Medical cannabis business operators in Washington, DC, are increasingly concerned about the closure of unlicensed gift shops as the medical cannabis market continues to struggle.

Since the Safe Harbor deadline was lifted in late January 2024, 62 warning letters have been sent to businesses still selling cannabis in the city. 20 cease-and-desist letters have been sent to businesses and their landlords who were still operating illegally after the warning, but no business has been shuttered or closed.

Medical retail stores have struggled to compete with the DC gift market since unlicensed stores began popping up across the city in 2014. DC has been unable to develop an adult-use market due to the federal government. Since Maryland launched its adult-use market a year ago, medical cannabis sales in DC have plummeted to new lows.

The Outlaw spoke to several medical retailers who said slow enforcement by the Alcohol Beverage and Cannabis Board is hurting their sales and could prevent them from staying open and stifle current market expansion.

Several legal medical retailers said their sales were low due to competition from unlicensed gift shops that are still in operation. Despite the ABCA receiving new enforcement powers to close deals this summer, not a single unlicensed store has been closed. When asked by the Outlaw, the ABCA did not specify how many unlicensed stores were successfully closed as part of its enforcement efforts.

Mayor Muriel Bowser refused to answer questions about enforcement, even though she signed the bill in July allowing the ABCA to shutter unlicensed businesses. Councilman Kenyan McDuffie also refused to answer questions from Outlaw, even though he supports the same bill.

ABCA has sent warnings and cease-and-desist letters to over 50 businesses, but many of them reopened the day after enforcement or never closed due to the length of the enforcement process and its lack of effectiveness.

Now or never

Matt Lawson BakerPresident and co-founder of Alternative Solutions, a company that currently distributes medical cannabis to retail locations that sell legal products, said ABCA’s enforcement actions to date have not been adequate.

“This is a critical decision for the market,” he said. “If this is not done now, there will be catastrophic market failure.”

Although ABCA has prioritized recruiting dozens of new retailers to serve potential gift market customers, enforcement is “the most important part of the equation right now,” Lawson-Baker said.

“You have to push enforcement so that these people take it seriously. Otherwise no one will switch (to the legal market),” he said.

Although Lawson-Baker’s cultivation center is not feeling the squeeze from unlicensed stores as much as others, he still sees an impact on the businesses that legally purchase cannabis from him.

“Others are struggling to make ends meet week to week, so I don’t know how much longer they can go without something happening in the market,” he said. Lawson-Baker attributes the enforcement gap to a lack of resources.

The ABCA currently leads enforcement and licensing of cannabis businesses in Washington, D.C. However, inspections are also conducted by a task force of the city police, the Department of Health, and the Department of Licensing and Consumer Protection.

Currently, only one inspector is conducting inspections for ABCA. The budget is there to hire more inspectors, but this has not yet happened. ABCA did not respond to questions about how many and when they plan to hire more inspectors.

“There is no incentive to come to the legal marker unless your product is confiscated and a padlock is put on your door,” Lawson-Baker said.

New York City launched Operation Padlock to Protect just three months ago and has locked and closed nearly 800 businesses after years of slow enforcement. But the effort faces a challenge. A recent judge’s ruling rejected the padlock closures, citing a lack of due process. The ruling could undermine efforts to close thousands of these businesses in the state.

A lengthy process

When the ABC panel’s first hearings on injunctions were held, it became clear that the process would take months. The first four decisions upheld three injunctions against All American Papers, Safe House and Cannabis Karma to stop the sale of illegal cannabis products, while quashing another. The average time from the first warning to the issued decision was over four and a half months.

Safe House, an unlicensed retail store notorious for its long lines on North East H Street, filed an application for a conditional cannabis license in July but received a cease-and-desist order in July. An Instagram video posted after Safe House was asked to stop selling cannabis proudly proclaimed, “YOU CANNOT STOP THIS MOVEMENT.”

The ABCA board recently issued a decision upholding the order against Safe House, allowing the agency to close the business if it continues to sell cannabis products. The business has not yet been closed. However, emergency legislation passed this summer allows the businesses to close without a hearing. It is unclear whether the ABCA simply meets all the procedural requirements to close or whether it lacks the resources to close businesses.

Could bureaucratic hurdles ruin the market?

ABCA Director Fred Moosally did not respond to questions about when the agency plans to hire more enforcement officers, begin shutting down unlicensed businesses or provide the number of unlicensed businesses that have been closed due to enforcement actions.

He highlighted the applicable regulations and explained the agency’s multi-stage enforcement process, which begins with a warning and leads to a cease-and-desist order from the ABC Board.

The ABCA has the authority to close an unlicensed business if it poses an imminent threat to public health or safety. Such threats include, but are not limited to, the presence of unregistered firearms or persistent violations of a cease and desist order issued by the ABC Board.

The Enforcement Act also applies to businesses that continue to sell cannabis illegally after a cease-and-desist order is confirmed by the ABC Board following a formal or expedited hearing, or if the business fails to timely request a hearing. There are only three orders from the Board that would qualify a business for suspension under this interpretation.

It is estimated that there are currently over a hundred unlicensed stores in DC. A possible forced closure of some of these stores is unlikely to divert DC’s cannabis customers to medical retail stores.

Lawson-Baker believes that if nothing happens by the end of August or early September, the illegal operators will “carry on as before because nobody cares.”

“If we stop attracting patients or customers from the I-71 market to the medical market, retailers will go out of business. And when they go out of business, growers will follow.”