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This client alert discusses the most significant changes in Connecticut cannabis law by virtue of the adoption of Connecticut Public Act No. 23-79, effective July 1, 2023, and approved on June 26, 2023. These changes include the following: (1) permitting product manufacturers to expand into food and beverage and vice versa; (2) removing the 14-month timeline for obtaining final licensure for Section 149 cultivators; (3) changing the timeline for provisional licensure from 14-24 months for those issued prior to July 2023 (other than Section 149 licensees as mentioned above); (4) revising the definition of Marijuana concerning levels of THC and “high-THC hemp products”; (5) defining “control”; (6) providing for revised labeling and packaging standards; and (7) updating determination of areas of disproportionate impact.

With approval from the Department of Consumer Protection (“DCP”), product manufacturers may expand authorized activities to those of food and beverage manufacturers (and vice versa). To do this, the manufacturer must submit a license expansion application to the DCP along with paying an expansion fee, in addition to the already established fees. For manufacturers looking to expand into food and beverage activities, the fee to expand is $5000 and the fee to renew such an expanded license is also $5000. P.A. 23-79, § 23(5)(B), amending Conn. Gen. Stat. § 21a-420e. The previously mentioned fees must be paid in addition to the lottery, provisional license, and final license fees. §23(c)(5)(A).

Another one of the updates states that applicants in a DIA (Section 149 cultivators) are no longer subject to the 14-month timeline for final licensure. A DIA is a disproportionately impacted area which means it is an area where a U.S. census tract in the state that has, as determined by the Social Equity Council a historical conviction rate for drug-related offenses greater than one-tenth, or an unemployment rate greater than ten percent. P.A. 23-79, §1(20).  Previously, there was a 14-month expiration window for cultivators that were issued a provisional license. Now, those cultivators issued a provisional license on or before June 30th, 2023, have a 24-month expiration window. However, licenses issued on or after July 1, 2023, are subject to the 14-month expiration window. This timeline applies to any license “other than a provisional license issued pursuant to section 21a-420o”.

Importantly, high-THC hemp products are now classified as marijuana, and thus subject to the applicable licensing and regulatory requirements. P.A. 23-79, §1(29), amending Conn. Gen. Stat. §21a-240. Any hemp product that does exceed or is advertised, labeled, or offered for sale in excess of the following limits is considered a “high-THC hemp product”: (1) Edibles (including topicals and transdermals)– 1mg/serving or 5mg/container; (2) Tinctures–1mg/serving or 25mg/container; (3) Concentrates/extracts (including vape oil, wax, and shatter)– 25mg/container; (4) Other products–1mg/serving or 5mg/container or .3% for dry weight of flower or trim. P.A. 23-79, §1(63), amending Conn. Gen. Stat. §21a-240.           

The “Responsible and Equitable Regulation of Adult-Use Cannabis Act” (RERACA) definition of “control” has been modified.  The amount of “control” an individual must have in a cannabis business to qualify as a “social equity applicant” is at least 65% control of the cannabis business.  P.A. 23-79, §19(50), amending Conn. Gen. Stat. § 21a-420. “Control” means the direct or indirect power to direct, or cause the direction of, a cannabis establishment’s management and policies. P.A. 23-79, § 19(14), amending Conn. Gen. Stat. § 21a-420. For equity joint ventures, the qualifying individual must have at least 50% control of the cannabis business. P.A. 23-79, § 19(26), amending Conn. Gen. Stat. § 21a-420.

Regarding the changes to the labeling and packaging requirements, there is no longer a requirement for labels to indicate that a product contains cannabis, but the label must contain language that states the product contains THC and is unsafe for consumption for anyone under the age of 21. P.A. 23-79, § 41(b)(5)(A), amending Conn. Gen. Stat. § 21a-420e. The packaging itself must be child-resistant, tamper-resistant, light-resistant, impervious to contamination, and edibles must be individually wrapped. P.A. 23-79, § 41(b)(5)(G), amending Conn. Gen. Stat. § 21a-421j; P.A. 23-79, § 41(b)(5)(E), amending Conn. Gen. Stat. § 21a-421j; P.A. 23-79, § 41(b)(5)(E), amending Conn. Gen. Stat. § 21a-421j. Packaging for products with multiple servings must be re-sealable and continuously child resistant. P.A. 23-79, § 41(b)(5)(F), amending Conn. Gen. Stat. § 21a-421j. High potency THC (exceeding 30%) must have a potency and increased risk of psychosis warning. P.A. 23-79, § 41(b)(5)(L), amending Conn. Gen. Stat. § 21a-421j. Packaging must be labeled, prior to sale, with unique identifiers for products sold to MMPs and caregivers and must have specific fonts, sizing, and color. It must also contain specific warnings and measurements of the product. P.A. 23-79, § 41(b)(5)(N); P.A. 23-79, § 41(b)(5)(N)(i); P.A. 23-79, § 41(b)(5)(N)(ii).

There has also been an update to the way in which DIAs are determined. The new method determines DIAs by taking “any census tract with a poverty rate less than statewide rate and excluding it, then ranking any remaining tracks in order (greatest to least) based on the historical rate for drug-related offenses, until including the next tract would cause the total population of all tracts making up the DIAs to exceed 25% of the state’s population.” P.A. 23-79, § 21(i)(2)(C), amending Conn. Gen. Stat. § 21a-420d.

Related legislation was recently signed into law by Governor Lamont on June 12, 2023 and will be effective July 1, 2023. In the recently signed law, the angel investor tax credit for eligible investments in qualified cannabis businesses has been eliminated. P.A. 23-204, §355(e)(1), amending Conn. Gen. Stat. §12-704d. “Angel investor means an accredited investor, as defined by the 18731 S.E.C., or network of accredited investors who review new or proposed businesses for potential 18733 investment and who may seek active involvement, such as consulting and mentoring, in a qualified Connecticut business or a qualified cannabis business.” P.A. 23-204, §355(a)(1), amending Conn. Gen. Stat. §12-704d.

Cannabis businesses will no longer be eligible for the angel investor tax credit as of July 1, 2023. This credit provided personal income tax credits to angel investors who made qualifying cash investments in eligible Connecticut businesses. The credit was set to end in 2028, but due to the overwhelming interest in investing in the cannabis industry, the tax credit is no longer needed. This is important to note because cannabis businesses are not permitted to deduct ordinary and necessary expenses paid in carrying on their trade or business for federal tax purposes under Section 280E because cannabis is still classified as an illegal Schedule I controlled substance. There is, however, a state-level tax incentive for cannabis businesses within Connecticut as the state allows tax deductions for ordinary and necessary business expenses from their Connecticut taxes.

It is important to note that these changes will play a big factor in the future of the cannabis and hemp industry within the state of Connecticut. The tax, regulatory, and financial impacts of these changes should be looked at carefully by those in or contemplating entering the cannabis industry in the state of Connecticut and there will likely be more regulations to come involving this ever-growing industry.

The Cannabis Practice Group of Wiggin and Dana is a multidisciplinary team of attorneys across a variety of key practice areas in the firm, including regulatory compliance, which advises clients in the cannabis and cannabis-adjacent space, helping them navigate through the ever-changing and complex federal, state and local regulations governing one of the fastest growing industries in the United States.