Cannabis Legalization in Key States: New York Fast Tracks Legalization Bill

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Cannabis Legalization in Key States: New York Fast Tracks Legalization Bill

Alert |
Stephan M. Wazny, Kayvan B. Sadeghi

After years of regulatory stalemate, New York has legalized recreational cannabis use. This week the legislature approved the bill – formally the Marijuana Regulation and Taxation Act (MRTA) – and Governor Andrew Cuomo signed it. The bill legalizes cannabis for adults 21 and older, permitting possession of up to three ounces of cannabis and cultivation of up to six marijuana plants at home for personal use. Most importantly for cannabis-related businesses, the bill lays out the types of business licenses that will be available in New York, and gives a sense of the factors that the new regulator created by the bill will consider when reviewing businesses’ applications.

Although major efforts remain to implement the bill’s business licensing framework, this law is a significant shift in the national landscape of cannabis legalization. New York is predicted to become a massive cannabis market—the governor’s office forecasts that legal recreational sales will eventually generate $350 million annually in tax revenue, and it was recently projected that recreational cannabis would represent a $4.2 billion regulated market in the state.

Licensing

The MRTA creates a new, freestanding regulatory agency called the Cannabis Control Board (the “Board”), a contrast with other states, which are implementing legalization by expanding existing alcohol control agencies (e.g., Virginia), or medical marijuana programs (e.g. New Jersey). Legal sales in New York are likely at least one year away, because the Board must first implement licensing and registration procedures, as well as standards for cultivation and processing.

The MRTA also sets out a licensing framework for cannabis businesses, with business licenses divided into separate categories for (i) cultivation, (ii) processing, (iii) distribution, (iv) retail dispensaries, (v) microbusinesses, (vi) delivery services, (vii) nurseries, (viii) small business cooperatives, and (ix) on-site consumption sites.

Generally, businesses may not simultaneously hold licenses in more than one category, with two important exceptions for (1) microbusinesses and (2) businesses that have a medical license, which are permitted to vertically integrate and cultivate, process, and sell their own cannabis, as long as they do not distribute to other sellers.

The MRTA expands New York’s existing medical marijuana program by increasing covered conditions and patients’ maximum prescriptions, and abandoning previous restrictions on permissible forms of medical cannabis (e.g. eliminating the prohibition on sales of smokeable flower and edibles). The bill also provides that medical businesses that are already registered with the state will be eligible to pay a special licensing fee allowing them to sell recreational cannabis at up to three of their existing medical dispensaries.

While the Board has discretion to establish further criteria for issuing licenses, the MRTA outlines various factors that it must consider, including the applicants’ ability to do the following:

  • Effectively control illegal diversion of cannabis
  • Comply with state laws and regulations
  • Conduct business as described in their applications
  • Mitigate any adverse environmental impacts

Tax

The law establishes a nine percent sales tax on all retail dispensary sales, with an additional four percent that will be directed to the localities that support the retail stores. The taxes will first cover the costs of implementing the regulatory scheme and other costs associated with legalization, such as researching and addressing the public health impacts. It will also support social and economic equity applicants, including funding low interest loans for eligible businesses.

All remaining tax revenue that exceeds the costs of regulation will be divided three ways: 40 percent will go toward the state’s public school lottery fund, 40 percent will go toward a community grants reinvestment fund, and the remaining 20 percent will be deposited in a drug treatment and public education fund.

Efforts to Address Historic Community Impacts

By enacting this law, New York goes further than many other states in addressing historical inequities. As demonstrated by support from the New York NAACP, the NYCLU, and multiple public defender organizations, this proposed legislation is a victory for activists that have been pushing for a legalization scheme that accounts for communities most affected by prohibition.

Specifically, the law provides a system to inform disproportionately affected communities about their opportunities to operate legal cannabis businesses, generate significant tax revenue to support these individuals’ businesses, and prioritize these businesses’ applications for licenses. The applicable provisions include the following:

  1. The law sets a goal to award 50 percent of all adult-use cannabis licenses to “social and economic equity applicants,” including individuals from communities disproportionately impacted by prohibition, as well as businesses owned by minorities, women, service-disabled veterans, and disadvantaged farmers. By comparison, New Jersey’s recent law allocated 30 percent of licenses to women-, minority-, and veteran-owned cannabis business.
  2. The law creates an independent “chief equity officer” to be appointed by the governor, who will ensure that the Board complies with the law’s social and economic equity plan. This officer must also create a public education program to inform communities disproportionately affected by prohibition about the licensing process and resources available to them in the cannabis space.
  3. The law provides that 40 percent of all tax revenue will go toward a community grant reinvestment fund, which will be dedicated to supporting communities “disproportionately affected by past federal and state drug policies.” Grants will be available from the fund to support a wide variety of programs, including job placement and skill development, mental health and substance abuse treatment, afterschool and child care services, as well as financial literacy, community banking, and women’s health services.
  4. The law also lays out procedures explaining how people convicted of marijuana offenses can automatically vacate, dismiss, and expunge these convictions, and specifically states that grants are available from the community reinvestment fund for legal services to help them pursue these expungements.

The Next Steps Toward Licensing

Now that the bill has been signed into law, the Cannabis Control Board must take on the substantial task of implementing a licensing and registration scheme before legal cannabis sales can begin in New York. Businesses considering entering the New York cannabis space should watch the Board’s progress and pay attention to the number of licenses that will be made available in each business category. The Board has broad authority under the proposed legislation to limit the number of licenses available to ensure “a competitive market” and other goals of the legislation. The available licenses in each category, in turn, will determine how competitive the application process is and help shape the state’s cannabis market in general. We will continue to report on developments in the New York cannabis market.