped demand, cannabis entrepreneurs have created gifting businesses that sell everything from stickers to artwork to sneakers. In addition to these normal items, customers can receive a gift of cannabis flower, edibles or vape cartridges with each purchase. In the early days of I-71, these businesses were more underground, often run out of private restaurants or residences. Today, many operate their own storefronts and are difficult to distinguish from licensed dispensaries.

Should Gift Businesses Be Stopped?

Mendelson and other supporters of a crackdown on the gifting market believe it’s not only a threat to already-suffering licensed medical businesses, but a catalyst for violent crime in the District. His original bill claims “the products sold by illegal storefronts and delivery services are not traced or tested, putting patients who cannot afford to possess medical cannabis from a licensed dispensary at risk of ingesting contaminated products. Additionally, cannabis pop-ups have been associated with incidents of violence, including armed robberies and shootings, that endanger residents of the District.”

Earlier this year, D.C. Police Chief Robert Contee linked the gray market with violence in the District, calling “unlawful distribution of marijuana in communities” a “bad recipe for disaster.”

But grassroots cannabis advocates in D.C. believe these quasi-legal businesses are an important part of the industry, helping more people access cannabis during a time when both local and federal governments have failed them.  

“What I think they’re getting wrong is they’re looking at the gifting business as criminals, when actually they are the likely applicants for social equity and microbusiness licenses,” said Adam Eidinger, founder of the D.C. Marijuana Justice lobbying group that played an integral role in the passing of I-71 in 2014. 

In a phone interview, Eidinger told Cannabis Business Times and Cannabis Dispensary that his group suggested the council levy civil charges instead of the criminal penalties initially included in the proposal. He pointed at the District’s limited medical program as the reason for the thriving gift market: Despite a population comparable to the city of Denver, plus a significant tourism sector, D.C. has onlyseven licensed medical dispensaries.  

“They’re trying to somehow reward the medical cannabis industry in D.C., and there’s a glaring irony here – there were not enough licenses ever issued in the first place to meet the demand of District cannabis consumers,” said Eidinger. “That’s clearly the case when you have a top level of maybe 12,000 registered patients and probably 100,000 regular users in the D.C. area. Maybe 90% of the cannabis is coming from 90-plus brick and mortar gifting businesses scattered across D.C.”

Others in the cannabis industry believe the council wasn’t wrong for proposing action to fix the District’s broken market. 

“While Congress is to blame for DC’s gray market, District leaders and regulators must do everything within their power to address the situation,” said Steven Hawkins, CEO of the U.S. Cannabis Council nonprofit advocacy group and Executive Director of the Marijuana Policy Project. 

“The so-called gifting system is completely unregulated and untaxed. There are no standards, age restrictions or oversight,” added Hawkins via email. “The status quo is untenable.”

Will D.C. Be Allowed to Issue Adult-Use Licenses This Year?

With Democrats in control of Congress and the White House, there is more optimism than ever that 2021 will be the year the Harris Rider is finally left out of the federal budget, allowing the District to issue licenses for recreational cannabis businesses. Negotiations on the final budget are ongoing, but a preliminary House version from last month did not include the amendment.

In anticipation of the rider’s removal, the D.C. Council has scheduled another hearing on November 19 for public testimony on a pair of cannabis bills: one to further expand the medical program and another to establish plans for the cultivation, production and sale of cannabis to adults in the District. Both bills were also introduced by Chairman Mendelson.      

And while Congress has tied the hands of D.C. lawmakers for the moment, local advocates say the outrage over the early version of last week’s bill is a warning sign for District officials: create a fair and equitable adult-use industry or face the consequences.

“What we have here is a politician—namely Phil Mendelson—and a mayor, Mayor Bowser, who are completely out of touch with what residents are screaming for, which is low-barrier-to-entry licensing,” said Eidinger.

Only time and Congressional negotiations will tell exactly when they’ll get a chance to establish such a system. 

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