While many prospective New York cannabis entrepreneurs are awaiting the new adult-use regulations to decide whether to participate in this burgeoning industry, they should understand that the Marijuana Regulation & Taxation Act (MRTA) enacted March 31, 2021, already prescribes the general contours of this forthcoming market and how its revenue will be apportioned among the 11 categories of license holders.
And with the five-member Cannabis Control Board (CCB) now appointed, further specificity is expected soon.
The forthcoming regulations from the Office of Cannabis Management (OCM) will follow the release of the MRTA language earlier this year. The MRTA is analogous, and more detailed in certain areas, to other sister-states’ recreational cannabis regulations. While residents of other states may complain of “over-regulation,” New Yorkers may be complaining about “over-legislation,” as New York’s cannabis law already addresses matters both big (no import or export of cannabis, and prioritizing state business in the event of federal legalization) and small (yes, the law allows customers to use credit cards at retail dispensaries and, no, they cannot purchase cannabis at an establishment that sells beer).
Basically, the foundation of the adult-use cannabis industry has already been laid, and CCB and OCM will mostly fill in the details and administer this industry under existing MRTA law.
MRTA says: Cannabis is to Hard Alcohol as OCM is to SLA
What we already know under the law is that the OCM will be housed as a separate office within New York State Liquor Authority (SLA), and staff from SLA may be transferred to OCM to administer the adult-use cannabis program.
The statutes in cannabis law partly mirror the New York Alcohol Beverage Control Law, with both having similar general statutory provisions for “Severability” and injunctive relief against prohibited conduct, as well as separate articles based on the type of formerly illicit product (medical, adult use and hemp each have their own articles within the cannabis law). Additionally, the application criteria and documentation requirements are markedly like those prescribing licensing and permits for alcohol, wine and beer—except for “social and economic equity” and other additional components for adult-use cannabis licenses.
Moreover, the restrictions on the physical premises for retail dispensaries and on-site consumption licensees are the same for liquor stores—minimum of 500 feet away from schools and 200 feet from houses of worship.
New York’s License Bifurcation and “Social and Economic Equity” Components
New York’s general cannabis laws reflect the common approach taken in other states, that no adult-use or recreational cannabis can be imported to or exported out of the state (Cannabis Law § 125(10)), and that employees in the industry must be at least 18 years of age, and 21 or over if they have customer contact inside retail stores.
However, on the supply side, New York focused on segmenting the cannabis industry among cultivators, nurseries, processors and distributors (producers), and the retail dispensaries, delivery companies, and on-site consumption (OSC) businesses (retailers).This degree of segmentation of the cannabis market is intended to limit marketplace dominance by any participant, “spread the business” across all license categories and offer smaller businesses and entrepreneurs (especially women, minorities, distressed-farmers, service-disabled veterans and those with prior cannabis convictions) a viable shot to succeed.
Also, new and distinct is the creation of the “microbusiness” and “cooperative” licenses, which allow for greater vertical integration by small businesses, and a confederation of different smaller producers, respectively. This separation of actors within the adult-se cannabis industry is supported by various statutes that prohibit cross-ownership of licenses; for example, Cannabis Law § 80 prohibits the producers having any direct or indirect interest in retailers—including prohibiting loans, gifts or providing services to any licensee that may “influence such [retailer] licensee to purchase the product of such cultivator or processor or distributor.” Moreover, this statute prohibits exclusive sales agreements between producers and retailers, and automatically voids such agreements and subjects the involved licensees to administrative enforcement and penalties.
Focusing on the Little Guys – At Least Under the Law
As the law is written, CCB must review the impact of adult-use licenses issued (after two years from the first retail sale) that have “substantial market share” for any license category to determine whether such licensees prevent the “goals of inclusion of social equity licensees, fairness for small businesses and distressed farmers, adequate supplies of cannabis and prevention of dominant marketplace participation in the cannabis industry.”
Statutes also prescribe that major licensees may have their license modified to restrict their market share; such affected licensees are entitled to a formal hearing to appeal any modifications. (For any licensee, such review shall include violations of New York’s labor law and labor peace agreements.).
Additionally, even if a licensee has its market share reduced, an existing collective bargaining agreement that was reached cannot be restricted even if the market is restricted. Most importantly, OCM has authority “to limit, by canopy, plant count, square footage or other means, the amount of cannabis allowed to be grown, processed, distributed or sold by a licensee.” So, any business with thoughts on dominating the entire market may soon find that OCM has a large set of wing clippers. The underlying politics behind the enactment of the MRTA are extensive enough to fill an entire treatise by itself, but suffice it to say, politicians fought hard to include statutory provisions to limit marketplace dominance, and establish an affirmative action plan to goal of at least 50% of all licensees be awarded to women, minorities, distressed-farmers, serviced-disabled veterans and those who with prior cannabis convictions.
Licenses Are Valid for Two Years; Fees Are Unknown and Will Be Prescribed by Regulation
Under the MRTA, New York expects licensing and permit fees to “generate sufficient total revenue to, at a minimum, fully cover the total costs of administering the Office of Cannabis Management, and licenses require renewal after two years from issuance date. So essentially, fees will be determined by the amount of administrative resources needed to establish and operate OCM, as well as the number of licenses up for application. Transfer of ownership of these licenses and special use permits (other than to corporate form) is generally prohibited by law, and licenses themselves cannot be used as collateral for any loan.
Additionally, OCM will scale registration and licensing fees based on business size and capacity, and for social and economic equity applicants, fees will be adjusted or wholly waived. So, potential business owners have a lot to think about when identifying their “applicant.” (Also, of note, Legal Permanent Residents (non-citizens, legally speaking) can apply and obtain a cannabis license, if otherwise eligible, though they are prohibited from obtaining an SLA license or permit, so this new industry certain represents a tremendous opportunity for new Americans.)
New York Cannabis Law § 62 (Application Information) and 66 (License Renewal) Detail the Application Requirements
The MRTA is detailed enough to prescribe nine separate categories of information to be provided under Cannabis Law § 62, including requirement of providing “racial and ethnic diversity,” ownership information, fingerprints, financial statements of premises for which the license is sought, in addition to “any other information prescribed by regulation.” Additionally, to ensure that certain leeway is provided to applicants completing applications, the law permits OCM to accept applicant self-attestation for certain information under § 62(6) (OCM “may rely upon the information furnished in such application and in any supplemental statement connected therewith, and such information may be presumed to be correct, and shall be binding upon registered organizations, licensee or licensed premises as if correct.”).
Ostensibly, in a nod to “social and economic equity applicants,” the law permits OCM to waive the “submission of non-material information or documentation … for any category of license or permit.” So basically, § 62 is detailed enough that many do not foresee additional significant regulatory conditions on the application process.
For adult-use cannabis license renewals, the § 66 contains ample details on how they should be conducted, including the express requirement that OCM mail a renewal application to licensees at least 90 days prior to expiration. Renewal applications will require “documentation of the racial, ethnic, and gender diversity of the applicant’s employees and owners” prior to extension approval; additionally, licensees may be subject to a “Social Responsibility Framework Agreement” to foster racial and gender diversity in the company as a condition of renewal under § 66(2). Moreover, according to the renewal process under § 66(6), the renewal application must include “evidence of the execution of their plan for benefitting communities and people disproportionally impacted by cannabis law enforcement.”
While having the full five-member CCB constituted is certainly a significant milestone in establishing the adult-use cannabis market in New York, it appears the extensive statutory framework in New York’s cannabis law leaves CCB and OCM to primarily fill in the details on the minimum requirements to operate each license or permit, the fees associated, and the number of licenses and permits in each geographic area. As much of the industry has already been defined, segmented and regulated under the MRTA, those thinking of entering this newborn market will only need those details to finalize their business decisions, but already have the general roadmap on how the adult-use cannabis market will launch in 2022 in New York State.