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January 27, 2020

New York's Proposed Cannabis Regulation and Taxation Act

As part of the FY2021 executive budget proposal, New York State seeks to become the 12th state to end the prohibition of adult-use cannabis. Passing the Cannabis Regulation & Taxation Act would create a framework for state-legal sales of adult-use cannabis products to individuals who are at least 21 years old. After Illinois, New York could become the second state to do so by legislative enactment rather than a ballot initiative.

The new cannabis law would address several overarching policy goals, including addressing social disparities of criminal enforcement. For instance, past convictions for certain cannabis offenses could be re-designated, sealed, or vacated entirely. Other policy goals include protecting public health, safety, and welfare; ensuring affordable access to medical cannabis; displacing illicit markets; tempering consumption; and promoting social and economic equality.

Those goals would be pursued by a newly minted Office of Cannabis Management (OCM), an independent office within the Division of Alcoholic Beverage Control. Acting through an executive director and a cannabis control board, the OCM would license and regulate entities marketing adult-use cannabis, medical cannabis, and cannabinoid hemp. The OCM would also develop a public health education campaign, establish standards and penalties, and issue guidance for cultivation, processing, packaging, marketing, and sales.

The OCM’s exclusive jurisdiction over cannabis has three notable limitations––all concerning hemp. First, the OCM’s jurisdiction wouldn’t extend to hemp products that are not intended for human consumption. Second, the OCM wouldn’t regulate hemp derivatives that are generally recognized as safe (GRAS) under federal law (as the US Food & Drug Administration has done for hemp seed, hemp seed proteins, and hemp seed oil). Finally, the Department of Agriculture & Markets would retain its current authority over hemp cultivation.

The processing stage is the starting point of the OCM’s authority over hemp and hemp products intended for the human consumption of cannabinoids. This would be another transference of hemp-processing authority, whereas recent chapter law amendments shifted hemp-processing regulation from the Department of Agriculture & Markets to the Department of Health (DOH). The OCM would set standards and grades for cannabinoid hemp products being sold by specially licensed retailers. Those products would be manufactured, packaged, and labeled by licensed processors according to the FDA’s current Good Manufacturing Practices (cGMP) for dietary supplements.

In another shift of authority from the state DOH, the OCM would take over and expand New York State’s existing medical cannabis program. In addition to regulating certified patients, caregivers, practitioners, and registered organizations (ROs), the OCM could issue special licenses to research cannabis genomics and agriculture, to study medical cannabis efficacy and safety, and to conduct clinical investigations. Furthering the policy goal of affordable access to medical cannabis, certified patients and caregivers could apply to home grow up to four plants, subject to restrictions and conditions that include plant tracking and inspections.

The cannabis law would also open the door to adult-use cannabis markets. Adult-use licensees could cultivate, process, and distribute cannabis; become licensed as a cooperative; or become licensed for retail and on-site consumption. To promote diversity among adult-use operators, the OCM would implement a social equity plan that prioritizes applicants from communities disproportionately impacted by cannabis prohibition as well as minority- and women-owned businesses and certain disadvantaged farmers.

Adult-use market participants would register with the Department of Taxation and Finance and would be required to report monthly and pay three monthly taxes. The first two taxes are a cultivation tax on purchases of dry cannabis flower ($1.00/gram), cannabis trim ($0.25/gram), and wet cannabis ($0.14/gram) and a retail tax of 20 percent of the price of cannabis products sold to retail dispensaries. Those two taxes would go into a state cannabis revenue fund to finance program administration, the social equity plan, traffic safety, research, and public health aims such as mental health and substance abuse intervention.

A third tax of 2 percent on a dispensary’s purchase of inventory would be held in trust for the retailer’s home county (or city with a population of at least 1,000,000). Counties (and cities with populations of at least 100,000) that prohibit retail establishments within their borders would effectively send tax-generating sales to neighboring counties that lack a blanket prohibition. Those localities would have some space to impose reasonable regulations on the hours of operation and location of retail businesses.

The vast scope of the legislation would effectuate conforming and myriad changes to other NYS laws such as Alcoholic Beverage, Criminal Procedure, General Business, General Obligations, Penal, Public Health, Social Services, State Finance, and Vehicle & Traffic. With an April 1 deadline to enact the executive budget, the end of cannabis prohibition in New York State could arrive soon.

If you have questions regarding the content of this alert, please contact Aleece Burgio, cannabis team leader, at aburgio@barclaydamon.com; John Nichols, counsel, at jnichols@barclaydamon.com; Mary Volcko, project specialist, at mvolcko@barclaydamon.com; or another member of the firm’s Cannabis Team

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