Facing a $15 billion budget shortfall, Governor Andrew Cuomo is banking on a regulated adult-use marijuana program to produce much-needed tax revenue and more than 60,000 jobs for New York State. By introducing the Cannabis Regulation and Taxation Act (CRTA) as part of his FY 2022 budget, Cuomo anticipates that the tax revenue could bring in hundreds of millions of dollars over the next several years. Since the New York State Legislature must approve the budget by April, New York could see the legalization of adult-use cannabis become a reality within the next few months.

This year’s iteration of CRTA is nearly identical to last year’s proposed legislation but with these key differences:

  • Wholesale marijuana will be taxed based on THC content, and retail marijuana will have a tax rate of 10.25%.
  • Taxes collected will be earmarked for social equity purposes at the rate of $10 million in FY 2023, $20 million in FY 2024, $30 million in FY 2025, $40 million in FY 2026 and $50 million annually thereafter.
  • Certified patients in the medical marijuana program will not be able to cultivate their own medical marijuana at home.
  • There is no on-site consumption license.
  • There is no “delivery permit” for third parties to deliver adult-use cannabis to consumers.

CRTA creates the Office of Cannabis Management (OCM) to oversee the state’s medical marijuana program, adult-use program and hemp cannabinoid program. Under the direction of an Executive Director, the OCM will have its own Cannabis Control Board (the Board) comprising a chairperson and four board members to promulgate and enforce regulations for the industry. The Executive Director would have the authority to limit the number, scope and availability of licenses and permits to be issued for cannabis-related activities. In addition, the Executive Director would be required to appoint a deputy director for health and safety and a deputy director for social and economic equity.

Adult-Use Cannabis In legalizing recreational cannabis for adults 21 years of age and older, CRTA creates five license categories:

  • Cultivator license
  • Processor license
  • Cooperative license
  • Distributor license
  • Retail dispensary license.

Cultivator licensees are permitted to plant, grow, clone, harvest, dry, cure, grade and trim adult-use cannabis. Licensees also can obtain one processor’s license and one distributor’s license.

Processor licensees are permitted to blend, extract, infuse, package, label, brand and sell cannabis products to licensed distributors.

Cooperative licensees are permitted to acquire, cultivate, process or sell cannabis but will be subject to limits on canopy size and other regulations promulgated by the OCM Board on the scope of operations.

Distributor licensees are permitted to distribute and sell cannabis from a licensed processor, microbusiness cultivator or adult-use cooperative to a licensed dispensary. Distributors are expressly permitted to charge fees for distributing cannabis based on the volume of cannabis distributed.

Retail dispensary licensees are permitted to sell cannabis on their licensed premises to retail consumers. Licensees can have up to three retail locations.

Critically absent from this year’s version of CRTA is an on-site consumption license. If the legislation passes, it remains to be seen whether the OCM will promulgate rules that permit on-site consumption. Also absent is a delivery permit that would authorize third parties to deliver adult-use cannabis and cannabis products directly to consumers.

No Vertical Licensing Like New York’s Alcoholic Beverage Control Law, CRTA prohibits vertical integration, banning overlapping ownership interest across multiple license categories. For example, persons or entities holding a cultivator license are prohibited from holding a retail dispensary license and cannot have any direct or indirect interest in one.

Because New York’s existing medical marijuana program requires the 10 Registered Organizations (ROs) to be vertically integrated, they will not be grandfathered automatically into the new adult-use program. Instead, CRTA gives the Board authority to hold a competitive bidding process for ROs to determine which ones will be permitted to operate vertically in the adult-use market. Alternatively, ROs can apply for licensure as an adult-use cultivator, processor and distributor, or apply for licensure as an adult-use retail dispensary.

Equity Considerations CRTA also requires the OCM to create an economic equity plan that actively promotes racial, ethnic and gender diversity in the adult-use cannabis industry. The plan must (1) prioritize applicants who qualify as a minority, a women-owned business, a social equity applicant or a disadvantaged farmer and (2) positively impact areas that have been harmed through disproportionate enforcement of the war on drugs.

Special-Use Permits In addition to adult-use licenses, CRTA establishes various “special-use” permits for ancillary businesses, which include:

  • Nursery permit to produce clones, immature plants and seeds
  • Solicitor’s and broker’s permit to solicit cannabis orders and broker transactions for commissions
  • Trucking permit to allow for the trucking or transportation of cannabis products by a person other than an RO or licensee
  • Warehouse permit to store cannabis at a location not otherwise registered or licensed by the OCM
  • Temporary retail cannabis permit to allow for the retail sale of adult-use cannabis to consumers for a limited purpose or duration
  • Caterer’s permit to authorize the service of cannabis products at a function or event in a hotel, restaurant, club or ballroom.

Local Control Counties and cities still can prohibit adult-use licensees from operating within their borders. However, they must have 100,000 or more residents and adopt a resolution or ordinance by a majority vote of the governing body by December 31, 2021. Unlike other adult-use legislation across the country, CRTA specifically prohibits municipalities from entering into a community host agreement with adult-use licensees.

Medical Marijuana

CRTA leaves New York’s existing medical marijuana regime largely intact and permits the OCM to license additional medical marijuana providers over and above those currently operating in the state. Hospitals, nursing homes and other care facilities can register as designated caregiver facilities, permitting the facilities to possess, deliver, transport or administer medical cannabis to certified patients under their care.

CRTA also creates a “cannabis research license” that permits a licensee to produce, process, and purchase and possess cannabis for clinical studies and to research the efficacy and safety of using cannabis as part of medical treatment.

The Takeaway

The industry is cautiously optimistic that 2021 will be the year New York crosses the finish line and legalizes adult-use marijuana, given the large budget deficit combined with New Jersey’s passage of recreational marijuana. Should both New York and New Jersey pass adult-use legislation, it will surely have a ripple effect across the Northeast in states such as Connecticut, Rhode Island and Pennsylvania.

That said, progressive state legislators in New York may think that CRTA does not contain enough social justice provisions to help right the wrongs of the war on drugs. Indeed, Senator Liz Krueger (D) introduced competing legislation in early January – the Marijuana Regulation and Taxation Act – containing more-robust social justice measures. It remains to be seen whether CRTA’s inclusion of increasing dollar amounts for social justice purposes on a year-to-year basis will be enough to commence good-faith negotiations.

As CRTA moves through the state legislature, Wilson Elser’s Cannabis Law Practice will keep a close watch.