When it comes to the cannabis legalization push in New York, will the third time be the charm?
New York Governor Andrew Cuomo said during his State of the State speech last week, “We will legalize adult use recreational cannabis, joining 15 other states who have already done so. This will raise revenue and will end the over-criminalization of this product that has left so many communities of color over-policed and over-incarcerated.”
Cuomo has made it clear for weeks he would propose legalization again by budget, and lawmakers have again introduced their own bill. But whether legalization makes it over the finish line this year comes down to the details, and whether the parties can compromise on policy areas that proved to be sticking points in 2019 and 2020, from revenue allocation to equity.
On Tuesday, Cuomo’s fiscal year 2022 budget legislation was released, and so, too, were some of those critical details.
The budget plan, as expected, includes the Cannabis Regulation and Taxation Act. Cuomo said during his budget address on Tuesday that legal adult use cannabis could generate $350 million for the state. New York’s budget, like many states, has been battered by the COVID-19 pandemic, and lawmakers will have to wrestle with a $15 billion shortfall.
The budget proposes taxing cannabis at three levels: a wholesale tax based on the THC concentration of the product (for example, flower products would be taxed at .7 cents per milligram of THC, whereas concentrates would be taxed 1 cent per milligram and edibles would be 4 cents per milligram of THC); a sales tax at a rate of 10.25% of the final retail sale price; plus state and local taxes.
In a departure from previous proposals put forth by Cuomo, equity provisions are earmarked in the budget. In the past, a major point of disagreement between Cuomo and key lawmakers was his decision to put cannabis tax revenue into a general fund, and Senator Liz Krueger, a lead sponsor of lawmakers’ legalization bill last year, recently told Cannabis Wire that she and her Assembly counterpart Majority Leader Crystal Peoples-Stokes would not support a proposal that again takes this approach.
The following portions of revenue generated from the THC taxes, retail surcharges, a fees would go toward “social equity purposes”: in fiscal year 2023, the first $10 million; the following year, the first $20 million; in fiscal year 2025, first $30 million; in fiscal year 2026, the first $40 million; and in every year thereafter, the first $50 million. Remaining funds would go toward a new New York State Cannabis Revenue Fund.
The budget proposes the creation of the Office of Cannabis Management to “centralize” the regulation of the existing medical cannabis and industrial hemp programs along with the new adult use program. The budget also proposes that this office would oversee the expansion of the state’s medical cannabis program; to-date, only 10 medical cannabis licenses have been awarded, and those licenses are vertically integrated, meaning those businesses oversee everything from cultivation to sale. The OCM would exist within the Division of Alcohol Beverage Control, and the governor would select the five members of the OCM’s Cannabis Control Board. This Board craft and enforce regulations, and create and award licenses, among other responsibilities.
Here are some other key details:
Licensing: The bill creates licenses for “the cultivation, processing, manufacturing, distribution and sale of cannabis products for adults over 21 years of age.” (The bill also allows for “microbusiness” and “cooperative” licenses.)
And, “in general, the model prohibits vertical integration,” which, in the case of this bill, means that a person who seeks to hold a retail license cannot hold any other license type. (A person who wants to hold, say, a cultivation license and a processing licenses could do so; and a person could hold up to three retail licenses.)
There is one possible exception for existing medical cannabis licensees. The bill notes that the Board could, for this group, “hold a competitive bidding process, including in its discretion the ability to set price by an auction” and that the Board “may permit such bidders to continue to participate in adult-use cannabis as a vertically integrated entity if such a competitive process permits.” (Of note: the “fees generated from such auction” could be used “to administer the office’s social and economic equity plan and other duties.”)
While the bill does not explicitly create licenses for on-site consumption spaces, which exist in some other adult use states, it does allow for a “caterer’s permit” which would “authorize the service of cannabis products at a function, occasion or event in a hotel, restaurant, club, ballroom or other premises, which shall authorize within the hours fixed by the office, during which cannabis may lawfully be sold or served on the premises in which such function, occasion or event is held.”
The bill is also open-ended about the types of licenses it would create, clearly noting, at the end of its list of license types that will be issued, “…and any other type of license as prescribed by the executive director in regulation.”
And, finally, adult use licensees will, like medical cannabis licensees, be required to enter into labor peace agreements.
Equity: When it comes to licensing, the bill would allow “a social and economic equity applicant” to have “priority in submission and review for adult-use cannabis licenses,” “priority in specific classes or categories of adult-use cannabis licenses,” and “reduced or deferred fees for adult-use cannabis applications and/or licenses.”
Broadly, as the memo to the bill puts it, the bill would “establish a robust social and economic equity program to actively encourage members of communities who have been disproportionally [SIC] impacted by the policies of cannabis prohibition to participate in the new industry through the implementation of a social and economic equity plan – providing technical assistance, training, loans and mentoring to qualified social and economic equity applicants.”
Local control: The bill would allow cities and counties with 100,000 or more residents to opt out of allowing cannabis businesses if they pass “a local law, ordinance or resolution by a majority vote of its governing body.” However, an opt-out must be done by January 1, 2022. Further, the bill is clear that any such county “law, ordinance or resolution passed … shall not apply to a city that has a population of one hundred thousand or more residents and that is geographically located within the county unless such a prohibition is also adopted by a majority vote of the city’s governing body.” (In other words, a large city that wants legal cannabis, and that is located within a large county that does not want cannabis, is not compelled to go with the county’s approach.)
Collaboration with other states: Cuomo previously called for a regional approach to cannabis legalization and regulation, and the state’s top cannabis regulator, Norman Birenbaum, for years led a group of cannabis regulators that recently formalized as the Cannabis Regulators Association.
So it’s no surprise that the bill, for example, calls for the state’s cannabis regulators and the DMV to “develop and implement a workgroup together with other states to outline goals and standard operating procedures for a statewide or regional oral fluid or other roadside detection pilot program.”
It also calls for engagement “with other states, territories, or jurisdictions in order to coordinate and establish, uniform policies and best practices in cannabis regulation. These activities shall prioritize coordination with neighboring and regional states, and may include, but not be limited to establish working groups related to laboratory testing, products safety, taxation, road safety, compliance and adherence with federal policies which promote or facilitate cannabis research, commerce and/or regulation, and any other issues identified by the executive director.”
(This story has been updated to include additional details from the full budget legislation.)