On May 12, 2023, the Maryland Cannabis Administration (“MCA”) issued a notice to all pre-approved applicants and licensed medical cannabis growers, processors and dispensaries outlining the conversion process and associated fees. Pursuant to the Cannabis Reform Act (HB 556/SB 516) (“Act”), licensees and pre-approved applicants may convert a medical cannabis license to a standard medical and adult-use cannabis license on the condition that the licensee pays a one-time conversion fee and complies with the ownership restrictions detailed in the Act. In order to operate on or after July 1, 2023, an existing medical cannabis licensee or pre-approved applicant must convert their license to a standard medical and adult-use license, which will be valid for five years. Licensees who choose not to convert may not operate under the license or renew the license but may continue to hold the license for resale to another person for conversion.

Steps To Convert Your Medical Cannabis License

To convert a medical cannabis license to a standard medical and adult-use license, you must:

1. Submit the Intent to Convert Form indicating the license(s) to be converted.

   1. The Intent to Convert Form provides (1) a fee assessment for the applicable license(s) and (2) a set of attestations that must be completed by the licensee. Licensees are required to indicate the license(s) to be converted and select a payment plan.

2. Complete and sign the required attestations.

   1. On the Intent to Convert Form, licensees must attest to the following statements:
      1. I (Licensee) will not transfer ownership or control of the license for a period of at least five years following new licensure for adult use unless the transfer meets the exceptions specified in §36-503(3) (Page 69 of the Enrolled Bill).
      2. I (Licensee) will abide by the advertising guidance established by §36-901-903 (Pages 78-79 of the Enrolled Bill)

• I (Licensee) will abide by the canopy restrictions established by §36-402 (Pages 47-49 of the Enrolled Bill) and specified above.

1. I (Licensee) will pay the conversion fee as detailed in the “Fee Assessment” Section of this document by each deadline.
2. I (Licensee) understand that if I do not pay the conversion fee in full or make timely installment payments on each scheduled deadline, my license will be suspended and/or an administrative hold placed on all products.
3. I (Licensee) will abide by all other regulations and guidance issued by the Maryland Cannabis Administration.

• I (Licensee) will otherwise operate my business and license consistent with Maryland law.

To access a copy of the Enrolled Bill, visit https://mgaleg.maryland.gov/2023RS/bills/hb/hb0556E.

3. Pay the one-time conversion fee.

   1. Each medical cannabis licensee will be required to submit a one-time conversion fee, calculated as follows:
      1. Each licensed grower or processor shall pay a one-time conversion fee in an amount equal to the greater of 10% of the total gross revenue of the licensed business in 2022 OR $100,000. A business who holds a grower and process license shall pay a fee based on the total gross revenue from both license types. The conversion fee for each licensee shall not be more than $2,000,000.
      2. Each licensed dispensary shall pay a one-time conversion fee in an amount equal to the greater of 8% of the total gross revenue of the licensed dispensary in 2022 OR $100,000. The conversion fee for each license shall not be more than $2,000,000.

• A business that held a preapproval for a grower or processor license before October 1, 2022, but was not operational before that date shall pay:
  1. For a grower or processor, $50,000; and
  2. For a dispensary, $25,000.

1. The one-time conversion fees may be paid in four (4) equal installments over a period of 18 months (6-month intervals).
   1. First Payment: On or before June 30, 2023
   2. Second Payment: January 1, 2024
   3. Third Payment: July 1, 2024; and
   4. Fourth Payment (at which time the fee shall be paid in full): January 1, 2025.
2. The amount of any licensing or renewal fee paid by a business for the fiscal year 2023 (July 1, 2022 – June 30, 2023) to the Natalie M. LaPrade Medical Cannabis Commission shall be credited against the one-time conversion fee.

If a license is not converted and/or conversion fees are not paid by the above-noted deadlines, the license will be suspended, an administrative hold will be placed on the product, and ALL transfers and sales must cease.

Only businesses who complete the Intent to Convert Form and meet the above-noted requirements for license
conversion, including payment of the conversion fee, by June 30, 2023, may continue to operate beginning July 1, 2023. The MCA is strongly encouraging licensees to return the Intent to Convert Form and remit payment by Thursday, June 1, 2023, to ensure payments are processed, and licenses are converted prior to July 1, 2023. Please note that the MCA will not guarantee the timely processing of forms and payments received after Friday, June 16, 2023.

Considering the MCA intends to commence converting licenses in June 2023, it is important to note that the notice does not address the MCA’s position on the following issues:

1. What happens when a license to be converted is also subject to a pending request to transfer ownership or control?
2. Can a licensee approved for conversion still submit a request to transfer ownership prior to July 1, 2023?
3. For licensees experiencing financial hardships, is there a process to request an alternative payment schedule?
4. How does the conversion of a license affect changes in control for a management company already managing a licensee under a pre-approved Management Agreement?

If you would like to schedule a call to discuss how these developments may impact you or your business, please contact me at jwachs@offitkurman.com or 301-575-0302.