Delaware marijuana task force to delay final report

A legislative task force studying whether to legalize recreational marijuana use in Delaware is expected to postpone the release of its final report until the end of February.

The 25-member panel had been slated to present its findings to Gov. John Carney and the Delaware General Assembly by Jan. 31.

The delay was requested by the Keep Delaware Safe and Healthy Coalition, an umbrella organization of influential groups opposed to the measure, several of which are represented on the task force.

"We're pleased more time will be allotted," said Cathy Rossi, vice president of public and government affairs for AAA Mid-Atlantic. "The legalization of marijuana is fraught with financial, criminal and social problems and we've got to weigh whether it's worth it."

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Task force co-chair Rep. Helene Keeley, D-South Wilmington, said she was willing to grant the coalition's request to avoid opponents of legalization using the original timetable as further ammunition to kill a bill pending before the Legislature.

The proposed Delaware Marijuana Control Act was voted out of committee in May but was never called up for a vote before the full House of Representatives.

Keely and co-sponsor Sen. Margaret Rose Henry, D-Wilmington, ultimately had to settle for a resolution that created the Adult Use Cannabis Task Force to study how a legal cannabis industry in Delaware would function.

So far, the task force has held three meetings, including one in October devoted to consumer safety and Wednesday's session, which focused on taxation issues.

"To be honest, a lot of dialogue we're having is sparking a lot of other topics that we need to discussed," Keeley said. "That's the whole point of the task force."

Keely said she will seek to extend the reporting deadline and add two more task force meetings once the General Assembly reconvenes in mid-January. Topics for the additional meetings have not yet been determined, she said.

Keeley said that delaying the task force's final report could impact Delaware's ability to reap greater tax benefits by potentially becoming the first state in the Mid-Atlantic to fully legalize cannabis.

All eight states that have legalized marijuana have done so through a voter referendum, something the Delaware Constitution does not allow.

Delaware is expected to face competition from New Jersey to be the first to legalize cannabis through legislation. New Jersey Democratic gubernatorial candidate Phil Murphy, who leads his Republican opponent in several polls, has promised to sign a legalization bill into law during his first 100 days in office. 

"I would like to be in the position to be the first," Keeley said. "If we don't pass it in Delaware, [people] will go to New Jersey in the next eight to 12 months when it becomes legal."

How much revenue Delaware could reap from legalized revenue is largely a matter of guesswork. Proponents estimate those taxes – along with licensing fees paid by cultivation, testing, manufacturing and retail businesses – could add $25 to $75 million a year to the state's coffers.

Those estimates are based on the tax formula spelled out in the proposed legislation, which calls for cannabis to be taxed at a rate of $50 per ounce for one part of a marijuana plant and $15 per ounce for all others.

Other states impose a sales taxes on marijuana, either at the wholesale or retail level.

Using a similar tax formula here could generate more revenue than a flat excise tax. But it also would create a host of complications for Delaware, which currently does not collect sales tax on any goods and services.

Even tracking sales could prove difficult because they tend to be cash-only operations.

"It's very challenging in other states for marijuana-related businesses to get bank accounts, loans or any other bank service," State Banking Commissioner Robert Glen said Tuesday. "The main reason is banks are required to comply with federal laws like the Controlled Substances Act."

As a result, many banks won't touch what the federal government essentially considers "drug money."

"We obviously would want to be able to validate actual sales," state finance secretary Rick Geisenberger said. "But in an all-cash world, that obviously becomes more complicated."

Geisenberger said there may be administrative costs that are not being taken into account.

"We don't currently have auditing and collection systems in place for dealing with high-volume cash businesses because most companies use checks and credit cards," he said. "I also have deep concerns about cash payments circulating through our office without having strict controls in place for how to deal with that money."

The Delaware Bankers Association, a nonprofit trade association, has not taken a formal position on House Bill 110.

"But we see difficulties with the banking industry assisting those in the cannabis industry until the conflict with federal law is resolved," said Thomas P. Collins, the group's executive vice president of government relations.

It is unclear whether that will happen anytime soon. While running for office, President Trump promised to protect state's rights on the issue. But Attorney General Jeff Sessions has repeatedly threatened to crack down on states that have legalized marijuana for recreational and medical uses.

Concerns over banking prohibitions are a bit overblown, according to to the Marijuana Policy Project, a national nonprofit dedicated to reforming state drugs laws.

Kate Bell, a lawyer for the project, notes the U.S. Department of Treasury's Financial Crimes Enforcement Network released guidelines in 2014 for banks that want to work with marijuana-related businesses.

"Dispensaries in other states are banked," she said. "They usually have to pay extra fees and fill out a lot of extra paperwork, but there are banks that will deal with them."

Bell acknowledged the need for initial startup costs, but said Delaware should be able to figure out how to collect taxes from marijuana-related businesses with little difficulty.

"The state should look to the best practices of the other states already doing this, particularly Colorado and Washington, rather than trying to reinvent the wheel," she said. "Colorado has already generated close to $200 million from marijuana sales taxes since 2014."

Contact reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.