Last month New York became the 16th state to legalize cannabis use for adults 21 and older under the State’s Marihuana Regulation and Taxation Act (MRTA). In addition to legalizing recreational cannabis, the MRTA expands the State’s current medical cannabis program. While the Act leaves most of the specifics to be sorted out through rulemaking by the newly formed Office of Cannabis Management, it lays out the basic framework for the State’s new recreational market. Here is an overview.
The MRTA authorizes 11 license types, including two types for existing medical operators in the State. Notably, the licensing scheme effectively prohibits vertical integration among recreational operators and limits the number of licenses any individual or entity can own. Holders of adult-use cultivation, distribution or processing licenses are prohibited from also holding a retail dispensary license and each license holder will be limited to one processor or cultivation license, although the Act contemplates a single license can authorize processing or cultivation at multiple sites. The Act also puts a cap on retail dispensary licenses at three per person or entity.
Excepted from the general prohibition on vertical integration are Microbusiness licensees – which will be allowed to cultivate, process, distribute and sell on a limited scale to be determined – and existing medical operators. It is not surprising that the existing medical operators are grandfathered into the recreational market with such a windfall, but they will be limited to operating up to three adult-use dispensaries, among other restrictions.
The Act does not indicate a timeline for when license applications will be released or when licenses will be awarded—the general sentiment seems to be that it will be no earlier than mid-2022.
It is evident that the MRTA was designed with social equity in mind. The Act includes a stated goal to award 50% of adult-use licenses to social and economic equity applicants, which include: individuals from communities disproportionately impacted by cannabis prohibition, minority-owned businesses, women-owned businesses, distressed farmers and service-disabled veterans. Importantly, licenses issued to social equity applicants may not be transferred or sold within the first three years of issuance without prior approval from the Cannabis Control Board, which will oversee the Office of Cannabis Management. The Cannabis Control Board is charged with implementing a social and economic equity plan and creating an incubator program that will provide applicants and licensees with counseling services, education, small business coaching and compliance assistance.
Labor also has a place under the Act. In order to receive a license an applicant must demonstrate that it has entered into a labor peace agreement with a bona-fide labor organization and must subsequently demonstrate that it is still party to such agreement to have its license renewed. Further, municipalities may opt out of adult-use retail dispensaries or on-site consumption spaces, but must do so by December 31, 2021.
While much of the success of New York’s recreational market will depend on the details in the yet-to-be promulgated regulations, this is New York—the place where millions of small businesses survive and thrive. It is clear that the framework in the MRTA is a conscious reflection of that culture with the intent to foster it.
We will be following New York closely as regulations are promulgated and the application process comes into focus. Follow our blog if you are interested in seeking licenses in New York and to stay abreast of what is happening in the cannabis industry.