It would be easy to get lost in the weeds when it comes to the legalization of marijuana and cannabis in New York. The attorneys at Rosenbaum & Taylor, P.C. can help.
On March 31, 2021, New York State Governor Andrew Cuomo signed a bill, the Marijuana Regulation, and Taxation Act, “MRTA,” into law. The MRTA legalizes the cultivation, possession, distribution, sale, and use of cannabis for individuals who are twenty-one years of age, or older. The new law also establishes a Cannabis Control Board and an Office of Cannabis Management to supervise the granting of licenses for recreational cannabis growers and retailers, and to oversee taxation and enforcement. Licenses will be regulated by the newly formed Cannabis Control Board.
The bill makes certain key changes to New York State law. For example:
- It amended New York State Penal Law to legalize the growth of and use of small quantities of cannabis by individuals who are twenty-one years old, or older.
- It allows for the levying of taxes on cannabis.
- It amends New York State Public Health Law to update the description of cannabis and the definition of smoking to change the term “marijuana” to “cannabis.”
- It amended New York State Finance Law to create a New York State cannabis revenue fund, drug treatment and public education fund, and community grants reinvestment fund.
- It also repeals various provisions of New York State’s public health, penal, general business, agriculture, and markets laws relating to cannabis growth and use.
In addition to permitting the production, distribution, and retail sale of cannabis, the new Act allows for the elimination (expunging) or reduction of certain previous criminal convictions. Another dramatic change in the law is a provision preventing employers from punishing or discriminating against workers who use cannabis on their own time, off of the employers’ premises. We will address these issues in a separate article.
By one estimate, by the Center for New York City Affairs, in as few as six years, the marijuana and cannabis industry could generate up to $2.6 billion in sales and support over 50,000 in jobs.
The attorneys at Rosenbaum & Taylor are helping clients throughout Westchester, Rockland, Putnam, the Bronx, Manhattan, Brooklyn, and other parts of New York State, navigate this new law, whether it is assisting in setting up a new business, helping those formally convicted of marijuana-related offenses to “clean their records” or to deal with work-related issues that have now arisen.
The MRTA Was Just the First Step
Passage of the MRTA is a critical step, but only the first step toward the issuance of adult-use cannabis licenses. We, and our clients, are eagerly awaiting the formation of the five-member Cannabis Control Board (CCB), New York State’s primary regulatory governing entity for the cannabis industry.
There will be five members of the CCB, including a chairperson. Members, who must be New York State residents, will be appointed for three-year terms.
It will be the CCB that decides on what the application process will be for both adult-use cannabis licenses and new registered organizations. The CCB will also dictate the industry’s rules and regulations for New York, which will be issued in accordance with the MRTA.
There are new laws on the way
Obviously, this is a changing area of the law, and any individual or company looking to take advantage of the new commercial opportunities, or protections, will need the advice and counsel of skilled attorneys. Numerous new laws, related to the MRTA, are being introduced or contemplated. For example, there has been legislation introduced that would force recycled materials to be used in the packaging of cannabis products, to reduce pollution that will be caused by the legalization. The proposed legislation would also require retailers to charge a deposit on single-use containers and the retailer would be responsible for collecting and recycling the used packaging.
Home cultivation of up to three mature and three immature cannabis plants per person, with a maximum of 12 plants (six and six) per household, will be permitted, under the MRTA, but that part of the new law is not yet in effect. In other words, New Yorkers cannot start cultivating their own marijuana plants yet under the MRTA.
So What Happens Now?
While the MRTA created a framework for the licensing and the regulation, control, and taxing of marijuana and cannabis, there is still work for New York State to do before licensing can begin. The Cannabis Control Board will be vested with the regulatory authority and it remains to be seen how the framework for the MRTA will work in practice.
New York, which is already a highly regulated state, is now opening up a new, highly regulated industry. We expect that cannabis-based businesses that will do best will be the sophisticated, well-financed ones who also have a true appreciation for the social equity intent behind the MRTA.
The Licensing Landscape is Complex
Application requirements will be contained in regulations that are yet to be issued, but at a minimum, officers, directors, and other principals of companies, or entities, applying for licenses will likely be expected to provide personal background information, fingerprints for a background check, information about the corporate structure and investments, financial statements and information about the location to be licensed, including proof of the right to use for at least two years. Once issued, the initial licenses will be valid for a two-year term, with an option to renew.
The Cannabis Control Board has the power to issue licenses. It also has the discretion to limit the number of permits in each licensing category (production, distribution, retail). The CCB has, as its goal, social and economic equity when issuing licenses. Accordingly, the CCB will be giving great consideration to people from communities that have been disproportionally impacted by the previous cannabis prohibition, minority-owned businesses, female-owned businesses, disabled veterans, and distressed farmers. Priority will be given to applicants who have an income lower than 80% of the median income in the county where the applicant resides and to applicants who were convicted of marijuana-related offenses.
New York entrepreneurs will eventually be able to apply, under MRTA, to the State for licenses to open a number of different types of cannabis-based business, from storefront dispensaries to wellness centers and lifestyle product companies, from bed and breakfasts to hotels, from cooking classes, restaurants, and bakeries to hookah bar-style consumption lounges and yoga studios, and more, as long as alcohol is not sold on the premises.
A number of different types of licenses will be available:
Cultivation License
A cultivation license includes, among other things, permission to engage in the planting, growing, cloning, harvesting, drying, curing, grading, and trimming of cannabis. This does not permit the sale to distributors but does permit the sale to processors. Cultivation licensees may grow and harvest cannabis for adult use and may also hold one processor license and one distributor license. A cultivation licensee may only sell cannabis that it harvested itself. We expect that the Cannabis Control Board may create rules that permit a limited amount of processing even without a processor’s license. The Cannabis Control Board may also authorize cultivation license holders to operate out of more than one location, but may not allow the cultivation license holder to have more than one license.
Processing License
The holder of a processing license is permitted to buy cannabis from licensed cultivators, process the cannabis (via blending, extracting, infusing, packaging, labeling, branding and otherwise making or preparing cannabis products), and sell cannabis products to licensed distributors. A processing licensee can also hold one distribution license, allowing them to distribute and sell the cannabis that they process. The holder of this license can distribute its own products, but only its own products. A processing license does not allow for cultivating. The holder of a processing license is prohibited from engaging in any other activities at the licensed location. The Cannabis Control Board may authorize processor licensees to operate in more than one location and is expected to set down minimum operating requirements for processor licensees.
Distribution License
Distribution licensees may purchase and sell adult-use cannabis and cannabis-derived products to licensed retailers or licensed on-site consumption sites. Distributor licensees are permitted to hold interests in other entities that have a cultivation license or processing, but would then be limited to distributing cannabis cultivated and processed by those licensees. A distribution license holder may not be a shareholder in, receive a share of profits from, or have similar interests in, among others, a cannabis microbusiness, retailer, or on-site consumption licensee. Distribution licensees can charge an appropriate fee, as authorized by the Cannabis Control Board for distributing cannabis, including based on the volume of cannabis distributed. The Cannabis Control Board is expected to issue minimum operating requirements for distribution license holders.
Retailer License
Retail licensees may sell and deliver, cannabis and cannabis products from licensed premises. A licensee may be a shareholder in, receive a share of profits from, or have a similar interest in, up to three retail dispensary licenses. Retail dispensaries must be located in a storefront, with the principal entrance accessible from street level and located on a public thoroughfare. Premises from which cannabis is sold retail must be zoned for commercial use and located at least 500 feet from any school and 200 feet from any house of worship. Those applying for a retail license must be able to demonstrate that they have secured the right to use the premises for the duration of the license term, which is two years for initial licenses.
Dispensary License
A dispensary license permits the acquisition, possession, sale, and delivery of cannabis to the consumer. Currently, there is a limit of three dispensary licenses for New York State. Some existing medical marijuana companies in New York are already planning to offer marijuana to the general public, although those companies are only permitted to have a maximum of eight dispensaries, with only three of the eight approved to offer recreational products and two of those must be located in underserved areas.
Microbusiness License
The Cannabis Control Board will determine the allowable size, scope, and eligibility of cannabis microbusinesses. Regulations regarding the size, scope and eligibility of this type of license have not yet been established, but we expect that this license will be granted to promote social and economic equity applicants. Microbusiness licensees may engage in limited cultivation, processing, distribution, delivery, and sale of their own adult-use cannabis and cannabis products (i.e., vertical integration). They may also distribute their products to other retail licensees. A microbusiness may not be a part-owner or hold any similar interests in any other license.
Delivery License
The holders of delivery licenses deliver cannabis independent of another licensed activity (as compared to distributors, who deliver and buy/sell, and retailers, who may also deliver to customers). Delivery licensees cannot have more than twenty-five individuals providing full-time paid delivery services per week, under one license. Holders of delivery licenses may not be a part-owner of, or hold any similar interests in, more than one delivery license. For example, one company is not permitted to hold multiple delivery entities operating in different cities throughout the state. Here again, this license will be granted to promote social and economic equity applicants.
Nursery License
A nursery license permits the production, sale, distribution of clones, immature seeds, and other products used specifically for the planting, propagation, and cultivation of cannabis products. This license will also be granted to promote social and economic equity applicants.
Co-operative License
The cooperative license allows vertically integrated operations within a closely owned entity. A co-operative license permits the holder to acquire, possess, cultivate, process, distribute and sell from the licensed premises. A cooperative license permits sales to distributors, on-site consumption sites, retail dispensaries, and registered organizations (medical providers), but does not allow sales directly to consumers. Members of the cooperative must be New York residents who democratically control the cooperative on a one vote per member basis. The cooperative must be registered as an LLC, LLP, or other structure authorized by the Cannabis Control Board and must operate according to principles published by the International Cooperative Alliance in 1995. An individual person is only permitted to be a member of one cooperative and cannot be a shareholder of, or have similar interests in, any other license.
On-Site Consumption License
An on-site consumption license permits the on-site use of marijuana. Note that the owner of this license cannot simultaneously hold a retail dispensary, cultivator, processor, microbusiness, cooperative or distributor license. On-site consumption licensees may sell cannabis and products derived from cannabis to individuals who are at least twenty-one years of age for consumption (including smoking and vaping) within the licensed premises. The holder of an on-site consumption license is permitted to be a shareholder in, receive a share of profits from, or have a similar interest in, up to three consumption licenses. The same limitations that apply to retail premises apply to an on-site consumption location.
Registered Organization Adult-Use Cultivator Processor Distributor Retail Dispensary License
Existing medical Registered Organizations are permitted to engage in the listed adult-use activities, but may only engage in adult-use retail sales at three of the Registered Organization’s medical dispensaries. Additionally, the licensees may only sell their own products. Also, licensees must maintain their medical cannabis license and continue offering medical cannabis sales, the degree of the continued medical cannabis sales will be determined by the Cannabis Control Board.
Registered Organization Adult-Use Cultivator Processor Distributor License
As with the above license category, licensees may engage in medical and adult-use cultivator, processor, and distributor activities, but may only distribute their own products.
There are Fees and Tax Considerations
We note that New York’s medical cannabis program required a non-refundable deposit of $10,000 and a refundable deposit of $200,000, returned only if the applicant was not granted a license. The programs developed under the MRTA may follow similar patterns, but that is not yet clear.
In addition to requiring an application fee, MRTA also allows for the Cannabis Control Board and Office of Cannabis Management to assess an additional biennial fee based upon the amount of cannabis to be cultivated, processed, distributed, and/or dispensed, or the gross annual receipts for a license period.
MRTA establishes a 7% excise tax on medical marijuana, which is not permitted to be passed on to customers.
MRTA also establishes an excise tax on the sale of cannabis by a distributor, to a retailer, based on the cannabis product’s THC content and final product type. When the adult-use product is sold at retail to a consumer, the sale is subject to an additional 9% state tax and 4% local tax (which is a statewide “local tax” to be collected by the state on behalf of the municipality where the dispensary is located).
The allocation breakdown of the 14% sales tax (4% local, 9% state, and 1% county) is interesting and shows the intended impact on underserved communities: 40% will go towards education, 40% will go to a community grants reinvestment fund and 20% will go to drug treatment and public education fund.
Contact the Attorneys at Rosenbaum & Taylor, P.C. Today for Help Navigating the Cannabis Landscape
The attorneys at Rosenbaum & Taylor, P.C. are helping clients navigate this new law. Cannabis in New York is an evolving landscape and we are ready to assist clients with questions, concerns, and strategies so they can best take advantage of new opportunities.
Read Part 2 to learn the Potential Impact of “MRTA” on you
