As New York inches closer to going live with its adult use cannabis program (key position in the Office of Cannabis Management have been filled and confirmed), those exploring to enter this market should focus their attention on real estate. While the Marijuana Regulation and Taxation Act (MRTA) is sparse on details with respect to real estate, and the applicable regulations have yet to be promulgated, the need for good compliant real estate is inevitable, regardless of whether site control will be required as part of the application process. As such, we thought it important to provide a high level primer on real estate considerations.
To obtain a cannabis license in what is certainly going to be an incredibly competitive process, applicants must have a significant presence in New York State, either individually or by having a principle corporate location in this state. This means applicant entities need to either be incorporated or otherwise organized under the laws of New York State or a majority of the ownership are residents of the state.
With respect to retail dispensary licenses, the MRTA requires possession of the premises within 30 days of final approval for the license. Further, with the exception of delivery or microbusiness licensees, the cannabis premises shall be located in a store, the principal entrance to which has to be at the street level and located on a public thoroughfare in premises which may be occupied, operated or conducted for business, trade or industry. Note that no cannabis dispensary can be located within 500 feet of a school or within 200 feet of a house of worship.
It is also important to know that a town, city, or village is permitted to adopt a local law that essentially allows it to opt-out from retail dispensaries and/or on-site consumption lounges within the jurisdiction. Note that this ability to opt-out does not apply to cultivation. The municipalities must enact the opt-out law by December 31, 2021. After such date, the municipalities are not permitted to enact an opt-out law. However, a town, city, or village that enacts an opt-out law is permitted to enact a local law repealing such opt-out law after December 31, 2021.
Lastly, the MRTA required that a cannabis license applicant notify the municipality in which it intends to locate of its intent to file such an application. Notice is provided to a village, town, or city clerk. That municipality then has the right to express an opinion for or against the granting of a license to the applicant.
With all of this in mind, make no mistake that the race to identify and lease suitable NYC real estate has begun. Indeed, specialty brokers are already forming and working the cannabis space. The MRTA’s setback requirements from schools and churches can have a significant impact on available compliant real estate. In Manhattan for example, particularly in the area north of 14th Street and south of 96th Street, this eliminates huge swathes of desirable retail space in high traffic, high income neighborhoods. The limited number of semi-prebuilt spaces make the search in Manhattan more of a challenge with a significant cost (both rental and build-out) as well. There is also the consideration of whether a landlord can and is willing to engage with a cannabis business, which remains illegal under federal law. So, while having site control may not be required as part of a cannabis license application, practically speaking it may be necessary, at least in places like Manhattan.
For those pursuing other opportunities, such as Long Island, including Queens and parts of Brooklyn, as well as Westchester, identifying suitable spaces, particularly those in strip malls or small office buildings may be relatively straightforward. In these areas, with many vacant or partly vacant strip malls and small office complexes, the race may be among the towns and villages trying to position themselves to take advantage of the potential tax revenues, maybe as much as 20% of the cost of the product. Prospective applicants should take advantage of this unique economic moment in real estate and position themselves now to meet with local stakeholders in towns and villages to adopt “cannabis friendly” zoning regulations.