On Thursday, March 10, 2022, the New York State Cannabis Control Board (CCB) held its seventh public meeting. Through the Office of Cannabis Management’s (OCM) website, as well as a New York Times story, there were huge announcements regarding New York State adult-use cannabis.
I. Conditional Adult-Use Cultivation and Processing Licenses
The announcements followed the recent amendment to the Marijuana Regulation and Taxation Act (MRTA). The amendment added sections 68-C and 69-A. Section 68-C allows current hemp cultivation license holders holding a license as of December 31, 2021, who are in good standing with the Department of Agriculture and Markets and have grown hemp for two out of the past four years to obtain a conditional adult-use cultivation license. This conditional license would allow a cultivator to grow, process, and distribute adult-use cannabis through June 1, 2023. A cultivator would be allowed to grow up to one acre of cannabis outdoors; 25,000 square feet if grown in a greenhouse; and, if grown both outdoor and in a greenhouse, no more than 30,000 total square feet, of which no more than 20,000 square feet can be in a greenhouse. Further, the conditional license authorizes the use of only 20 or less artificial lights. Licensees would be required to participate in a social equity mentoring program as well as an environmental sustainability program.
The conditional processor license is similar to the cultivation license; however, processors would not be allowed to cultivate adult-use cannabis. Further, licensees would only be able to extract adult-use cannabis if they possessed the cannabinoid hemp processor license allowing for extracting and manufacturing. Presumably, if the hemp processor was only licensed to manufacture (i.e., add cannabinoids to products such as food and beverages), the conditional license would be limited to manufacturing. Licensees would be subject to the same mentoring and environmental sustainability program requirements as conditional cultivator licensees.
The CCB indicated that provisional license applications would open March 15, 2022, and close on June 30, 2022. If licenses are granted on a rolling basis, it would ensure that cultivators are able to plant crops and harvest within the growing season in New York State.
II. Conditional Adult-Use Retail Dispensary License
First brought to public attention by the New York Times, the OCM has proposed new regulations concerning conditional adult-use retail dispensary licenses. The regulations would allow for applicants who meet certain criteria to be the first licensed adult-use dispensaries in New York State.
1. An applicant must demonstrate:
i. A significant presence in New York State, either individually or by having a principal corporate location in the state;
ii. It is incorporated or otherwise organized under the laws of New York State; or
iii. A majority of the ownership of the applicant are residents of New York State by being physically present in the state no less than 180 calendar days during the current year or 540 calendar days over the course of three years;
2. If the applicant is an individual, or an entity with one or more individuals, at least one individual must:
i. Be justice involved, which means an individual that:
a. Was convicted of a cannabis-related offense in New York State prior to March 31, 2021; or
b. Had a parent, legal guardian, child, spouse, or dependent who was convicted of a cannabis-related offense in New York State prior to March 31, 2021; or
c. Was a dependent of an individual who was convicted of a cannabis-related offense in New York State prior to March 31, 2021;
ii. Provide evidence of the primary residence of the justice-involved individual at the time of the individual’s arrest or conviction; and
iii. Hold or have held, for a minimum of two years, at least 10 percent ownership interest in and control of a qualifying business, which means a business that had net profit for at least two of the years the business was in operation; or
3. If the applicant is a not-for-profit organization, the not-for-profit organization must:
i. Be recognized as an entity under section 501(c)(3) of the Internal Revenue Code;
ii. Intentionally serve justice-involved individuals and communities with historically high rates of arrest, conviction, incarceration, or other indicators of law-enforcement activity for cannabis-related offenses;
iii. Operate and manage a social enterprise that had at least two years of positive net assets or profit as evidenced in the organization’s tax returns;
iv. Have a history of creating vocational opportunity for justice-involved individuals;
v. Have justice-involved individuals on its board or as officers; and
vi. Have at least five full-time employees.
The above criteria sets out the minimum requirements for obtaining a license. However, the OCM will weigh the factors below when granting or denying a license:
1. If the applicant is an individual, or an entity comprised of one or more individuals, whether the justice-involved individual was themselves convicted of a cannabis-related offense;
2. The justice-involved individual’s primary residence at the time of the individual’s arrest or conviction:
i. Relative to areas with historically high rates of arrest, conviction, or incarceration for cannabis-related offenses;
ii. Relative to areas with historically low median income, or
iii. Was provided by a public housing authority in New York State or New York City; and
3. The qualifying business based on:
i. The number of employees employed by the business;
ii. The number of years the business has been in operation;
iii. The profitability of the business;
iv. The type of business and whether the business was a retail business or sold products or services directly to the end consumer;
v. Whether the business had a physical location;
vi. Whether the business received or resolved any violations, fines, or fees assessed against the business by state or federal regulatory authorities; or
4. Any other factors as determined by the OCM.
A provision in the regulations, which may give insight into how the OCM intends to distribute future adult-use retail licenses, indicates that the OCM is authorized to create regional geographic zones for the scoring of applicants. The applicants may be asked to rank their geographic preferences in order to be considered for a license. The regulations provide that where there are more applicants than available licenses, the OCM may select from eligible applicants who indicated first preference for the given region based on weighted scoring of the evaluation criteria.
It would be reasonable to infer that when full adult-use licensing becomes available for dispensaries, the availability may be limited by geographic region and further applications will be scored based on various factors with licenses issued based on an applicant’s final score.
With these recent developments, the CCB and OCM are pushing for a quick rollout of conditional licenses aimed at small business and social equity applicants to jump-start the adult-use market. The OCM stated that these initiatives “lay the foundation . . . which makes sales possible before the end of 2022, jump-starting the New York State cannabis industry and its investments into the communities most impacted by the overcriminalization of the cannabis prohibition.”
Barclay Damon’s Cannabis Team will continue to closely monitor developments pertaining to the MRTA’s rules and regulations. If you have questions about the MRTA, please contact one of Barclay Damon’s cannabis attorneys.
If you have questions regarding the content of this alert, please contact Jason Klimek, Cannabis Team co-leader, at jklimek@barclaydamon.com, or another member of the firm’s Cannabis Team.