Cannabis Business in Delaware

Delaware Cannabis Industry Overview

According to the Delaware Office of the Marijuana Commissioner, the state's cannabis industry has been expanding steadily. For the 2023 Fiscal Year, Delaware had:

• 12 medical marijuana retail locations,
• $5.2 million in recreational cannabis sales in December 2023 alone.

The medical marijuana program in Delaware served almost:

• 14 thousand patients.

Each patient spent an average of:

• $3,300 annually on cannabis products.

This resulted in total sales of over:

• $53.8 million for the medical marijuana program in Fiscal Year 2023.

Two Types of Cannabis Businesses in Delaware

In Delaware, cannabis businesses can be categorized into two primary types:

• Cannabis-Touching (plant-touching) businesses
• Cannabis-Adjacent (non-plant-touching/support) businesses

Understanding the type of cannabis business is essential, as each category comes with its own set of regulations, legal requirements, and challenges.

A Deeper Look at Cannabis-Touching Businesses in Delaware

Cannabis-touching businesses in Delaware are directly involved in the cultivation, processing, distribution, or sale of cannabis products. Vertical integration is allowed in the state, permitting businesses to control various stages of the supply chain, from cultivation to retail. Delaware has implemented a comprehensive seed-to-sale tracking system managed by the Office of the Marijuana Commissioner, ensuring that all cannabis plants are monitored throughout the entire process. This system includes barcoding and meticulous record-keeping to ensure transparency and regulatory compliance.

To further enhance the inclusivity of the cannabis market, Delaware has introduced social equity licenses. These licenses are designed to help individuals who have been negatively impacted by marijuana prohibition laws to participate in the regulated cannabis industry. Applicants must show that they have lived in a disproportionately impacted area for five of the last ten years or that they or a close family member were convicted of a qualifying marijuana-related offense. The Office of the Marijuana Commissioner is working with state partners to identify these areas and will provide an interactive map detailing the impacted areas by census tracts. There are 47 social equity licenses available, and applicants will receive technical assistance, access to financial resources, and guidance on business operations. Additionally, social equity applicants benefit from reduced application fees and a 40% discount on license fees.

Here are some examples of cannabis-touching businesses and their roles in Delaware:

• Cultivators: Responsible for growing cannabis plants, cultivators can operate both indoors and outdoors. They often specialize in various strains and may engage in breeding programs to develop new cannabis varieties. Cultivators must adhere to state regulations regarding cultivation methods and conditions to ensure product quality and regulatory compliance.
• Processors: These businesses convert raw cannabis into a variety of products, including oils, edibles, concentrates, and topicals. Processing involves extraction techniques, refinement, and occasionally the creation of new product forms. Processors must comply with stringent state regulations to ensure their products are safe and consistent.
• Testers: Testing laboratories are crucial for ensuring that cannabis products are safe and free from contaminants like mold and pesticides. These labs conduct rigorous tests to verify the purity and potency of cannabis products before they reach dispensaries.
• Dispensaries and Retail Stores: These establishments are the points of sale where cannabis products are sold directly to consumers. Dispensaries and retail stores must follow state regulations, including verifying customer age and adhering to purchase limits. They also ensure compliance with state tracking and reporting systems.
• Distributors and Supply Chain: Distributors manage the logistics of transporting cannabis products from producers to retailers. This includes overseeing the supply chain, ensuring secure transportation, and complying with state tracking systems to maintain transparency and accountability throughout the distribution process.

A Deeper Look at Non-Plant Touching Cannabis Businesses in Delaware

Non-plant touching cannabis businesses, also known as cannabis-adjacent, ancillary, or support businesses, are vital to the cannabis industry without directly handling the plant. These businesses provide essential services and infrastructure, supporting the industry in numerous ways. Here are some examples:

• Insurance Services: Comprehensive insurance coverage is crucial for safeguarding cannabis businesses, their staff, and products. Insurance agents with expertise in the cannabis sector offer coverage for various stages of production, operations, and liability.
• Banking and Payment Processing Solutions: Due to federal restrictions, traditional financial services are often inaccessible to cannabis businesses. Specialized banking services, loans, and payment processing solutions are necessary for smooth operations and compliance with state regulations.
• Technology, Software, and Equipment: Modern cannabis businesses heavily rely on technology. Tools like seed-to-sale tracking systems, consumer apps, Point-of-Sale systems, eCommerce platforms, and security solutions are vital for compliance, operational efficiency, and enhancing customer service.
• Legal Services and Regulatory Compliance: Lawyers and legal firms specializing in cannabis laws are essential for navigating the complex and evolving regulations at both state and federal levels. They ensure businesses remain compliant and avoid legal issues.
• Consulting and Management Services: These firms assist cannabis businesses with compliance, licensing, operations, and market strategy. They help streamline processes, ensure regulatory adherence, and develop effective strategies for staying competitive.
• Accounting Services: The cannabis industry faces unique financial and regulatory challenges. Specialized accounting services help businesses navigate these challenges by ensuring compliance with Section 280E of the IRS Code, which limits tax deductions to the cost of goods sold. They also ensure precise tracking and financial recording from seed to sale.
• Packaging and Labeling: Compliance with strict packaging regulations is crucial for cannabis products. Companies specializing in packaging solutions ensure products meet requirements for child-resistant, opaque, and clearly labeled packaging, protecting both consumers and businesses.
• Marketing and Branding: Due to stringent advertising restrictions, specialized marketing and branding services are necessary for cannabis businesses. These services help promote products within the legal framework, ensuring regulatory compliance while effectively reaching the target audience.
• Data Analytics: Data analytics supports cannabis businesses by optimizing operations, ensuring regulatory compliance, and improving financial management. Analyzing consumer behavior, supply chains, and product quality helps businesses make informed decisions and adapt to market trends.
• Advocacy Organizations: These groups represent the cannabis industry at the state level, working to influence policy, provide industry insights, and advocate for regulatory changes that support industry growth and sustainability.

How Do Plant-Touching and Non-Plant Touching Businesses Differ?

The distinctions between cannabis plant-touching and cannabis-adjacent businesses significantly influence compliance, regulatory scrutiny, insurance coverage, and financial operations. Here are the key differences:

Banking:

• Cannabis-Touching Businesses: These entities face considerable banking restrictions because of federal regulations, often having to operate in cash and rely on a limited number of banks willing to accept the legal risks. This results in high compliance requirements and complex financial management.
• Cannabis-Adjacent Businesses: These businesses have broader access to financial services, such as traditional banking accounts, loans, and credit lines, due to their indirect involvement with cannabis. This simplifies financial operations and supports growth opportunities.

State Laws:

• Cannabis-Touching Businesses: These businesses in Delaware require specific state licenses and must adhere to strict regulations, including security measures and product testing. They also encounter significant banking restrictions due to federal laws.
• Cannabis-Adjacent Businesses: These businesses generally need only standard business licenses and face fewer regulatory challenges. They also have better access to banking and financial services.

Accounting:

• Cannabis-Touching Businesses: These businesses are subject to Section 280E of the IRS Code, which prevents them from deducting typical business expenses, leading to higher taxes. They also face intricate inventory management requirements and strict compliance regulations.
• Cannabis-Adjacent Businesses: These businesses can claim standard business deductions on their taxes and utilize more straightforward accounting practices. They do not deal with the stringent compliance required for cannabis inventory tracking, making their financial operations less burdensome.