New York Legalizes Cannabis: An Overview of the MRTA

By: Allen Abraham, Esq. and Jessica M. Moore, Esq. 

Introduction

On March 31, 2021 Governor Cuomo signed into law the Marihuana Regulation and Taxation Act (“MRTA”), which decriminalized the possession of marijuana and legalized the possession, growth, and sale of cannabis in New York State, including for recreational purposes.

In some respects, the law goes into immediate effect, including: immediately allowing possession of 3 ounces of cannabis for personal use, and immediately expunging certain marijuana related criminal offenses. Other parts of the law are expected to be implemented over the next twelve to twenty four months, including: allowing individuals over the age of 21 to purchase and consume cannabis and cannabis-products at retail dispensaries, and the implementation of a business licensing scheme which will allow for growing, processing, distributing, and selling cannabis products throughout New York State.

In terms of cannabis sales, the legislation divides the cannabis market into three distinct segments in New York. First is adult-use cannabis, otherwise known as recreational marijuana. Next, is medicinal cannabis, which was legal prior to the passage of this legislation and will now be expanded. Third, cannabinoid (“CBD”) and hemp products.

Licensing of Recreational Cannabis in New York

The MRTA establishes a series of licenses that will allow for the growth, processing, distribution, and sale of adult-use cannabis in New York State. The MRTA prohibits vertical integration for licensees (except micro-businesses, and the Registered Organizations currently operating in the Medical program), in order to prevent the retail sector from being controlled by larger cannabis producers. The goal here is apparently to follow the tiered structure seen in New York’s alcohol market, which separates manufacturing, from wholesaling, and from retailing.

To apply, an Applicant must have a “significant presence” in the state; be incorporated or organized under the laws of the state; or have a corporate structure where a majority of the owners are residents of the state. Further requirements for the license applications will be developed by a five-member New York Cannabis Control Board (the “Board”) once the board is established under the Office of Cannabis Management (the “OCM”).

However, at a minimum applications for licenses may include questions regarding the “applicant’s identity, including racial and ethnic diversity; ownership and investment information, including the corporate structure; evidence of good moral character, including the submission of fingerprints by the applicant to the division of criminal justice services; information about the premises to be licensed; and financial statements.” One of the main purposes of the legislation is to assist communities and individuals that were harmed as a result cannabis prohibition in the state. As such, the Board will utilize the demographic information from applicants to ensure that Social and Economic Equity Applicants have access to approximately 50% of all licenses offered by the state.

The Board has the authority to charge licensees’ a biennial fee based on the amount of cannabis that is “cultivated, process, distributed and/or dispensed” or based on the gross annual receipts. The Board has to waive or reduce these fees for Social and Economic Equity Applicants.

The Board will develop regulations to determine whether or not an applicant should be granted a license. Some factors the Board has to consider include:

• Whether the applicant entered into a labor peace agreement with a labor organization to represent the applicant’s employee;
• Whether the applicant proposes a plan to benefit communities and people disproportionally impacted by enforcement of cannabis laws; and
• The number of licenses already issued in a certain area.

Social and Economic Equity Applicants

Social and Economic Equity Applicants fit within a set of specific racial, ethnic, and gender criteria. To be considered a social and economic equity applicant, the applicant must be from a community disproportionally impacted by enforcement of cannabis prohibition, a minority-owned business, a woman-owned business, a disadvantaged farmer, or a service-disabled veteran.

A minority-owned business is a business that is owned by at least 51% minority members, is authorized to do business in this state, independently owned and operated, and a small business. A minority group member “shall mean a United States citizen or permanent resident alien who is and can demonstrate membership in the following groups… black…Hispanic…Native Americans… Asian and Pacific Islander.” Similarly, a woman-owned business follows the same criteria as a minority-owned business, except that it must be owned 51% by a woman. A business can also be a minority-women-owned business, but it is up to the applicant to determine whether she would like to categorize it as such. Both minority and woman owned businesses can include a sole proprietorship, partnership, limited liability company, or corporation.

A disadvantaged farmer under the social and economic equity plan includes include a sole proprietorship, partnership, limited liability company, or corporation that farms in a county with a rate of poverty is greater than 10% or has been disproportionately impacted by low prices or loss of farmland (with the Board having discretion to further define this category). In assessing whether an applicant shall be issued a license under the social and economic equity plan, extra priority will be given to applicants that are members of communities that were disproportionately impacted by the enforcement of cannabis prohibition, who have income lower than 80% of the county where the applicant resides, and were convicted of marijuana related offenses, or had a parent, guardian, dependent, or spouse convicted of a marijuana related offense.

For social and economic equity plan participants, licenses cannot be transferred or sold within the first three years of issue except to another social or economic equity applicant with prior written approval of the board. After the three-year period, if social and economic equity applicant wants to transfer or sell its license, the Board, as a condition of the sale or transfer may require the license holder to pay the Board any outstanding amount owed on loans rendered to the licensee by the Board.

As a member of the social and economic equity program, applicants and ultimately licensees will obtain counseling, education, small business coaching, and compliance assistance from the state to assist in the growth and development of an adult-use cannabis business.

The Board is further authorized to give extra priority to an applicant who is member of a “community disproportionately impacted by the enforcement of cannabis prohibition”, has an income lower than eighty percent of the median income in the county where the applicant resides, and was convicted or is related to someone convicted of marijuana related offenses.

Adult-Use Retail Dispensary License

Adult-use retail dispensaries allow licensees to sell cannabis and cannabis products to retail consumers over the age of 21. A retail dispensary licensee may not hold more than three licenses and cannot hold or have an interest in another of cultivation, processing, microbusiness of cooperative license while maintaining a retail dispensary license. Prior to approval, the licensee must demonstrate to the Board that the licensee has possession of the premises that will operate as a dispensary or that the licensee will have possession within 30 days of approval of the license. The only statutory limitation to the location of a retail dispensary is that it cannot be within 500 feet of a school or within 200 feet of a house of worship. Furthermore, the premises must be located in a store, that is accessible from the street level and is located in an area occupied by other business, trade, or industry.

Dispensaries cannot sell alcohol, nor can the licensee have a license or permit to serve alcohol on the premise. Gambling and use or sale of other illicit drugs is prohibited. Employees of dispensaries must check customer IDs for each transaction and can scan the ID when applicable. Sales to those under 21 or visibility intoxicated or impaired are prohibited. Further, if an employee or licensee knows or reasonably should know that a customer is re-selling cannabis or cannabis products that customer must be refused sale. Both within and outside the retail store, branding and or advertising of cannabis or cannabis products is prohibited. But, within the store, the licensee is required to display prices of products either attached to or immediately adjacent to the item displayed. The Board will establish guidelines for the regulation of hours, the size and location of dispensaries (outside of the regulations set out in the MRTA), and the margin for markup that can be charged by the dispensary.

Municipality Opt-Out

Between 30 and 270 days before applying for an adult-use retail dispensary or on-site consumption license, the applicant is required to notify the municipality in which the dispensary will be located of the applicant’s intent to file. Notification is required to the lowest level of government. For example, if the applicant seeks a license in the Village of Valley Stream, the applicant is only required notify to the clerk of the village, despite the fact that the Village of Valley Stream is located in the Town of Hempstead, in the County of Nassau. However, if an applicant seeks a license within New York City, the applicant must notify its New York City Community Board.

The municipality’s recommendation for or against the license will be part of the record the Board uses to make its final determination, but the recommendation may not be determinative. The Board is required to explain to the applicant how the opinion was considered in rendering its decision.

Adult-Use On-Site Consumption License

A unique provision of the MRTA allows for the establishment of an area licensed for the on-site consumption of cannabis. In essence, holders of an on-site consumption license can run marijuana “bars” (but cannot sell alcohol, nor permit gambling). A license is granted for a term of 2 years, after which the licensee can renew their application. Each licensee is limited to a maximum of three licenses of this kind and the licensee cannot hold a direct, or indirect financial or controlling interest in any other type of license. Prior to seeking a license, the proposed licensee must be in control of, or imminently be in control of the premises where the on-site consumption will be held. In determining whether to grant an on-site consumption license, the Board will assess the following factors:

• The privilege of holding such a license;
• The number, classes, and character of other licenses in the same municipality as the proposed on-site consumption license;
• Evidence that all other necessary licenses and permits have been obtained;
• Whether there is a need for a space to consume cannabis;
• Effect of license on pedestrian or vehicular traffic and parking near the location;
• Existing noise level and any alleged increase in noise levels; and
• Other factors the Board may establish to promote the public.

The premises containing the on-site consumption area cannot have an opening or passageway allowing patrons to freely pass from the consumption site, to another area. The only adult-use cannabis that can be purchased and consumed at an on-site consumption site must be purchased from a distributor, cooperative or microbusiness in a container authorized by the board. Further, on-site consumption sites will be limited in the quantity of cannabis that can be sold per consumer. Licensees must keep detailed records of all transactions including what licensees the cannabis and/or cannabis products were purchased from and the sale of cannabis and/or cannabis products to customers.

Licenses, Renewal, Changes

Licenses under the MRTA expire two years after the date they are issued, but the licensee can renew their license. in the process of renewal, the applicant must submit to the Board (i) the racial, ethnic, and gender diversity of applicant’s employees and owners; (ii) agree to adhere to the social responsibility framework agreement to be rendered by the board; (iii) have a labor peace agreement with a bona fide labor organization; and (iv) show evidence of plan benefitting communities.

Changes to Medical Cannabis Laws in New York

Existing medical Registered Organizations (“RO”) will be allowed to enter the recreational cannabis market in two ways, including potentially vertical integration.  The RO’s may have up to 3 (adult-use and medical) retail locations of their own and can also distribute their products to other retail dispensaries. The RO’s can also obtain a license that will enable distribution, cultivation and processing of their own products.  In exchange for vertical distribution, RO’s are required to maintain efforts in the medicinal marketplace.

The scope of the Medical eligibility for patients will also be expanded, by expanding the list of eligible medical conditions. Additionally, the MRTA allows medical cannabis to be grown outdoors, expands possession limits to a 60-day supply, creates the ability for facilities to administer medicinal cannabis to patients or residents, and removes a restriction on “smoking” medical cannabis and increases product selection. Lastly, the MRTA allows medical patients to “home grow” within 5 months of the enactment of the bill.

Changes to CBD and Hemp Regulations in New York

New York’s Cannabinoid hemp program, created in 2019, will now be managed by OCM. The MRTA allows for the sale of cannabis hemp flower products, and contemplates that products meant to be smoked could be sold at adult-use cannabis dispensaries.

Conclusion

New York has successfully passed cannabis legislation, which in some respects takes immediate effect. However, in several significant areas, the MRTA is just the beginning, and further enabling regulations must be issued before applicants will be able to obtain licenses and begin a recreational cannabis business. As always, those interested in entering the recreational cannabis market should keep close track of these laws as they continue to develop and begin assembling a team and devising a strategy that will allow them to succeed in New York's new potential legal cannabis market.

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