The District of Columbia Alcohol Beverage and Cannabis Administration is cracking down on businesses that are allegedly selling cannabis without a license as the district also works toward creating a pathway for operators in the vibrant gifting market to obtain a medical dispensary license.
The ABCA ordered four gray-market cannabis shops to shut down on July 3 after they were found to be allegedly selling cannabis without a proper license. So far, ABCA has also sent out 55 warning letters to businesses suspected of not being in compliance, according to a spokesperson for the agency. They did not say whether more cease-and-desist letters could be coming.
The move comes as neighboring states are growing their own adult-use cannabis markets, adding competitive pressure to district operators.
“Maryland has been a big influence on both I-71 and medical dispensaries in the district,” said Hannah Clarke, executive director of the I-71 Committee. “They have felt the pressure that Maryland has created.”
Maryland launched its adult-use cannabis market on July 1, 2023. Since then, the state has pulled in over $1 billion in sales between both its medical and adult-use markets.
Clarke explained that the district medical market relies heavily on out-of-state medical patients, of which a plurality has typically come from Maryland. But that is already changing now that Maryland has a growing adult-use market. At the same time Virginia also has legal adult-use and could become another threat to D.C.’s market if the state ever passes legislation that would allow for a legal commercial market.
There are currently nine licensed medical dispensaries in operation throughout the District of Columbia. Over 100 more serve the general public using a loophole that allows the transfer of up to one ounce of cannabis as a “gift.” These gifts are frequently bundled with the purchase of something legal, such as a T-shirt or even an NFT.
D.C. Gives Cannabis Away
Unlike states or other municipalities, when Washington, D.C., passes municipal legislation, there is a 30-day window in which the U.S. Congress can override any passed measure.
District voters legalized medical cannabis in May 2010, and Congress, which was Democrat led at the time, did not override it. Four years later, during which the Republicans took back the House, voters approved adult-use through Initiative 71, or I-71.
Although district residents were allowed to grow up to six plants, possess up to two ounces of cannabis and gift up to an ounce, Congress blocked the district from enacting regulations that would have allowed a commercial market.
As a result, a gray market emerged relying on the ability to gift cannabis. Shops opened that featured free gifts of cannabis along with sales of T-shirts, paraphernalia and even legal service discount coupons. These businesses have become known as I-71 operators.
In an attempt to rein in the gray market, the district passed a new cannabis law in 2022 that added more medical cannabis licenses and allowed gray-market businesses to apply. The application period was open from March 1 to April 30, 2024. As of July 8, there were 66 approved/pending retail licenses and 101 pre-approvals, according to the CRB Monitor database.
“A majority of the I-71 gifting business owners are eager to join the medical market,” said Clarke. “They just want to feel that the medical market is supported and the medical market owners that are currently partaking and participating get ready for the transition.”
Enforcement actions started just months after the District Council passed emergency legislation that gave the ABCA authority to fine or shut down non-compliant cannabis businesses.
It sent out four cease-and-desist letters to entities operating as Safe House CBD Center LLC, American Legends, Hotbox and Smoke Island. The shop owners can request a hearing to challenge the orders within 15 days of being served.
Clarke said the goal of the Medical Cannabis Amendment Act of 2022 was to create a pathway for I-71 gifting businesses to join the legal market and strengthen it. “The dispensaries that have been legal would have ideally benefited from a legalized adult-use market long before the Medical Cannabis Amendment Act. But here we are; we’re trying to make it work.”
