Officials are preparing to launch New York’s adult-use market and setting a social equity gold standard. Photo Credit: iStock.
On March 10th, New York Gov. Kathy Hochul announced the Seeding Opportunity Initiative. The initiative will allow those with prior cannabis-related criminal offenses to make the first adult-use cannabis sales with products grown by New York farmers.
This initiative makes cannabis sales in New York possible by the end of the year. It also kickstarts New York’s recreational cannabis industry; grants support for future equity applicants; and ensures early investment into communities most impacted by cannabis prohibition, according to a press release from the Governor’s office.
“New York State is making history, launching a first-of-its-kind approach to the cannabis industry that takes a major step forward in righting the wrongs of the past,” Hochul said. “The regulations advanced by the Cannabis Control Board today will prioritize local farmers and entrepreneurs, creating jobs and opportunity for communities that have been left out and left behind. I’m proud New York will be a national model for the safe, equitable and inclusive industry we are now building.”
The announcement comes nearly a year after the state passed the Marijuana Regulation and Taxation Act (MRTA). The MRTA legalized the use of cannabis for adults age 21 years or older. Adults may possess/buy 3 ounces of flower and 24 grams of concentrates at licensed dispensaries by the end of 2022.
Social Equity for Those Convicted of Cannabis Crimes
As part of the Seeding Opportunity Initiative, individuals with a prior cannabis-related criminal offense that also have a background owning and operating a small business will be the first to open and make sales in New York.
The initiative will allow these individuals, known as justice-involved individuals, to apply for a Conditional Adult-Use Retail Dispensary License. This effectively establishes equity-owned businesses at the front-end of the state’s adult-use market.
New York City-based cannabis industry lawyer Jeffrey Schultz explained that a justice-involved individual “is the person who either has a cannabis conviction or has an immediate family member with one.”
The Office of Cannabis Management (OCM) licenses cultivators, processors, distributors, and dispensaries to grow and sell cannabis in New York. According to the OCM, qualifying individuals must have had the cannabis offense prior to the passage of the MRTA on March 31st, 2021. They also must have experience owning and operating a qualifying business in the state.
Schultz further explained that these individuals need 51% ownership of the business and show that they were the owner-operator. “The way that the OCM has articulated that is an individual who owns at least 10% equity and controls a company that has shown a net profit in two years.”
Putting Farmers First
The initiative also includes the Farmers First Program. This program provides an Adult-Use Conditional Cultivator License to eligible New York hemp farmers. This allows hemp farmers the first chance to grow cannabis prior to the opening of New York’s adult-use market as part of the 2022 growing season.
On February 22nd, 2022, Hochul signed into law S.8084-A. The bill created the new Adult-Use Conditional Cultivator and Conditional Adult-Use Processor licenses. Hemp growers and processors who the Department of Agriculture and Market’s Cannabinoid Hemp Program authorizes can apply for these licenses.
With the Adult-Use Conditional Cultivator license, hemp farmers can grow cannabis containing over 0.3% THC for the upcoming adult-use market. The license allows growers to cultivate up to 25,000 square feet of cannabis.
To apply, processors must have applied for a Cannabinoid Hemp Processor License before January 1st, 2022; they must also hold an OCM-approved license.
Hemp farmers like Sarah Stenuf, the director and founder of Veteran’s Ananda are taking advantage of the Adult-Use Cultivator Licenses. Her non-profit organization provides free care support and rehabilitation to veterans and first responders through the use of hemp.
Stenuf, a hemp cultivator herself, explained, “this [initiative] allows us preexisting hemp farmers the opportunity to cultivate and have limited processing and distribution under this cultivating license,” she said. “We could sell to medical marijuana dispensaries or other processors and then eventually these retailers.”
Licensing and Taxation
Officials will reserve the first 100-200 retail licenses for social equity applicants or those disproportionately affected by cannabis prohibition. New York’s goal is to award 50% of all licenses to such applicants.
The application window for the conditional cultivator license is March 15th, 2022 – June 30th, 2022.
Applications for retail licenses will open in the Summer of 2022. The first licenses are expected to be distributed by late summer or early fall 2022.
In terms of taxes, the MRTA establishes three taxes on adult-use cannabis based on product form. Those include edibles, concentrates and flower.
State officials will impose a tax at the distributor tier based on the milligrams of THC in the cannabis product. For example, edibles (e.g. food and beverages) are taxed at $0.03 per mg of THC; concentrates (e.g. vaporization oil, wax, shatter, and resin) are taxed at $0.008 per mg of THC; and cannabis flower (e.g. loose flower, pre-rolls, or shake) are taxed at $.005 per mg THC, according to the OCM.
There are also taxes on retail sales to customers, a 9% state excise tax, and a 4% local excise tax. These taxes do not apply to medical cannabis.
Helping Businesses Enter the Cannabis Market
To help businesses enter the adult-use market, Hochul proposed The New York Social Equity Cannabis Investment Program. This $200 million program will be the nation’s first to make funding available for social equity entrepreneurs in the adult-use market.
Through the program, licensing fees and investors financing cannabis businesses support the development of dispensaries for entrepreneurs with a Conditional Adult-Use Retail Dispensary License. Further, The Dormitory Authority of the State of New York (DASNY) will provide leasing and construction services to site dispensaries at prime locations and renovate them to meet health, safety, and security requirements.
New York City-based cannabis law and business attorney, David Holland, explained that the program’s funding and accompanying services would reduce barriers to entering the industry.
“They are going to possibly construct and use a few hundred million dollar funds in public-private investing to actually build facilities for people that are in social equity so that they don’t have to go out and spend the millions of dollars finding a raw space, converting it, and everything else,” he said.
Holland further emphasized that the state can help creating a pathway for those in the illegal cannabis market.
“I think it [the MRTA] can be not only the most progressive but actually the best law out there if they’re able to find a pathway for the people they’re supposed to be prioritizing if they came up with what’s called an amnesty program.”
Through an amnesty program, he told Emerald, officials can give those in the illegal market a provisional license to sell cannabis. This would prevent the illegal market from competing with the legal one.
Roadblocks to Entering the Adult-Use Market
One major roadblock for eager entrepreneurs entering the market is municipalities opting out of retail cannabis sales.
The MRTA gave individual municipalities until December 31st, 2021 to opt out of hosting retail locations and cannabis consumption lounges. In November, the OCM opened a web-based portal to help localities file their requests.
While they can prohibit retail cannabis businesses and consumption lounges, Holland said they cannot prevent people from growing cannabis.
“They [municipalities] can’t like California in the beginning, as a community could opt out of every aspect of the industry,” he added. “New York prevented that from happening so that people can still be a grower in a community that otherwise don’t allow retail sales.”
Schultz also added that finding a bank that will finance a cannabis business is a challenge in New York State.
“For example, in New York, I am a lawyer who works at the crossroads of finance and cannabis. I’m only aware of two banks in the state of New York that will bank [with] a licensed operator,” he said.
Despite such challenges, New York is expected to set the “gold standard” for social equity in the nation’s cannabis industry, according to the New York Drug Policy Alliance.