Cannabis in NYS: License and Regulation Process Update

By Philip Bolen & Erin Bruce

New York’s long journey to legalize adult-use cannabis began in 2014, when then-Governor Cuomo signed the Compassionate Care Act into law. Though the initial program licensed just five Registered Organizations (ROs), and only to provide medical cannabis to the patients of New York State, the bill was the culmination of an effort by thousands of advocates across family, labor, and social justice labels.

Nearly a decade later, New York is on the precipice of launching a multi-billion-dollar adult-use market with regulations covering every aspect of the industry from small delivery businesses to large-scale cultivation facilities.

These regulations, which are now undergoing their public comment period, are designed to implement the Marihuana Regulation and Taxation Act (MRTA), the 2021 law that legalized adult-use cannabis and delineated the multiple license types that will be available in New York. The act also established a new agency, titled the Office of Cannabis Management (OCM) and positioned within the Division of Alcohol Control, to administer the licensing and enforcement regime for both the medical and adult-use cannabis programs.

The OCM’s driving ethos has been to prioritize social equity within New York’s adult-use cannabis industry. At every level, the State has worked to ensure that historically marginalized and overpoliced communities are integrated within the adult-use market by learning the lessons from other states’ legalization experiences that saw these groups quickly crowded out of the cannabis market.

The OCM has expanded on the text of the MRTA to create “conditional” licenses that prioritize social equity applicants. So far, three “conditional” license types exist: conditional cultivation, conditional processing, and conditional dispensaries. Conditional licensees have an head start to establish themselves in the market, and if they are successful, the OCM will automatically onboard them into the full adult-use market when the application process opens to businesses that do not meet the MRTA’s social equity criteria.

Conditional cultivation and conditional processing licenses are targeted toward small New York farms that have had proven experience growing hemp; as of December, there are over three hundred licensees who have grown the state’s first adult-use cannabis crop.

Conditional Adult-Use Retail Dispensaries, or CAURDs are part of the OCM’s program to provide justice-involved individuals additional time, assistance, and potentially loans to open the state’s first dispensaries. In conjunction with the state dormitory authority, the OCM is currently in the process of awarding 175 CAURD licenses (150 to individuals, 25 to nonprofits). The State is also working to secure some retail locations for these businesses, but a recent regulatory change allows license holders to secure their own retail space, or, if no viable retail space is available, allows them to deliver cannabis out of warehouses. The first legal sale took place on December 29th in a location operated by Housing Works, a nonprofit in New York City.

The CAURD licensing portal opened on August 25th, 2022. Applicants that qualified to apply for the CAURD licenses were given one month to submit applications on the New York State Business Express. The initial application consisted of a Financial Disclosure portion in which applicants shared their anticipated costs related to opening a dispensary and how this was being funded, True Party forms detailing the personal history of all individuals that would be qualified on the dispensary license, required proof the proposed applicant entity was registered to do business in New York State, along with other information relating to the applicant’s ideal region to operate within and information about the applicant entity’s history as a business. The initial round of application for dispensaries also required the submission of evidence that the applicant entity qualified to apply for the CAURD license. The licensing fee was $2,000.00, which was paid to the OCM by check.

While the conditional licensees have operated within their own regulatory framework, the OCM published 282 pages of regulations in November of 2022 that will regulate all other businesses to come. Beyond the original categories in the MRTA, there are several instances where the OCM has added licensing “tiers” that create new and potentially exciting opportunities for potential applicants.

The regulations establish how the following nine category types will operate: nursery, cultivation, processing, distribution, delivery, dispensary, on-site consumption, microbusiness, and cooperative. Within those, there are further license types. For instance, an adult-use cultivator will hold one of four license types, determined by canopy size. There is flexibility to move up and down among the tiers within the same license category, with changes based off on sales made in a six-month period.

One license type that has had a lot of excitement around it has been microbusinesses. Given the thriving nature of New York’s craft brewing industry, the hope has been that microbusiness can fill a similar niche in the adult-use cannabis market. Microbusiness licenses allow small farmers and social equity applicants to create hyper-local operations that highlight expertise and innovation at every step from farm to final product. To that end, the microbusiness regulations allow for a unique mix-and-match approach of operations; beyond choosing among several canopy types, a microbusiness can also choose to process their own product or sell it, sell to a distributor, or sell to consumers on site or via delivery.

The public comment period is open through February 13th. Stakeholders across the industry should weigh in with what they see as successes and hindrances in the current draft of the regulations. The OCM has a lot of work ahead in order to set up a thriving, legal market, and the state legislature will have to move quickly during the current session to assist the OCM in implementing thoughtful enforcement toward the thousands of illicit shops statewide. With the necessary education to the public and hard work by officials, New York can inaugurate an inclusive, expansive adult-use cannabis market that leads the way for the rest of the country.