Overview

This week, Pennsylvania Senators Daylin Leach (D-Montgomery/Delaware) and Sharif Street (D-Philadelphia) introduced a bill, the “Adult-Use Cannabis Act” (Senate Bill 350), that would legalize adult-use (i.e., recreational) cannabis in the Commonwealth. If passed, the bill would legalize adult-use cannabis for individuals 21 years of age and older, and establish a permitting process for growers, processors, and dispensaries; the current measure would not place a limit on the number of permits that could be issued. The bill would also allow for cannabis delivery, consumption (i.e., “bring your own” or BYO) lounges, and home grow. Under the proposed legislation, the Pennsylvania Department of Agriculture would oversee the adult-use program.

Tax revenue from recreational sales, which could be $500 million per year, according to previously-generated estimates, would largely be appropriated to school districts.

Social Justice and Small Business Emphasis

A major focus of the legislation is social justice reform. Among other things, the bill addresses expungement of criminal records, dismissal of pending charges, and commutation of sentences relating to non-violent cannabis-related crimes. It also would make efforts to open the cannabis market to small businesses as well as those negatively affected by cannabis prohibition. In addition to modest application fees (with the exception of large-scale grower and processor permits) and relatively low administrative hurdles in order to draft and submit applications, the bill would also establish an educational program to assist individuals in starting a cannabis business. It would also create a “microgrower” permit for low-volume growers. Grants and interest-free loans would also be available to low-income permittees with prior cannabis-related criminal convictions.

Background

The proposed legislation comes on the heels of Governor Tom Wolf’s announcement less than a month ago that he would support legalizing recreational marijuana in Pennsylvania. On September 25, 2019, following a listening tour across Pennsylvania by Lieutenant Governor John Fetterman, in which he visited Pennsylvania’s 67 counties to hear residents’ thoughts on legalizing marijuana, Gov. Wolf and Lt. Gov. Fetterman released a report of the tour and simultaneously called for the following: (1) asking the legislature to get a bill to the Governor’s desk that decriminalizes non-violent and small cannabis–related offenses; (2) seeking a path to restorative justice through the expungement of past convictions of non-violent and small cannabis-related crimes; and (3) calling on the legislature to seriously debate and consider the legalization of adult-use cannabis. The Adult-Use Cannabis Act appears to meet the Governor’s and Lt. Governor’s recent call to action.

Currently, only medical cannabis is authorized under Pennsylvania law. In April 2016, Gov. Wolf signed Act 16, “The Medical Marijuana Act,” into law. Since that time, legalization of recreational cannabis has gained further support among residents, as evidenced by the Lt. Gov.’s listening tour report. Notably, the legislation introduced this week is not the first recreational marijuana legalization bill to be proposed. In February 2019, Rep. Jake Wheatley Jr. (D-Allegheny) introduced House Bill 50, which proposed a revision of Pennsylvania’s 2016 Medical Marijuana Act to allow for adult use. More recently, Rep. David Delloso (D—Delaware) introduced House Bill 1899, which would provide for adult-use cannabis sales in Commonwealth liquor stores.

Notably, on October 17, 2019, just two days after SB 350 was introduced, Gov. Wolf met with governors from New York, New Jersey, and Connecticut at a “marijuana summit,” where they agreed to a set of core principles for legal cannabis programs that they would aim to pursue. Those core principles involved numerous issues related to market regulation and empowerment, public health, public safety and enforcement, and vaping best practices.

Likelihood that the Bill Will Pass

Some have doubts that the proposed Adult-Use Cannabis Act will pass this year, especially in its current form, as there are no Republican co-sponsors at this time. The bill also faces an uphill battle in Pennsylvania’s Republican-controlled Senate, although Senators Leach and Street have indicated that they are optimistic the bill will pass and that many of their Republican colleagues will end up supporting the measure. Generally, the legislation is thought to stand a better chance than prior efforts in light of the Lt. Governor's listening tour and the Governor’s recently announced support of legalization. With that said, in response to Gov. Wolf’s comments promoting legalization, House Republican leaders issued a statement less than one month ago criticizing Gov. Wolf’s position and stating that “[o]ur caucus has no plans or interest in legalizing recreational marijuana.” It is also worth noting that Senator Leach also co-sponsored Pennsylvania’s medical cannabis legislation, which reportedly also lacked any Republican co-sponsors initially.

Key Highlights from the Bill

Below are some of the key highlights from the bill:

• Adult Use of Cannabis: Individuals have to be “over 21 years of age” to “engage in the use of cannabis in this Commonwealth.” “Using cannabis” would include eating, smoking, vaporizing, rubbing on skin and “any other method of consuming cannabis.” Use of cannabis in public would be prohibited, with the exception of use in consumption lounges.
• No Cap on Permits: “The department may issue a permit to an applicant that has applied to the department to act as any of the following:” (1) Grower; (2) Homegrower; (3) Microgrower; (4) Processor; (5) Dispensary; (6) Deliverer; or (7) Use lounge. There is no cap as to how many permits may be issued, although there are certain restrictions against having a business interest in multiple permittees of the same type.
• Growers: Permits would be issued to growers, who may grow cannabis and then sell cannabis to processors and dispensaries. Growers can either grow cannabis indoors or outdoors, but may not simultaneously do both. The size of a grower’s crop at any given time shall be no larger than 150,000 square feet of outdoor space or 60,000 square feet of indoor space. The application fee for a grower permit is $100,000, which may be renewed annually for a $10,000 fee. 
• Homegrowers: Permits would be issued to homegrowers, who are individuals permitted to grow cannabis in their home for personal use. Homegrowers could grow up to 10 cannabis plants simultaneously in the home in which they live, and may also process his or her cannabis plants. The cannabis grown by a homegrower may be transferred for free to any other person who may legally use cannabis under the bill, but the homegrower may not sell or trade the cannabis. There would be a $50 application fee for a homegrower permit, and a $50 annual renewal fee. 
• Microgrowers: Permits would be issued to microgrowers, which are defined as individuals permitted to grow cannabis “in the person’s home with the intent to sell the cannabis to a processor or dispensary.” Microgrowers may grow up to 150 plants simultaneously. They can also “only grow cannabis indoors in the home in which the microgrower lives.” Microgrowers must sell all of the cannabis that they grow to a processor or dispensary, or the cannabis must be destroyed. The cannabis may not be used by the microgrower. The application fee for a microgrower permit is $250, which may be renewed annually for a $250 fee. 
• Processors: Permits would be issued to process cannabis. Processors may purchase cannabis from growers and microgrowers and may sell cannabis to dispensaries. The bill provides for two types of processor permits: Tier A Processors and Tier B Processors. Tier A Processors may purchase up to 25 pounds of cannabis on a  wholesale basis annually. The application fee for a Tier A Processor permit is $1,000, with a $1,000 annual renewal fee. Tier B Processors may purchase any amount of cannabis on a wholesale basis annually, and the application fee for Tier B permit is $30,000, with a $10,000 annual renewal fee. 
• Dispensaries: Permits would be issued to dispensaries who may sell cannabis at retail to consumers who are at least 21 years of age. Dispensaries may purchase cannabis from growers, processors and microgrowers. They may also employ or contract with an individual holding a deliverer permit. Dispensaries may also hold a use lounge permit that would allow them to operate a use lounge that is shared with, attached to, or adjacent to the dispensary. The bill provides that a dispensary may also hold a dispensary permit under the Medical Marijuana Act and may “combine the retail environments of its dispensary and medical cannabis dispensary and sell both adult-use cannabis and medical cannabis from the same location, building and point of sale terminal.” Notably, the bill would not relieve a dispensary with a medical dispensary permit from otherwise complying with its obligations under the Medical Marijuana Act, such as seed-to-sale tracking, testing, and taxation requirements (notably, the recreational bill does not, in its current form, require seed-to-sale tracking). The application fee for a dispensary permit is $5,000, with a $5,000 annual renewal fee.
• Deliverers: Permits would be issued to deliverers who could deliver cannabis from dispensaries directly to consumers. A deliverer may be an employee of a dispensary, an independent contractor doing business with a dispensary, or a standalone business. A deliverer “may deliver cannabis from a dispensary to a consumer using any mode of transportation.” The application fee for a deliverer permit is $50, with a $50 annual renewal fee.
• Use Lounges: Permits would be issued for “use lounges,” which the bill defines as a “space, determined by the department, in which individuals may use cannabis which the individuals have brought to the space.” The space “may be public or private” and it may be “shared with, attached to or adjacent to a dispensary, in which case the dispensary may require that patron of the use lounge use only cannabis sold by the dispensary while on the use lounge’s premises.” The application fee for a use lounge is $1,000, with a $1,000 renewal fee.
• Medical Marijuana Permit Holders Can Participate: The bill provides that “[i]n deciding whether to issue or deny a permit application, the department may not consider if the applicant holds a permit issued by the Department of health under” Pennsylvania’s Medical Marijuana Act.
• Expungement, Dismissal and Commutation of Criminal Records, Charges and Sentences: The bill calls for expungement of cannabis-related offenses or per se cannabis offenses which occurred when an individual was at least 21 years of age. Only offenses in which the conduct did not cause bodily harm to any individual or damage to property would qualify. The bill also requires that any pending charges be dismissed if the existence of cannabis in the fact pattern is an element of the offense. Finally, and perhaps most significant, the bill requires that, after due hearing, a court shall commute the sentence of individuals “serving a term of imprisonment for a cannabis-related offense or per se cannabis offense.”
• Educational Instruction and Exams: The Department would develop a curriculum to educate prospective participants in the adult-use cannabis industry. The curriculum would include education on “the science of growing, processing and testing cannabis, applicable Federal and State laws relating to cannabis” and how to run a small cannabis business in the Commonwealth. This would include an exam to test the knowledge of students along with grading to determine whether the student learned the curriculum at a satisfactory level.
• Grant Program: In one of several social justice-focused provisions, the bill provides for the establishment of an “Adult-Use Cannabis Grant Program” to be administered by the Department. Grants totaling up to $2 million annually under the program would be used to provide financial assistance to growers, processors, dispensers, and microgrowers who were harmed by effects of cannabis prohibition. Eligible recipients would include those with a prior cannabis-related criminal conviction, an annual household income below $80,000, and who successfully completed the bill’s educational program and exam.
• Interest-Free Loan Program: Similar to the grant program, the Department would be authorized to make interest-free loans to a permittee with a prior cannabis-related criminal convictions, an annual household income below $80,000, and who successfully completed the educational program and exam under the bill. The total amount of loans awarded may not exceed $2 million annually.
• Taxes and Adult-Use Cannabis Fund: A tax at the rate of 17.5 percent would be imposed at the point-of-sale on cannabis by dispensaries. This tax would be in addition to the tax imposed under the Tax Reform Code of 1971. Taxes would be deposited by the Department of Revenue into an Adult-Use Cannabis Fund. $9 million would be distributed from the fund annually to the Department to carry out its duties, including awarding the above-mentioned grants and loans to low-income permittees. 95 percent of the remaining revenue from the fund would go to school districts. According to a July 2018 report by the office of PA Auditor General Eugene DePasquale, legalizing marijuana in Pennsylvania would produce approximately $581 million in annual tax revenue.
• Colleges and Universities: Colleges and universities in Pennsylvania could grow and process cannabis for the purpose of offering classes related to the adult-use cannabis industry (either as part of the Department’s educational curriculum or as a class offered at the school). The cannabis could not be used by any individual, and must be destroyed afterward. Notably, it is very unlikely that any colleges or universities would act on this provision as they may risk losing federal funding, most notably under the Drug Free Schools and Communities Act, since marijuana remains federally illegal.

DISCLAIMER: Per federal law, marijuana is a Schedule I controlled substance. This means that it is a federal crime to sell, distribute, possess, and/or use marijuana or marijuana-derived products, regardless of any state law that may authorize certain marijuana activity. Although federal policy may, at times, recommend enforcement discretion when a business or individual is in compliance with state marijuana law that is deemed to comply with federal enforcement priorities, it is important to understand that compliance with state law does not equal compliance with federal law, and that federal marijuana policy may change at any time. No legal advice we give regarding marijuana law or policy is ever intended to guide or assist clients in violating federal law.