Monday’s Cannabis Control Board meeting will be its most significant in 2022, as regulators are set to take their biggest steps to-date toward the launch of the state’s legal adult use industry.
The Board will vote to approve the first 36 conditional adult-use retail dispensary (CAURD) licenses. The first legal adult use sales in the state will take place at one of these shops, and regulators have maintained that they expect sales to start by the end of 2022. The Board is also expected to approve the first comprehensive package of proposed rules for the adult use industry (so far, only draft packaging, labeling, marketing, and advertising rules have been released).
As Cannabis Wire reported in an in-depth analysis of the adult use launch timeline, adult use sales will unfold in two phases. The first phase is for cannabis grown by small farmers who previously held hemp licenses, and for shops run by “justice-involved” individuals. The subsequent phase of the launch opens the gate to everyone else who wants to apply to be part of New York’s cannabis industry. All licenses awarded to-date, including the ones coming on Monday, are part of the first phase, which is why these licenses are called “conditional.” Licenses for everyone else will be awarded once the package of rules proposed on Monday is finalized, which will be after a 60-day public comment period, and any subsequent revisions.
There has been much discussion about the role of existing medical cannabis businesses in the state, known as Registered Organizations, which are currently serving the more than 123,000 registered New York patients. These ROs will have to pony up an initial $5 million to join the adult use industry, with other fees to follow, and ROs that want to sell adult use cannabis will have to wait three years after the first adult use sales transaction takes place.
The newly-proposed package of adult use rules is nearly 300 pages long. One noteworthy part directly addresses the rampant unlicensed cannabis sales that have taken root throughout the state and posed regulatory and legal headaches, as Cannabis Wire has reported. For example, a license may be denied if an applicant has a “history of giving away or selling cannabis or cannabis products in an unlicensed and unauthorized manner since the passage of the Act, through a brick and mortar retail store front, vehicle, or ‘membership club’ that sells cannabis or cannabis products or charges customers a membership or admittance fee, or otherwise poses as a legitimate business.”
The package lays out specific information regarding types of licenses, which must be renewed every two years: nursery, cultivator, processor, microbusiness, co-op, distributor, retail, and delivery. Within those types, there are tiers. For example, there is a tier under cultivation that allows for grows under 5,000 square feet, and there’s a tier that allows for more than 50,000 square feet. Also, the license types are specific for outdoor versus indoor, for example.
While New York does not place a limit on the number of cannabis licenses it will award, that is subject to change in the future, as the proposed rules note that “limitations may be imposed on the acceptance of licensing applications, including, but not limited to, the total number of licenses; location or authorized region of operation; size of operation or output; and operating conditions, such as sustainability, public health and safety, and social and economic equity factors.”
In addition, the proposed rules lay out the range of fees for licenses. The fees correspond not just with license type, but also tiers. For example, a Tier V indoor grower will pay a base fee of $100,000 plus $2,000 for every 500 square feet of cultivation over 50,000 square feet. Meanwhile, a Tier I indoor grower would pay a $1,750 base and then $450 for every 500 square feet.
Regulators devoted a lot of language in the proposed rules toward the prevention of consolidated control, specifically with regard to limits around “true parties of interest.” For example, no one, other than a passive investor, can be a “true party of interest” in more than three cannabis shops. The entire licensing system takes a two-tiered approach, similar to how New York regulates alcohol, which means that a cannabis retail license holder cannot hold a license in any other part of the supply chain, like cultivation and processing. (They can, however, deliver.)
The only exception to this is the existing ROs, who will be allowed to control their own supply chain from seed to sale. However, this significant advantage comes with specific fees and limits.
The proposed rules offer two paths for existing ROs: Registered Organization with Dispensing (ROD), and Registered Organization Non-Dispensing (ROND).
No matter whether or not they plan to sell adult use cannabis, RO’s must pay. There’s the aforementioned one-time $5 million fee to enter the adult use industry. In addition, there’s a fee for the first five years that is either $1 million, or “2% of all gross revenue generated by the licensee’s New York State adult-use cannabis operations,” whichever amount is less. The cultivation fee that ROs pay will depend on which tier their cultivation operation falls under. Their processing fee is a flat $75,000 and their distribution is a flat $100,000.
In addition, the ROs who choose to sell cannabis for adult use will be subject to a fee of “$100,000 per co-located retail dispensary and a one-time special license fee of $3 million per co-located adult-use retail dispensary.”
To be considered for either type of license, selling or not, ROs must be in “good standing” with the Office of Cannabis Management, within which the Cannabis Control Board sits, have four open shops that provide cannabis to patients, and show plans for environmental impacts and patient prioritization, for example.
The proposed rules for ROs that sell adult use cannabis indicate that they must “dedicate” at least 40% of the shop’s shelf space to products created by licensees that “are not” ROs (in fact, all shops must dedicate 40% of shelf space to entities that aren’t ROs for a period of five years from the first sale).
ROs cannot operate standalone adult use shops, meaning that their adult use sales must be “co-located” with medical sales, and they cannot have “more than three” co-located shops. Finally, if ROs want to co-locate more than one shop, they must “have at least one” outside of New York, Kings, Bronx, Queens, Richmond, Nassau, Suffolk, and Westchester counties, all densely populated and located in or around New York City. And, they cannot have more than one “co-located facility in the same county or borough” of any of their other licensed shops.
The proposed rules include language that applies to narrower, but still noteworthy, areas. For example, don’t expect cannabis vending machines, because they won’t be allowed to be installed either inside or outside of a retail cannabis location. Also, no mobile retail facilities, at all, including carts, cars, vans, trucks, or trailers (either cannabis or cannabinoid hemp, which would apply to CBD and delta-8 THC products).
(Unregulated mobile sales have popped up across New York City, and have concentrated in locations near tourist areas, including Times Square and Herald Square, and also near colleges and universities, like New York University.)
Regulators will consider a number of factors when considering future licensees, according to the proposed rules, which repeatedly emphasize equity. For example, license applicants will be given “extra priority” if they can show that they are from a “community disproportionately impacted by the enforcement of cannabis prohibition may receive
extra priority if they have an income lower than 80% of the median income of the county in which the applicant resides.”
The proposed rules include language around municipalities, giving them control over local laws as they pertain to the “time, place and manner of the operation” of cannabis shops and consumption lounges, as long as they’re not “unreasonably impracticable.”
The proposed rules show that shops and lounges cannot be located “on the same road or within 200 feet” of a place of worship, or on the same road or within 500 feet of school grounds.
Additionally, it’s unlikely that shops and lounges will become very densely packed in the same area, as proposed rules require that same license types of shops and lounges not be located within 1,000 feet of each other in regions with populations greater than 20,000 people (for smaller areas, with less than 20,000 population, that distance is 2,000 feet). One way to think of it is that it’s extremely unlikely that there would be two shops on the same block in New York City.
Regulators on Monday will also vote on emergency “violations, hearings, and enforcement” regulations. The regulations focus on both license holders and also unregulated sellers. For example, the emergency regulations lay out that OCM “may issue a stop work order” to anyone engaging in unlicensed sales “for which such person should have sought a license.”
“Such activity may be referred to Department of Taxation and Finance, district attorney and any
other civil or criminal investigative or enforcement agencies,” the regulations continue, adding that OCM “may seize any and all cannabis and cannabis related products and any proceeds from the sale, distribution, processing or cultivation of cannabis or cannabis products,” and OCM “may begin proceedings for debarment.”
Regulators also released, for public comment, revised packaging, labeling, marketing, and advertising regulations, which were initially released in June.
A few noteworthy changes: Previously, “attractive to individuals under twenty-one” included “any imitation of food, candy, soda, drinks, cookies, or cereal” and words like “candy” or “candies,” but now there language added in parenthesis that says “with the exception of using the name of a cultivar or, licensee, including the licensee’s doing business as name.”
Language around sponsoring events was changed to remove the requirement that a licensee “has reliable evidence that at least 90%” of its audience “is reasonably expected to be twenty-one years of age or older.”
Language was added to clarify that while a product package could not promote “price, price reductions, or any other discount, customer loyalty program, or coupon,” there is an exception for language that is “as part of an environmental sustainability program.” (For example, giving customers who reuse packaging bags a discount.)
Finally, regulators also released revised lab testing rules for consideration at Monday’s meeting,
both emergency and more broadly. They plan to approve changes of ownership for NYCANNA and Etain, two existing Registered Organizations. And, they plan to approve another 16 conditional cultivators, eight conditional processors, and three labs.
