New Hampshire’s cannabis legalization effort has reached a tricky crossroads.

A year after Gov. Chris Sununu announced he would support a legalization approach that meets a number of strict conditions, the New Hampshire House has passed a bill. That bill, which cleared the House 239-136 last week, is now in the hands of the Senate.

But the governor has already raised issues with the bill, arguing that it does not follow his vision of establishing retail cannabis outlets that are state controlled.

Now, House Bill 1633 is in front of the Senate Judiciary Committee, and senators, House members, cannabis advocates, and representatives of the governor’s office are working to find a compromise that might please all sides, and not fall afoul of federal laws.

Here’s the latest on the state of cannabis legalization.

Sununu’s position

After years of wavering between skepticism and outright opposition to cannabis legalization in New Hampshire, Sununu surprised many in May 2023 when he released a statement saying he would sign a legalization bill if it met certain criteria.

In order to win Sununu’s support, the bill would need to include a retail model that allowed legal sales only at specific outlets overseen by the state, the governor stated. That approach would include measures to keep cannabis outlets away from schools; prohibit “marijuana miles,” or areas where cannabis stores are concentrated; allow towns to decide whether to permit a cannabis outlet; and provide state control over marketing, messaging, distribution, and access.

Some legalization advocates have opposed that approach, seeing it as unnecessary interference with the free market that would keep costs high.

What has the House done?

The House has passed a number of versions of the cannabis legalization bill this term, as lawmakers quarrel over how closely to adhere to Sununu’s vision.

The legislation that left the House last week, HB 1633, would allow the state to license up to 15 retail establishments. The 43-page bill would legalize the use and purchase of cannabis for anyone 21 or older, and create a commission to license and regulate retail outlets.

Sununu’s issue arises from how those outlets would be managed by the state. The House has adopted a licensing model. The governor prefers a franchise model, which would allow the state to dictate the marketing, layout, and appearance of the cannabis outlets, similar to how fast-food companies allow people to open franchises but require that stores follow brand guidelines.

“The state would essentially be an operational partner, like McDonald’s to a McDonald’s franchise,” said Karen O’Keefe, director of state policies for the Marijuana Policy Project, an advocacy organization.

To Sununu, the retail license model doesn’t give the state sufficient control over sales.

“Governor Sununu has been crystal clear about the framework needed for a legalization bill to earn his support, focusing on harm reduction and keeping it out of kids’ hands,” the governor’s office said in a statement last week. “The legislation passed today doesn’t get us there but the Governor looks forward to working with the Senate to see if we can get it done.”

Why did the House deviate from Sununu’s position?

To some House lawmakers and cannabis legalization advocates, the question of whether to adopt a franchise or license model is not academic: It could have real legal implications for the state.

“Here we are in the world of cannabis, where everything is changing federally under our feet as we try to legalize it here in New Hampshire,” said Tim Egan, an advocate representing the New Hampshire Cannabis Association.

The U.S. Federal Trade Commission has regulatory power over franchised businesses, and requires a certain level of disclosure by companies that are selling franchise rights to others in order to prevent unfair practices.

While 24 states have legalized cannabis, New Hampshire’s state-run retail system would be a first in the U.S. That lack of precedent has made some legalization supporters concerned that a franchise model could allow the FTC to step in and shut down the state-run stores, given that cannabis is still illegal under federal law. Concerns over state liability have pushed some to argue that the licensee model is better.

“Early on, people that knew something about franchise law said, ‘Just don’t do this; you can’t do this,’” said John Reagan, a former Republican state senator from Deerfield who now lobbies in favor of legalization. “You’ll be in a paralyzed situation, and won’t be able to get anything done.”

Others have raised concerns about how close the franchise model could put the state to the cannabis sales themselves. That could raise the possibility for lawsuits, O’Keefe said. The state could potentially face a lawsuit under the Racketeer Influenced and Corrupt Organizations Act (RICO), under the premise that it is engaged in sales of an illegal drug. Or it could face litigation over the “impossibility pre-emption,” the doctrine that prevents an employee from needing to follow both a state law and a federal law if the two conflict.

Meanwhile, many states that have legalized have already faced difficulty navigating how to collect revenue from retail sales without falling afoul of banking regulations. New Hampshire’s franchise model could invite similar headaches, Egan said.

What’s next for the bill?

HB 1633 has arrived at the Senate Judiciary Committee, which is holding a hearing on April 25. But even before the committee takes it up publicly, stakeholders and senators are already meeting to attempt to finesse the bill to Sununu’s liking.

To be successful, senators will need to thread a needle: Tweak the House bill just enough to win the governor over, but not so much that it transforms the state model and loses support in the House. If the Senate passes a bill that the House does not immediately accept, it could go to a committee of conference, which advocates worry could doom its chances.

Amid those stakes, a potential compromise to the bill has emerged, Egan and O’Keefe say. The proposal would create the franchise model the governor asked for, but include a trigger clause that would implement the licensee approach should the franchise approach be struck down in court. That could allow the state to carry on retail sales even if the federal government intervened.

“I think that would be a great way to bridge the gap,” O’Keefe said. “If (the governor) thinks the franchise model is going to work, then if it works, it works. But if it doesn’t work, then you can address the House’s concerns there.”

For now, discussions are ongoing with Sens. Daryl Abbas, Becky Whitley, Cindy Rosenwald, Tim Lang, and Rep. Erica Layon, according to Egan.

Legalization supporters have attempted a variety of legislative models over the past decade, only to see them struck down by the Senate. But for advocates, with Sununu declining to run for reelection, legalization could be now or never.

“If the goal is to get it done, this is the window,” said O’Keefe. “There is no guarantee that next year there will be a governor that will sign any bill.”

This story was originally produced by the New Hampshire Bulletin, an independent local newsroom that allows NH Business Review and other outlets to republish its reporting.