'A Whole Different World': D.C. Cannabis Businesses Rush To Open Under New Law

Next month, Grace Hyde and her team plan to begin outfitting a medical cannabis dispensary near Union Market that represents the beginning of a new era for cannabis in the nation's capital. 

The District Cannabis store will look like a typical medical dispensary — with branded merchandise, displays of smokable cannabis plants, edibles, CBD products and concentrates. But in practice, it will act almost like a recreational shop: Customers will be able to self-certify for a medical license on the spot, without needing a doctor's note for a medical condition. 

Scheduled to open in March, District Cannabis is one of the first facilities to come out of a new law enacted this year that seeks to bring the city's cannabis market out of the shadows and has already sparked a surge of activity. 

“I think we're going to see a lot of growth, and it's just going to really benefit the city overall,” said Hyde, District Cannabis' chief operating officer. “I think it's only good things to come. Obviously, there's going to be some growing pains.”

The new D.C. law, the Medical Cannabis Amendment Act of 2022, went into effect in March to little fanfare. But those working in the sector say it has changed essentially everything about the city's cannabis business, from how it is grown and processed to how it is sold, delivered and consumed. 

The law allows patients 21 and older to self-certify for their own medical licenses, which are available to customers on the spot in-store. It also removes a cap on the number of establishments that can produce and sell cannabis, expands retail uses and allows delivery. 

That is leading to a rush of cultivators, manufacturers and retailers applying for licenses, looking to take advantage of a market that just blew wide open.

“This is a really big, bold move, and government agencies are not typically known for big, bold moves,” Hyde said. 

Medical cannabis has been legal in D.C. since 2010, and in 2015, D.C.’s Initiative 71 legalized recreational cannabis consumption, allowing individuals to carry 2 ounces for personal use but not to sell it. States across the country, including neighboring Maryland, have allowed the sale of recreational cannabis and created a legal market for it, but Congress has prevented D.C. from taking that step. 

Over the last several years, a market sprung up to get around the prohibition: Operators don’t technically sell weed products but offer them as “gifts” when customers purchase another product like a T-shirt for a higher price. More than 100 of these unlicensed businesses are operating in D.C. today, according to Fred Moosally, director of the city's Alcoholic Beverage and Cannabis Administration.

Now, the new law allows those retailers who have been operating under the table to get licensed as medical retailers, allowing the city to regulate and tax the market.

“It's kind of been the wild, Wild West and an unregulated industry for a while, and a lot of people are like, ‘Oh, now we got to do this and we got to do that?’” DC Cannabis Business Association President Lisa Scott told Bisnow. “It’s going to be a little crazy, and some people don't want to comply. But if you want to be legal and you want to stay in the business, then you're going to have to.”  

These existing “gifting” retailers could start applying for licenses on Nov. 1, and ABCA had received 25 as of Thursday. 

Applications opened in May for cultivation licenses, which are for businesses growing cannabis, and manufacturing licenses, which are for businesses to process cannabis into products like edibles, concentrates and topicals. ABCA has thus far received applications for 76 cultivation licenses, 65 manufacturing licenses and 12 courier licenses, used for delivery, an agency spokesperson said. 

The vast majority have received conditional or final approval. 

And those operators are likely just the tip of the iceberg. The application period hasn't begun yet for new retail businesses, including new social equity retail applicants, which, per the law, need to make up at least 50% of all new cannabis licenses in the city. 

“The submitted applications have probably surpassed expectations in a good way,” Moosally told Bisnow. “Clearly, to have a regulated market, people have to be willing to come in and apply. So we're excited about that. We think that just shows that things are going well and people are excited to be part of this legal market.” 

Before March, just eight medical retail shops and nine cultivation facilities were permitted in the city. There were no standalone manufacturing licenses outside of a cultivation center. 

New medical cannabis business applications have begun to appear on the agendas of D.C.'s Advisory Neighborhood Commissions in recent months: A Bisnow analysis found that at least five have presented to ANCs so far in neighborhoods ranging from Dupont to Union Market to Barracks Row. 

These local elected bodies are given a 45-day comment period on the applications, and they say there has been some confusion and concern from neighbors about the new market cropping up under the radar. 

“It's a whole different world,” ANC 2B Commissioner Jeffery Rueckgauer said. 

A Brewing Battle For Space

The vast majority of new licenses awarded by ABCA are conditional, which means the operators don’t have locations yet and will need to find a space within a year of being approved. 

The thinking behind the conditional license is twofold, Moosally said. It can give a business more credibility if it plans to take on investors, with social equity applicants standing to benefit. It also may help break down the barriers to securing a lease if it makes a landlord confident that the operator has a legitimate license to do business. 

But it means that the challenge of finding real estate is still ahead.

“The District has limited industrial or manufacturing space,” Moosally said. “Most of it is located in Ward 5, with some in Wards 4 and 7 and sprinkled in some other wards as well.

“So with limited space, you have cultivation centers and manufacturers applying for the same spaces. So that’s the challenge, is making sure that there's enough space for these cultivation centers and manufacturers.”

The law requires industrial and manufacturing facilities to be in D.C.'s Production, Distribution and Repair Zones. There are more than 140 cannabis cultivation and manufacturing applicants seeking space in the District coming out of this new law, according to ABCA.

The square footage of those facilities is largely undetermined, but D.C. isn't capping the facilities at any size. Cultivation facilities can get licensed at Tier 6, which allows for over 100K SF of growing area. It is required that all cannabis products these businesses sell in D.C. be made locally. 

“Having a location for cannabis grow or cultivation or manufacturing is difficult because it has to be zoned properly,” DC Cannabis Business Association's Scott said. “And I don't think that they realize how few buildings are available for this new industry and the number of applicants that are looking for spaces.” 

“We are hoping that they'll relax the requirements for the manufacturing and allow them to be in maybe a mixed-use facility or something like that,” she added. 

ABCA is in discussion with the Department of Buildings' Office of Zoning Administration to address the issue, a spokesperson for the agency said.

Retail might present a challenge too. Dispensaries can’t be within 400 feet of one another or within 300 feet of a school or city recreational center, unless the school is on land zoned for commercial or industrial use.  

The concern is that as all the conditional retailers start rushing to secure space over the next few years, potential spots will get increasingly limited. There are already over 100 unlicensed retailers, with existing locations, getting first dibs on retail licenses.

“For someone who’s interested in getting into retail, if they haven’t already found a location, they should get on that immediately,” said Adrienne Dean, a partner at Cogent Law Group who works in cannabis law and is representing a new Dupont retail applicant.  

A Changing Landscape

To get licensed under the new law, most new operators — cultivators, manufacturers and retailers, including online businesses — need to get placards from ABCA and undergo a 45-day comment period with notice to their local ANC. 

District Cannabis is one of the first new licensees to have completed this process. It comes from family-owned and operated Phyto Management LLC, which now plans to open the 4,800 SF retail space in the Union Market neighborhood at 515 Morse St. NE. 

The company has been cultivating cannabis in the District since 2016, one of the nine licensed to do so prior to the new law. Its industrial facility in Kenilworth expanded into manufacturing edibles in 2019. Hyde said the company is one of two licensed edible manufacturers in the District and the only one that functions on a large scale. 

But it hasn’t been able to legally sell in the District, since all eight medical retail licenses were taken. It is now taking advantage of the new law to expand into retail. Hyde says it will be the first licensed medical store in Ward 5. 

“We are very excited about the developments with the program and bringing in more licenses of all kinds,” Hyde said. “We need more cultivators, we need more manufacturers, we need more of everything for this market to be really appealing to bring more consumers into the legal market, away from the gray market.” 

District Cannabis opted to add delivery to its license but is initially forgoing some of the other uses allowed under MCAA, like tasting and educational uses, safe treatment facilities and summer gardens, which allow the “sale, service, and consumption of medical cannabis on outdoor private space” between 8 a.m. and midnight. 

The summer gardens in particular are emerging as a point of contention in neighborhoods, as community members raise concerns about the impacts of allowing congregated smoking, especially outdoors. 

“People are not pleased with this notion,” Rueckgauer told Bisnow.

His ANC is protesting a new license from National Holistic Healing Center, an existing medical cannabis retailer in Dupont that is looking to expand operations to include the new allowed uses of a safe-use treatment facility and summer garden. It was approved for educational, tasting and delivery uses in the summer.

The dispensary received its ABCA placard for the treatment and summer garden uses in mid-October and presented in front of ANC 2B’s November meeting, at which some commissioners and residents expressed skepticism about the outdoor usage. Owner Michael Bobo declined Bisnow's interview request. 

“I speak for our neighbors in that this is not something that we want in our space — near our homes, within breathing distance of our outdoor spaces, our patios,” Dupont resident Teresa Williams said at the meeting, citing concerns about property values, health effects and parking. 

In its resulting protest letter, the ANC pointed to resident concerns about this particular retailer and faulted ABCA for not listening to community feedback that it should delay the rollout of the summer gardens. It also said the agency didn't establish guidance for resolving issues arising from their negative impacts on neighbors. And it asserts ABCA hasn't established if smoking is allowed indoors as part of safe-use treatment facilities or established guidance about how to manage the smoke.

“ABCA really did not think this through very carefully in terms of the deleterious effects on residents,” Rueckgauer told Bisnow. 

“I have a concern that pushing cannabis into the neighborhood in such an unprecedented way, at least in terms of smoked cannabis, I think it's asking for trouble,” he added.

ABCA's Moosally said the safe-treatment facilities, including summer gardens, are meant to give patients a place to consume if they choose not to do so at home or are prohibited because they live in federal housing, for example. 

Moosally said ABCA has a duty to allow summer gardens under the law. In reviewing indoor and outdoor safe treatment facilities, he said the committee will look at factors like ventilation systems, employee safety, hours of operation and proximity to residences.

Among a list of requirements for safe-use treatment facilities, the law requires retailers to submit ventilation plans in their application materials, have a smoke-free area for employees to monitor the treatment and maintain a closed-off portion of the facility for treatment use.

In September, ANC 2B unanimously offered support for manufacturing applicant Firetuned. The business plans to use a 1,500 SF facility at 1341 Connecticut Ave. NW to make edibles and concentrates for wholesale. 

Neighbors were supportive of its plans, including ANC Commissioner Vincent Slatt, who highlighted the opportunity for filling vacant buildings and obtaining more tax revenue. 

The process is uncharted territory for ANCs, which are figuring out how to evaluate these businesses that are just beginning to appear on meeting dockets. On top of summer gardens and safe-use facilities, ANCs are figuring out how to evaluate what the other new uses like cannabis delivery will mean for neighborhoods, as well as the expected proliferation of an industry that has until now been largely underground.

“I'm not aware of anyone else in the city having this yet. So we're kind of like the guinea pigs,” Rueckgauer said during the ANC’s review of National Holistic Healing Center. 

It remains to be seen what will happen with the over 100 existing unlicensed retailers now subject to enforcement if they don’t obtain a medical license. 

ABCA is giving the existing unlicensed retailers until the end of January, but after that, they could be subject to cease-and-desist orders, fines, suspensions and closures starting in February, Moosally said. The law permits enforcement against the operator or landlord.

“Some of them think that they're going to be able to continue being gifting stores. But they won't because it's not — it's never been legal,” Scott said. “They just haven't cracked down on it. So they've had a false sense of security. 

“Those who aren't applying, they're going to have a rude awakening, I think, if they feel that they're going to be able to continue.”  

Join us virtually on Dec. 13 for our Cannabis Real Estate Deep Dive webinar.