Recreational cannabis is not yet legal in Pennsylvania, though that outcome is looking more likely as its neighbors move forward with their own adult-use pot plans.
But the commonwealth’s neighbor to the south is already off to the races and offering somewhat of a cautionary tale as a complex and tangled web of municipal regulations makes the already fraught process of securing retail real estate more difficult.
“There’s a lot of reefer madness in Delaware,” said Jamie Campbell, a First State native and founder of the marijuana real estate consulting firm Advisory Cannabis.
Bisnow/Created with assistance from OpenAI’s DALL-E
Adult-use cannabis is legal in Delaware, but a complex web of municipal restrictions are making it hard for retailers to find suitable real estate.
Delaware passed its adult-use legislation in April 2023, and some of the state’s 13 existing medical dispensaries were granted dual-use conversion licenses, allowing them to start selling recreational weed as early as this spring, Campbell said.
Delaware’s Office of the Marijuana Commissioner issued 125 more retail, cultivation, testing and manufacturing licenses through two separate lotteries last year. Recipients have 18 months to open a business before the opportunity expires.
Now, some of those new license holders are struggling to find suitable real estate due to a wave of restrictive legislation and zoning passed by counties and municipalities across the state.
On Monday, Milford became the latest jurisdiction to prohibit recreational marijuana sales, joining towns and cities like Middletown, Bethany Beach, Rehoboth Beach and Lewes, which have done the same. Sussex County, the state's second-most populous county, has enacted strict zoning laws that could limit retail outlets to the jurisdiction's most remote and financially difficult locations.
As of mid-December, about one-third of Delaware's 57 municipalities had imposed outright bans on cannabis retail thanks to state law leaving regulation up to local authorities.
Longtime Industry Players Perplexed
The laws have even ensnared existing medical retailers like The Farm, which already has locations in New Castle and Kent counties. Its owner, Jen Stark, tried to expand into Sussex County, where she expected to be grandfathered into the recreational market. But she was rebuffed by the county government.
“It’s so frustrating,” Stark said. “I feel like my hands are tied, and I don’t have a ton of money to spend fighting legal battles.”
Stark chose her proposed location outside of Frankford because OMC identified the southeastern part of the state as a place in need of an additional medical retailer in 2023. The Farm got approval from the Delaware Office of Medical Marijuana the following February, and the Farm signed a lease.
But when Stark went to the county offices to pick up some paperwork later that year, she was surprised to find that her plans had been rejected by zoning officials.
An ordinance passed by the Sussex County Council in May 2024 imposed a 3-mile buffer for cannabis retailers that prevents them from opening anywhere near municipal borders, other pot businesses and sensitive uses like schools, churches and rehab facilities. It also only allows retailers to open in areas zoned as C3, or heavy commercial zoning districts, which Stark said are in short supply.
Officials have argued the legislation isn’t technically a ban, but cannabis advocates believe it is.
“It becomes an effective ban without actually banning it,” Campbell said. “There’s just nothing left.”
Politicians in the state legislature have floated reforms that would prohibit counties and municipalities from passing “effective bans” like this, but in the meantime, the Farm and other retailers have been left holding the bag.
“Right now we’re paying rent,” Stark said. “We’ve lost about $200K.”
A spokesperson for the Sussex County Council declined Bisnow’s request for comment. But Mayor Stan Mills of Rehoboth Beach, one of more than a dozen municipalities in the county to have enacted complete bans on new cannabis businesses, said the prohibition was a matter of upholding community standards.
The town council there voted on the ban four months after adult use was legalized statewide. It was put in place quickly because most residents were eager to maintain the town’s reputation as a family-friendly tourist destination, Mills said.
“They did not want to smell it,” Mills said. “They wanted protection from breathing in the marijuana smoke.”
Similar local bans exist to varying degrees across Delaware. And while Sussex County’s rule is highly restrictive for retailers, it is more permissive when it comes to cultivators, given the area’s agricultural heritage.
Manufacturing and testing facilities are also permitted in the city of New Castle, which already has one production facility on the edge of town. But retail and cultivation have been banned because lawmakers were worried about the cannabis industry’s reliance on cash.
“We are concerned that such a shop would be a magnet for theft since federal banking regulations prohibit it from using normal banking processes,” New Castle City Council President Suzanne Souder told Bisnow in a statement. “This would create an extra burden for our police department above what other retail outlets require.”
CRE Players Navigate The Maze
Delaware’s cannabis licenses were distributed via a pay-to-play lottery. Each license is tethered to a specific county. Entries sold for between $1K or $5K, said CannaZoned Licensing and Regulatory Attorney Amanda Kilroe.
The Michigan-based cannabis real estate company won two retail licenses, which it plans to pair with real estate and sell as a package.
One of its licenses is for Kent County, the least restrictive of Delaware’s three counties. The other is for New Castle County, which has mandated a one-mile buffer between cannabis businesses and a 1,000-foot no-go zone around schools.
Zoned Properties Chief Operating Officer Berekk Blackwell said his Arizona-based cannabis real estate company is taking the patchwork quilt of regulation in stride as it searches for Delaware properties to buy and rent to license holders.
“I’m confident that there will be a dispensary on unincorporated land in New Castle County,” he said.
Not everyone in the market is quite as sanguine.
CannaZoned agent Mike Sullivan has identified his preferred markets in Delaware. In New Castle County, he’s been focused on large population clusters, which he said could be tricky.
“The urban centers like Wilmington and Newark are much more highly restrictive in terms of buffers and exclusions,” Sullivan said.
Newark passed legislation opening the college town up to all types of cannabis businesses so long as they stay 300 feet away from K-12 schools. Wilmington lawmakers are currently considering a series of laws that would prohibit recreational retail outlets within city limits.
Some of the other markets Sullivan has identified in New Castle County are known magnets for out-of-state travelers. That includes Brandywine and Hockessin, “principally because of (their) proximity to the Pennsylvania border,” he said.
He and Kilroe are betting against the end of prohibition in the commonwealth.
“Our licenses are more valuable the longer Pennsylvania does not allow adult use legal because people will cross over into Delaware,” she said.
Blackwell doesn’t want to take that risk.
“Zoned Properties has a much more long-term vision,” he said. “Pennsylvania could legalize this year, and then what? That whole recreational border play opportunity goes away.”
In Kent County, both companies see great promise in the state capital of Dover, where all types of recreational cannabis businesses are allowed.
The weed industry has become a hot topic among city politicians in recent months. Dover City Council voted to allow it last year and decreased the buffer protecting sensitive uses from one mile to 500 feet. The legislation was vetoed by Mayor Robin Christiansen before the council came back earlier this month and voted to override him.
“Dover is a green light,” Blackwell said. “There will be dispensaries there for sure.”
The city lies along Route 1, the most popular road for Philadelphians and New Yorkers traveling to the beaches in the summer. That makes other towns on the route, like Smyrna and Milford, strong candidates for dispensaries, Sullivan said.
Retail cannabis outlets are allowed in Smyrna so long as they stay 1,200 feet from other pot businesses, Blackwell said. But Milford banned recreational retail sales earlier this week.
Unincorporated Sussex County is a challenging place to open a dispensary, but at least two of its municipalities have taken a different approach, even if weed advocates see their ordinances as relatively restrictive.
Georgetown is only letting cannabis retailers open in the city’s highway commercial zone, and they have to stay at least 1,000 feet away from sensitive uses, Blackwell said.
Nearby Seaford is allowing recreational retailers, but only if they stay at least 2,000 feet away from sensitive uses, he added.
“That’s a big setback,” Blackwell said.
Mortgage Restrictions And Legal Weed's Future In Pennsylvania
Cultivators, manufacturers and testing facilities don’t struggle as much with these municipal restrictions since they don’t need to be in the most convenient locations
“They’re less beholden to foot traffic,” Blackwell said. “They definitely don’t need to be on Main and Main.”
This opens up more options for real estate, but cannabis businesses outside the retail sector still face barriers to entry mainly due to the substance’s federal status as a Schedule I drug.
“There’s a lot of headaches around it,” Blackwell said. “In most cases, you’re definitely going to have trouble leasing a building from a regular property owner.”
Any property owner with a federally insured mortgage is barred from renting to a cannabis business, Campbell said. He added that many shopping centers have anti-marijuana policies so issues don’t arise for neighboring tenants.
Even if they’re not facing any of these restrictions, some landlords are simply not interested in working with a weed business: “It can be a moral issue,” Campbell said.
That kind of thinking has long been a powerful barrier to change in next-door Pennsylvania, where legislators are likely watching Delaware's cannabis trade unfold with interest.
Every border state except West Virginia has enacted recreational cannabis legislation. That means lawmakers in the state capital of Harrisburg and local officials are missing out on tax revenue as stoners travel for a legal fix or turn to the black market.
This could be the year that changes, however, with a bill on the way that could legalize recreational marijuana sales.
Gov. Josh Shapiro is on board with adult-use legalization, but Democrats only have a one-seat majority in the state House while Republicans control the state Senate.
Yet state lawmakers are staring down a potential budget crisis later this year, which could increase the appeal of the additional $250M in annual tax revenue in Shapiro’s budget estimates ending prohibition could bring.
Passing adult-use cannabis legislation might be hard in this political climate, but it’s certainly not impossible. Compromises like potency restrictions could make it more palatable for concerned lawmakers, Kilroe said.
The bill proposed by two Democrats last year would corral retail sales through the state’s existing state-run liquor store system. That proposal, which Campbell called “a nightmare,” could dampen a possible cannabis real estate rush in Pennsylvania if legalization does come to fruition.
Even so, stakeholders believe some kind of cannabis bill could pass. The GOP has traditionally been opposed to legalization, but even young conservatives have come around to cannabis in large numbers.
“Younger people seem to be okay with cannabis across the board,” Kilroe said.