Another Domino Falls: Ohio Voters Legalize Adult-Use Cannabis

On November 7, 2023, Ohio voters voted in favor of Ohio Issue 2, An Act to Control and Regulate Adult Use Cannabis, over the strong objections of Ohio’s governor. Ohio becomes the 24th state to legalize adult-use cannabis and the third in 2023, following Delaware and Minnesota, which did so through acts of their respective state legislatures.

Ohio Issue 2 is a legislative initiative, rather than a constitutional amendment, meaning that the Ohio legislature can more easily change the newly approved law than it could if adult-use cannabis were legalized through a constitutional amendment. The state’s legislature has the authority to amend or even repeal Ohio Issue 2, and some Republicans in the General Assembly have already stated that they will seek to make changes to the new law.

Ohio legalized medical cannabis in 2016, and a strong medical cannabis market has emerged in the Buckeye State. Ohio follows the pattern of states legalizing medical cannabis and then later legalizing adult-use cannabis.

Key highlights of Ohio Issue 2 include:

• Permitting possession of limited amounts of cannabis for adults over the age of 21
• Establishing the Division of Cannabis Control within the Department of Commerce to regulate the adult-use cannabis industry
• Setting a timeline for the opening of applications and the issuance of licenses, and incorporating existing medical cannabis licenses
• Creating a social equity and jobs program to promote the granting of licenses to certain social equity candidates
• Allowing for limited home cultivation
• Permitting municipalities to prohibit certain classes of cannabis licenses
• Taxing adult-use cannabis at a 10% tax rate, in addition to any applicable sales tax

Licensing and Regulatory Framework

Ohio Issue 2 establishes the Division of Cannabis Control (the Division) within the Department of Commerce and empowers it to regulate all aspects of Ohio’s adult-use cannabis market. The Division will set application, licensure, and renewal standards for cannabis licenses. The Division is granted broad discretion on most issues including application and licensing standards, testing regulations, security requirements, insurance minimums, packaging and labeling requirements, and penalties for individuals and entities who violate regulations. Additionally, the Division is permitted to establish THC content limits for adults, although Ohio Issue 2 does not allow for a THC limit below 35% for plant material, nor does it allow for a THC limit below 90% for cannabis extracts.

Ohio Issue 2 requires that adult-use licenses be issued within nine months of the effective date of the legislation to holders of certificates of operation or provisional licenses under the state’s medical cannabis program as of the effective date.¹ However, provisional license holders must receive a certificate of operation within two years of the effective date of the legislation in order to qualify. Adult-use licenses to these entities will be awarded as follows:

• Dispensaries holding certificates of operation or provisional licenses shall be issued adult-use licenses for the current dispensary location. Dispensaries that do not have common ownership or control with a Level I adult-use cultivator, Level II adult-use cultivator, or adult-use processor will also receive an adult-use dispensary license for one additional location.
• Existing Level I cultivators will receive three adult-use dispensary licenses as well as one Level I cultivator license for the current cultivation facility.
• Existing Level II cultivators will receive one adult-use dispensary license and one Level II adult-use cultivator license for the current location of the cultivation facility.
• Existing processors will be issued an adult-use processor license for their current location.
• Existing testing laboratories will receive an adult-use testing laboratory license for the current location of their testing laboratory.

Additionally, the Division will award new cannabis licenses, with priority given to applicants who are certified as cannabis social equity and jobs program participants. Ohio Issue 2 allows for the following number of licenses to be issued, which the Division can increase after 24 months:

• 40 Level III adult-use cultivator licenses
• 50 adult-use dispensary licenses

Social Equity

Ohio Issue 2 creates the cannabis social equity and jobs program under the Department of Development (the Department). The Department will establish procedures for certification within the program. Eligibility will be determined both by the applicant’s wealth, the definition of which has been left to the discretion of the Department, and by their inclusion in one of the following groups: membership in a racial minority group; ability to demonstrate personal disadvantage due to color, ethnic origin, gender, or physical disability; ability to demonstrate personal disadvantage due to long-term residence in an area of high unemployment; or having been arrested, convicted, or adjudicated delinquent for a marijuana offense, or being the spouse, child, or parent of such an individual. The Department shall also seek to encourage economic development in economically disadvantaged areas based on census records. Individuals certified under the cannabis social equity and jobs program shall be eligible for financial assistance, loans, grants, and technical assistance with establishing cannabis businesses from the cannabis social equity and jobs fund. Further, the Division shall waive at least 50% of any license or application fee for program participants.

In addition to supporting social equity licensing, the Department shall adopt policies encouraging the employment of minorities, women, veterans, and those with disabilities. The Department shall also study and fund judicial reforms, propose policy reforms to address the impact of the enforcement of cannabis laws, and fund direct investment in disproportionately impacted communities.

Personal Use

Individuals 21 years old and older may possess: 1) up to 2.5 ounces of cannabis in any form except extract; and 2) 15 grams of cannabis extract. Additionally, individuals may cultivate up to 12 cannabis plants at a single residence with two or more individuals 21 or older.

Taxes

Adult-use cannabis will be taxed only at the retail level. The tax will be 10% of the sale price, in addition to any applicable sales tax. The tax revenue will be deposited into the Adult Use Tax Fund and then distributed as follows: 36% to the Cannabis Social Equity and Jobs Fund; 36% to the Host Community Cannabis Fund for the benefit of municipalities with adult-use dispensaries; 25% to the Substance Abuse and Addiction Fund to help combat substance and opiate abuse; and 3% to the Division of Cannabis Control and Tax Commissioner Fund to support the Division and the costs of administering the cannabis tax.

Municipality Input

Municipalities may prohibit or limit the number of adult-use cannabis operators within their borders. However, existing medical operators may not be prohibited from operating within a municipality or from obtaining an adult-use license unless said medical operator has its certificate of operation revoked. Further, adult-use cultivator, processor, and dispensary applicants that are co-located on the same parcel or contiguous parcels with cultivators or processors with a certificate of operation as of the effective date of the legislation cannot be prohibited.

One caveat to the above is that dispensaries possessing a certificate of operation but not co-located with a cultivator or processor are not afforded the same protections. In those instances, municipalities can prevent the dispensary from operating as an adult-use dispensary by passing an ordinance within 120 days from the issuance of said license. The dispensary then shall have 60 days to cease operations or file with the board of elections a petition signed by the lesser of 100 voters or 5% of qualified voters in the municipality requesting that the issue of that dispensary’s operations be placed on the next general election ballot and may continue to operate until that election. Dispensaries that fail to secure sufficient votes to continue operations may continue operations as a medical dispensary or request to relocate.

Municipalities may not levy any taxes, fees, or charges on cannabis operators; prohibit cannabis research at universities, medical centers, or private research and development organizations; prohibit home cultivation; or prohibit cannabis use.

Other Considerations

Ohio Issue 2 creates a safe harbor under state law for financial institutions, allowing them to provide financial services to licensed cannabis operators.

The legalization of adult-use cannabis in Ohio suggests that the desire of voters to pass cannabis legalization measures is still strong despite setbacks in Arkansas, North Dakota, and South Dakota in 2022 and in Oklahoma earlier this year.

With the exception of Michigan, none of the states bordering Ohio (Pennsylvania, West Virginia, Kentucky, and Indiana) allows the sale of cannabis to adults. The passage of Ohio Issue 2 may increase pressure for adult-use legalization in those states.

 

 

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^[1] For reference, Ohio’s current cannabis licensing system allows for applicants to apply for provisional licenses without possessing control of a physical location. Following receipt of a provisional license, provisional licensees have a set amount of time (depending on license type) to obtain property, pass necessary inspections, and demonstrate conformity with their application materials. If the provisional licensee meets all requirements, their provisional license will be converted into a certificate of operation. Provisional licensees cannot perform any licensed activities prior to receiving a certificate of operation.