My County Just Received Cannabis Funds…What’s This For, Again?
Michael Sanderson posted: "The State recently made distributions to counties through the State's Community Reinvestment and Repair Fund, refined as part of last year's cannabis implementation bill. Here's the breakdown of where those dollars come from, how they're being sent to cou" Conduit StreetRead on blog or reader
The State recently made distributions to counties through the State's Community Reinvestment and Repair Fund, refined as part of last year's cannabis implementation bill. Here's the breakdown of where those dollars come from, how they're being sent to counties, and their uses.
Counties recently received a late 2023 State distribution related to the newly minted administration of adult-use cannabis products - commercially available in Maryland through converted medical facilities since July 2023. Some counties that do not host current dispensaries or have had limited exposure to the emerging cannabis industry were surprised by these funds.
Here, we'll lay out the law behind these funds and what your county is obligated to do with them. Spoiler: you'll need a policy and will file an annual report.
The 2023 Legislation
Following the voter approval of the State constitutional amendment in the 2022 election, the General Assembly had effectively a "must pass" bill to implement the various licensing, governance, taxation, and siting regimes for the newly approved legal industry.
That bill, HB 556 in the House and SB 516 in the Senate, was passed and signed into law - despite a curious series of relatively minor differences between the two versions. (See the Attorney General's review here on reconciling the differences as the bill language is converted into codified statute)
The final bill language and the bill's Fiscal and Policy Notes are both available online. The language from the bill passed last year is now embedded into the codified laws across several different articles - including the newly styled Alcoholic Beverages and Cannabis article.
State Taxation of Cannabis, and Distributions of That Revenue
After the full legislative debate, the General Assembly approved a 9% tax rate, at the point of sale, on adult use (non-medical) cannabis products - coupling that rate with that applied to alcoholic beverages. See Tax-General, Section 11-104(k).
The revenues from this special sales tax rate are subject to a special distribution formula, spelled out in Tax-General Section 2-1303.2:
§2–1302.2.
After making the distributions required under §§ 2–1301 through 2–1302.1 of this subtitle, of the sales and use tax collected under § 11–104(k) of this article from the sale of cannabis, as defined in § 1–101 of the Alcoholic Beverages and Cannabis Article, the Comptroller quarterly shall distribute:
(1) to the Cannabis Regulation and Enforcement Fund, established under § 36–206 of the Alcoholic Beverages and Cannabis Article, an amount necessary to defray the entire cost of the operations and administrative expenses of the Maryland Cannabis Administration established under Title 36 of the Alcoholic Beverages and Cannabis Article;
(2) after making the distribution required under item (1) of this section:
(i) 35% to the Community Reinvestment and Repair Fund under § 1–322 of the Alcoholic Beverages and Cannabis Article for fiscal years 2024 through 2033;
(ii) 5% to counties, which shall be allocated to each county based on the percentage of revenue collected from that county, except that a county shall distribute to a municipality located in the county 50% of the allocation received under this item that is attributable to the sales and use tax revenue generated by a dispensary located in that municipality;
(iii) 5% to the Cannabis Public Health Fund established under § 13–4505 of the Health – General Article; and
(iv) for fiscal years 2024 through 2028, 5% to the Cannabis Business Assistance Fund established under § 5–1901 of the Economic Development Article; and
(3) any balance remaining after the distributions required under items (1) and (2) of this section to the General Fund of the State.
The evolution of the State cannabis tax and the local share - the 9% tax with a 0.45% equivalent rate sent to local governments was eventually adopted in the 2023 enacted bill.
Much attention (including MACo's) was focused on the direct distribution to local governments - introduced at 1.5% of the state tax revenues but eventually set at 5%. This distribution amounts to 45 cents on a $100 purchase -- the equivalent of less than a one-half percent local tax rate. No other state legalizing cannabis products has established either a local revenue share or a local revenue authority anywhere near this low of an effective rate. Most are in the 3-5% range, some higher.
However, an even larger slice of this revenue -more than one-third after the deductions for administrative and enforcement costs -- is directed to the Community Reinvestment and Repair Fund, a mechanism restyled in the 2023 bill. In addition to these sales tax revenues, that fund received revenue from license and conversion fees paid by licensed sellers.
By law, these funds are to be used (excerpting the CRRF language in Section 1-322):
(a) (2) The purpose of the Fund is to provide funds to community–based organizations that serve communities determined by the Office of Social Equity, in consultation with the Office of the Attorney General, to have been the most impacted by disproportionate enforcement of the cannabis prohibition before July 1, 2022.
...
(b) (2) (i) Subject to the limitations under subsection (a)(6) of this section, each county shall adopt a law establishing the purpose for which money received from the Fund may be used.
(ii) On or before December 1 every 2 years, beginning in 2024, each political subdivision that receives funds from the Fund under paragraph (1) of this subsection shall submit a report to the Governor and, in accordance with § 2–1257 of the State Government Article, the Senate Budget and Taxation Committee and the House Appropriations Committee on how funds received from the Fund were spent during the immediately preceding 2 fiscal years.
So - each county has a new ministerial duty to manage these funds through means compatible with this law. Each December - beginning at the end of this calendar year- each county must report to the State on its law/process for employing these funds and their specific uses or distributions.
Following the voter approval of the State constitutional amendment in the 2022 election, the General Assembly had effectively a "must pass" bill to implement the various licensing, governance, taxation, and siting regimes for the newly approved legal industry.
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