Cannabis Business in Connecticut

Connecticut Cannabis Industry Overview

• As of 2020, the prevalence of cannabis use in Connecticut was 20.5%, indicating a significant level of engagement with cannabis among residents,
• Cannabis use is particularly notable among Connecticut's younger adults. In 2020, 45.4% of individuals in this demographic reported using cannabis within the past year, significantly higher than the national average of 35.0%,
• The Connecticut Medical Marijuana Program had approximately 40,000 registered patients who benefit from medical cannabis for therapeutic purposes,
• In 2023, the state recorded nearly $274 million in combined sales of medical and adult-use cannabis, as reported by the Connecticut Open Data Portal,

Types of Cannabis Businesses in Connecticut

As of January 2024, Connecticut had 31 licensed cannabis dispensing locations. Within the industry, cannabis businesses can generally be classified into two main types:

• Cannabis-Touching (plant-touching) businesses
• Cannabis-Adjacent (non-plant-touching/support) businesses

It is crucial to identify the type of business, as each category has its own specific regulations, legal requirements, and challenges.

Understanding Cannabis-Touching Businesses in Connecticut

Cannabis-touching businesses in Connecticut are directly engaged in the cultivation, processing, distribution, or sale of cannabis products. These businesses maintain a direct connection to the cannabis products they handle. The industry in Connecticut is currently dominated by Multi-State Operators (MSOs) that are often vertically integrated, meaning they control multiple stages of the cannabis supply chain, from cultivation to retail. The state has implemented a comprehensive seed-to-sale tracking system managed by the Department of Consumer Protection (DCP), ensuring that all cannabis plants are tracked from their initial cultivation stage through to the final sale to consumers. This system includes barcoding and meticulous record-keeping to maintain transparency and regulatory compliance throughout the entire process.

Here are some examples of cannabis-touching businesses and their roles in Connecticut:

• Cultivators: Responsible for growing cannabis plants, cultivators can operate indoors or outdoors and often specialize in various strains. They may also engage in breeding programs to develop new cannabis varieties. Cultivators must comply with state regulations regarding cultivation methods and conditions to ensure product quality and regulatory compliance.
• Processors: These businesses transform raw cannabis into a variety of products, including oils, edibles, concentrates, and topicals. Processing involves extraction techniques, refinement, and sometimes the creation of new product forms. Processors are required to adhere to stringent state regulations to ensure the safety and consistency of their products.
• Testers: Testing laboratories play a vital role in ensuring that cannabis products are safe and free from contaminants such as mold and pesticides. These labs conduct rigorous testing to verify the purity and potency of cannabis products before they reach dispensaries.
• Dispensaries and Retail Stores: These establishments are the points of sale where cannabis products are sold directly to consumers. Dispensaries and retail stores must follow state regulations, including verifying customer age and adhering to purchase limits. They are also responsible for maintaining compliance with state tracking and reporting systems.
• Distributors and Supply Chain: Distributors manage the logistics of moving cannabis products from producers to retailers. This includes overseeing the supply chain, ensuring secure transportation, and complying with state tracking systems to maintain transparency and accountability throughout the distribution process.

Understanding Non-Plant Touching Cannabis Businesses in Connecticut

Non-plant touching cannabis businesses, also referred to as cannabis-adjacent, ancillary, or support businesses, are integral to the cannabis industry without directly handling the plant. These businesses provide critical services and infrastructure, aiding the industry in numerous ways. Here are some examples:

• Banking and Payment Processing Solutions: Due to federal restrictions, traditional financial services are often unavailable to cannabis businesses. Specialized banking services, loans, and payment processing solutions are essential for ensuring smooth operations and compliance with state regulations.
• Insurance Services: Comprehensive insurance coverage is vital for protecting cannabis businesses, their staff, and products. Insurance agents with expertise in the cannabis industry provide coverage for various production stages, business operations, and liability.
• Accounting Services: The cannabis industry faces unique financial and regulatory challenges. Specialized accounting services help businesses navigate these challenges by ensuring compliance with Section 280E of the IRS Code, which limits tax deductions to the cost of goods sold. These services also ensure precise tracking and financial recording from seed to sale.
• Legal Services and Regulatory Compliance: Lawyers and legal firms specializing in cannabis laws are crucial for navigating the complex and ever-changing regulations at state and federal levels. They ensure businesses remain compliant and avoid potential legal issues.
• Consulting and Management Services: These firms assist cannabis businesses with compliance, licensing, operations, and market strategy. They help streamline processes, ensure regulatory adherence, and develop effective strategies to stay competitive.
• Technology, Software, and Equipment: Modern cannabis businesses rely heavily on technology. Tools like seed-to-sale tracking systems, consumer apps, Point-of-Sale systems, eCommerce platforms, and security solutions are vital for compliance, operational efficiency, and customer service enhancement.
• Packaging and Labeling: Compliance with strict packaging regulations is crucial for cannabis products. Companies specializing in packaging solutions ensure products meet requirements for child-resistant, opaque, and clearly labeled packaging, protecting both consumers and businesses.
• Marketing and Branding: Due to stringent advertising restrictions, specialized marketing and branding services are necessary for cannabis businesses. These services help promote products within the legal framework, ensuring regulatory compliance while effectively reaching the target audience.
• Data Analytics: Data analytics supports cannabis businesses by optimizing operations, ensuring regulatory compliance, and improving financial management. Analyzing consumer behavior, supply chains, and product quality helps businesses make informed decisions and adapt to market trends.
• Advocacy Organizations: These groups represent the cannabis industry at the state level, working to influence policy, provide industry insights, and advocate for regulatory changes that support industry growth and sustainability.

What Are the Differences Between Plant-Touching and Non-Plant Touching Businesses?

The differences between cannabis plant-touching and cannabis-adjacent businesses significantly impact compliance, regulatory scrutiny, insurance coverage, and financial operations. Here are the key distinctions:

State Laws:

• Cannabis-Touching Businesses: These businesses in Connecticut require specific state licenses and must comply with strict regulations, including security measures and product testing. They also face significant banking restrictions due to federal laws.
• Cannabis-Adjacent Businesses: Generally, these businesses need only standard business licenses and face fewer regulatory hurdles. They have better access to banking and financial services.

Banking:

• Cannabis-Touching Businesses: These businesses face significant banking restrictions due to federal regulations, often operating in cash and relying on a limited number of banks willing to accept the legal risks. This results in high compliance requirements and financial management challenges.
• Cannabis-Adjacent Businesses: These entities enjoy broader access to financial services, including traditional banking accounts, loans, and credit lines, due to their indirect involvement with cannabis. This facilitates simpler financial operations and growth opportunities.

Accounting:

• Cannabis-Touching Businesses: Subject to Section 280E of the IRS Code, these businesses cannot deduct typical business expenses, resulting in higher taxes. They also face complex inventory management requirements and strict compliance regulations.
• Cannabis-Adjacent Businesses: These businesses can claim standard business deductions on their taxes and use more straightforward accounting practices. They do not face the stringent compliance required for cannabis inventory tracking, making their financial operations less burdensome.