An Empire State of Cannabis: Digging into the New Law

By dan - In

This is intended to be a high-level overview of the new marijuana law as it applies to recreational use and sales in New York. While I believe this article to be the most exhaustive article yet published on the bill as it relates to recreational use and licensure, there is 130 pages of minutiae in this bill and lots of details to cover specific to your circumstances.

Given that there is going to be extreme competition for licenses, I highly recommend reaching out to me by email as soon as you can to schedule a consultation.  Given the competitive nature of the licenses, my ability to take on clients will be limited by geography and license type and my services will typically be first come, first served.  A detailed list of services are described at the end of this article.

Consumption

Effective immediately, adults may possess up to 3 ounces of marijuana (or 24 grams of marijuana concentrate). You can also transfer this amount if it is for no compensation. And you can consume (smoke) it anywhere it is legal to smoke tobacco. You can give them out to other adults.

Once regulations are in place, you can grow up to 3 mature plants and 3 immature plants at home (and up to 6 each if more than one adult).  You can also store up to five pounds at home. Yes, five pounds. “Reasonable steps” must be made to ensure it is stored in a safe place. 

Licensing

Numerous license types are available, with restrictions on each and limited ability to acquire multiple licenses. No cross-ownership in companies along the vertical permitted, except as permitted to obtain multiple licenses as set forth below.

  • Adult-use cultivator license
    • Can also hold a processor and distributor license, solely for processing and distributing their own products. 
    • Cannot own a retail license. Without additional licenses, can sell to processors only.
    • Can also hold a nursery license and sell the products thereunder only to licensees permitted to cultivate.
  • Adult-use processor license
    • Can also obtain a distributor license solely for its own products. Not permitted to cultivate their own plants without license. Can sell to other processors and distributors only.
  • Adult-use cooperative license
    • Permitted to cultivate and process, and to sell to distributors, on-site locations, and retail, but not directly to consumers.  Complex rules likely not a good fit for most organizations.
  • Adult-use distributor license
    • Can sell to retail and on site licensees only. If distributor also has license for processing or cultivation, can only distribute those products which it cultivates and processes.
  • Adult-use retail dispensary license
    • Permits retail operation and delivery to end users. No one can own more than 3 licenses; ie, retail operations capped at 3 stores.
    • Need to own the premises or have a lease in place for longer than the license term (2 years) – but, can show proper lease within 30 days of license approval.
    • Must be 500 feet away from schools, 200 feet from houses of worship. Must be at street level and zoned for business, trade, or industry.
    • Between 30 – 270 days before applying for license, you must notify your local municipality of your intent to file the application.  Made to the clerk of the village, town, or city.
  • Microbusiness license
    • Permits limited cultivation, processing, distribution, delivery, and dispensing of their own cannabis and cannabis products.  Many rules likely to follow.
  • Delivery license
    • Delivery only, no more than 25 full time delivery people. Rules to follow, does not appear to be a cap on income or production (as of yet).
  • Nursery license
    • Clones, immature plants, seeds, other agricultural products.  Can sell only to those licensed to cultivate.
  • Adult-use on-site consumption license
    • Need to own the premises or have a lease in place for longer than the license term (2 years) – but, can show proper lease within 30 days of license approval. Must be 500 feet away from schools, 200 feet from houses of worship.
    • Cannot hold any other license. Must purchase from licensees who have distribution rights.
    • Entrance must be monitored by an employee (you need a bouncer).
    • Serious compliance and record-keeping requirements.
    • Between 30 – 270 days before applying for license, you must notify your local municipality of your intent to file the application.  Made to the clerk of the village, town, or city.

Each has its own limitations. The information required to apply shall be determined by the Office of Cannabis Management. Transportation rules TBD, but must be through vehicles owned by licensee, or hired (hired company must be registered through OCM).

General limitations applicable to all:

  • One license = ONE LOCATION
  • Criminal convictions will prevent you from obtaining a license, unless said conviction was under § 221 of the penal law (previous marijuana chapter).
  • If your license permits, and you engage in, processing, you need a contract with an independent laboratory for testing pursuant to rules.

General considerations the board will look at for all:

 (a) the applicant is a social and economic equity applicant;

 (b) the applicant will be able to maintain effective control against the illegal diversion or inversion of cannabis;

 (c) the applicant will be able to comply with all applicable state laws and regulations;

 (d) the applicant and its officers are ready, willing, and able to properly carry on the activities for which a license is sought including with assistance from the social and economic equity and incubator program, if applicable;

 (e) where appropriate and applicable, the applicant possesses or has the right to use sufficient land, buildings, and equipment to properly carry on the activity described in the application or has a plan to do so if qualifying as a social and economic equity applicant;

 (f) the applicant qualifies as a social and economic equity applicant or sets out a plan for benefiting communities and people disproportionally impacted by     enforcement of cannabis laws;

 (g) it is in the public interest that such license be granted, taking into consideration, but not limited to, the following criteria:

 (i) that it is a privilege, and not a right, to cultivate, process, distribute, and sell adult-use cannabis;

 (ii) the number, classes, and character of other licenses in proximity to the location and in the particular municipality, subdivision thereof or geographic boundary as established by the board;

 (iii) evidence that all necessary licenses and permits have been or will be obtained from the state and all other relevant governing bodies;

 (iv) effect of the grant of the license on pedestrian or vehicular traffic, and parking, in proximity to the location;

 (v) the existing noise level at the location and any increase in noise level that would be generated by the proposed premises;

 (vi) the ability to increase climate resiliency and minimize or eliminate adverse  environmental impacts, including but not limited to water usage, energy usage, carbon emissions, waste, pollutants, harmful chemicals and single use plastics;

 (vii) the effect on the production, price and availability of cannabis and cannabis products;

 (viii) the applicant’s history of violations and compliance with the laws of another jurisdiction, in which they operate or have operated a cannabis license or registration, related to the operation of a cannabis business;

(ix) the applicant’s history of violations related to the operation of a business, including but not limited to, violations related to labor laws, federal occupational safety and health law and tax compliance; and

(x) any other factors specified by law or regulation that are relevant to determine that granting a license would promote public convenience and advantage, public health and safety and the public interest of the state, county or community.

(h) the applicant and its managing officers are of good moral character and do not             have      an ownership or controlling interest in more licenses or permits than allowed by this chapter, or any regulations promulgated hereunder;

 (i) the applicant has entered into a labor peace agreement with a bona-fide labor organization that is actively engaged in representing or attempting     to represent the applicant’s employees, and the maintenance of such a labor peace agreement shall be an ongoing material condition of licensure. In evaluating applications from entities with twenty-five or more employees, the office shall give consideration to whether applicants have entered into an agreement with a statewide or local bona-fide building       and construction trades organization for construction work on its licensed facilities;

 (j) the applicant will contribute to communities and people disproportionately harmed by enforcement of cannabis laws through including, but not limited to, the social        responsibility framework as provided in section sixty-six of this article and report these contributions to the board;

 (k) if the application is for an adult-use cultivator or processor license, the environmental and energy impact, including compliance with energy standards, of the facility to be licensed;

 (l) the applicant satisfies any other conditions as determined by the board; and

 (m) if the applicant is a registered organization, the organization’s maintenance of effort in manufacturing and/or dispensing and/or research of medical cannabis for certified patients and caregivers.

We are still somewhat far away from licenses opening for application: this is a good thing, as you will want to be fully prepared to submit the strongest applications possible.  The Office of Cannabis Management is currently being formed.  Once formed, the agency will propose various rules and regulations, await public comment, and only once finalized will the agency move forward with licensing procedures.

While the exact timeframe is unknown, the tax structure of the bill does not take effect until April 1, 2022; as such, legal sales cannot take place before then.  Expect finalized rules, and thereafter, a license application window, in first quarter 2022 (or 4th quarter 2021 if you are optimistic).

Minority and Women owned businesses, and some others, will receive preference.  Additionally, if someone has been affected by conduct which has been made legal by the bill, they will receive preference. It is a stated goal of the bill that at least 50% of all licenses will go to social and economic equity applicants, in addition to the board developing an incubator to assist such applicants in obtaining licenses. The benefit of being classified within this category cannot be overstated.

In addition, even further priority will be granted to 1) members of community disproportionately impacted by cannabis laws; 2) those with incomes lower than 80% of the median income of the county the applicant resides; and 3) those who were convicted (or family member convicted of) marijuana related offenses prior to the passage of the bill. There are even programs that will come which will provide such applicants low to zero interest loans to get started.

Things you are going to want regardless of license type, prior to application:

  • Set up all your corporate formalities and functions WELL IN ADVANCE
  • Capital Cushion
  • Experience in the Cannabis field
  • Local support
  • Measurable differentiation in business (not product)
  • Marketing/Branding
  • Premises of Business
  • Evidence of good moral character

MAJOR CHANGES FROM PREVIOUS VERSIONS OF BILL: The ability to opt out of allowing cannabis-related activity at a local level has changed from counties to local municipalities (cities, towns, and villages).  When previously introduced, Nassau and Suffolk signaled their intent to opt out.  They no longer have this power, and it is now possible that localities in Long Island will allow activities within their borders.  Local municipalities have until December 31, 2021 or nine months after the bill taking effect, whichever is later, to opt out of allowing adult-use cannabis retail dispensaries or on-site consumption licenses within their borders. Local municipalities would be able to regulate the time, place, and manner of cannabis operations through local zoning ordinances. NOW IS THE TIME TO MAKE YOUR VOICES HEARD TO LOCAL GOVERNMENTS THAT THIS BUSINESS SHOULD BE PERMITTED.

Notably, for delivery-permitted licensees, local municipalities cannot block delivery into their jurisdictions. Using this provision, in conjunction with other provisions in the bill, may make delivery licenses the most valuable for a savvy consumer-facing business.

Cost of license: Unknown, to be determined by the Office of Cannabis Management.  Using the prior medical marijuana costs as a guidepost, it is widely expected that at least some of the more commercial license types will be in excess of $200,000 with a non-refundable $10,000 application fee.  Microbusiness licenses and discreet license types (such as the delivery license) may cost substantially less.  As NY is making a push for equitable access, especially further down the vertical (ie, retail), the license costs may be lower in tiers where small businesses are expected to participate. The bill allows for the licensing board to “waive or reduce fees pursuant to this section for social and economic equity applicants.”

Each license will likely be subject to a biennial license fee (every 2 years).  Renewal applications are due 90 days before expiry.  Information regarding demographic makeup of employees is required for renewal, as is evidence of union agreements and community benefit. Licenses cannot be transferred, or activities engaged in substantially changed, without prior approval of the board.

Taxes

Distributor -> Retail:

  • Cannabis Flower: 5/10 of 1 cent per milligram of total amount of THC as reflected on label
  • Concentrated Cannabis: 8/10 of 1 cent per milligram of total THC as reflected on label
  • Cannabis Edibles: 3 cents per milligram of total THC as reflected on label
    • If Microbusiness who sells at retail, microbusiness is liable for tax and the tax accrues at time of retail sale.  Only appears to apply to edibles.

Retail:  

  • 9% state tax on all retail sales.  Retailer liable for tax, accrues upon purchase.
  • 4% local tax

$600 Registration for Distributors and Retailers. Expect further costs, fees, and taxes as the OCM develops rules.

Miscellaneous

Any conviction for an offense which is made legal by the bill is expunged.

Professional licenses may not be revoked for cannabis use.

NY Law Enforcement shall not cooperate with or assist federal agencies in enforcement of federal law which are inconsistent with this law, absent a court order.

Additional permit types, separate from the described licenses, will be available, including transportation permits, warehouse permits, and packaging permits.

SERVICES WE OFFER

  • Assist in all prelicensure steps, assist in application, submit application, compliance, business development
  • Incorporation:
    • S-Corp – Flat fee. Can be deducted from retainer.
    • LLC – Flat Fee. Can be deducted from retainer.
    • Incorporating yourself or through an accountant would be less expensive.  I would only advise doing this through my office if a) you are too busy; b) this is your first business entity; or c) you want to make sure it is done quickly and correctly.
    • Partnership agreements and corporate documents

  • Banking:
    • We have a relationship with local and regional banks who will accept your business and open business accounts for you, with full suite of banking services.
    • You can potentially open your own accounts with a credit union, but these are new waters for NY credit unions and you will likely face resistance once you mention your business is cannabis related
    • Nationwide banks are still unwilling to do business in the cannabis space based on federal obstacles.
    • If, in the event merchant services are unavailable through the banking relationship you have established, third party providers may be provided
    • Cryptocurrency transaction services for those interested
  • Auxiliary requirements and services
    • Tax assistance and business advisory/consultation
      • We maintain a relationship with a several cannabis friendly accounting and consultancy firms. 
      • We can also connect you with other business consultants for assistance in business planning and fundraising.
    • Ongoing accounting and bookkeeping
      • We maintain relationships with several cannabis-friendly CPAs and bookkeepers who we can refer.
    • Funding
      • We may be able to assist you to secure business funding through sourcing of private investment, private loans, and/or state program loans
  • LIMITATIONS ON NUMBER/LOCATIONS OF CLIENTS
    • The licenses are going to be HIGHLY COMPETITIVE.  I do not believe I can represent the best interest of more than a limited number of clients based on license type and geographic area, as this is going to be a zero-sum game.
    • As such, I will only be accepting ONE CLIENT working towards each license type per town/village/city, with a one-town radius if I believe based on geographic considerations that the licensees would be in direct competition (ie, as a simple example, if I accept a client working towards a retail license in Long Beach, I will not accept any clients working towards that same license in Island Park, Atlantic Beach, or Lido Beach if I believe only one such license will be granted). I may adjust this rule or make exceptions based on the geography of locations that opt-out.
    • Microbusinesses and delivery licenses are excluded from this rule; I will develop a rule regarding these applications as more information becomes available.

Please remember that this overview is not exhaustive and there are many more considerations to address dependent on license type and your specific circumstances.  Feel free to reach out to me with any questions!