Two years after legalization, New York’s adult use cannabis industry is at a critical juncture.
The state’s cannabis regulators have given “justice-involved” licensees, called Conditional Adult Use Retail Dispensary license holders, or CAURDs, a head start in opening shops — before the well-capitalized existing medical cannabis operators, known as Registered Organizations (ROs) expand their footprint into the adult use market. However, the nine open shops face steep competition from the more than 1,500 unlicensed shops that have cropped up across the state. And now, some of the ROs, which are some of the highest-valued multi-state operators in the U.S., are suing the state’s cannabis regulators, in part arguing that the adult use law lets them in at the same time as anybody else.
Are the ROs right? One author of the Marihuana Regulation and Taxation Act (MRTA), the state’s adult use law, thinks so.
“The law says that ROs should have access to the adult use market. So they should, period,” Assembly Majority Leader Crystal Peoples-Stokes told Cannabis Wire.
The backstory of the state’s road to legal adult use provides some important context for this moment. When Peoples-Stokes and Senator Liz Krueger wrote MRTA, they aimed to craft the country’s most equitable cannabis legalization bill. By the time that MRTA reached the desk of former Gov. Andrew Cuomo in March 2021, after years of negotiations, there was finally agreement over language that would help Peoples-Stokes and Krueger reach this goal. For example, MRTA specifically allocated 40% of cannabis tax revenue toward a “community grants reinvestment fund,” while Cuomo pushed to funnel tax dollars toward the general fund. And, it called for licensing in a “manner that prioritizes social and economic equity applicants with the goal of fifty percent awarded to such applicants, and considers small business opportunities and concerns, avoids market dominance in sectors of the industry, and reflects the demographics of the state.”
“We were successful in finally passing legislation that I personally carried and championed for the last eight years and it’s really trying to just continue our work in righting the wrongs of the prohibition of this plant,” Peoples-Stokes said on a virtual panel in May 2021, shortly after MRTA was signed into law. “Just to be real clear, the intention of this legislation [is] more about equity, social equity and economic equity, than it is necessarily about raising revenue for the state of New York.”
Fast-forward to early 2022, with Gov. Kathy Hochul firmly situated after Cuomo’s resignation, and the leaders of the Office of Cannabis Management and its Cannabis Control Board in place. In March of 2022, these cannabis regulators put forth a plan to prioritize “justice-involved” individuals by creating 150 CAURD licenses, which would be the first adult use cannabis retailers in the state. This meant that everyone else, including the ROs, would have to wait. This was a novel approach considering adult use states, including neighboring New Jersey and Connecticut, have generally allowed existing medical cannabis operators to sell adult use first.
In November, in their proposed rules for the adult use industry, regulators extrapolated on that waiting period for ROs: three years after the first adult use sale takes place. The first sale was in late December, so that puts ROs at the start of 2026. Plus, there is a $5 million cost of entry into the adult use industry for ROs (with more fees to follow). One reason for the price tag is that ROs would be the only adult use licensees allowed to control their product from seed to sale, as they already do in the medical industry; otherwise, adult use retail license holders, including CAURDs, cannot also hold a cultivation license, which regulators argue will encourage competition. (The one exception to this will be microbusiness license holders.)
Today, a total of 99 CAURD licenses have been awarded, and nine shops are open. At the forthcoming May meeting of the Cannabis Control Board, more CAURD licenses are expected to be awarded, and the revised adult use rules are expected to be released. Peoples-Stokes said OCM’s work to-date and its equity efforts have been “commendable.”
Now, the head start given to CAURD licensees is at the heart of the lawsuit filed in the Albany County Supreme Court against the Office of Cannabis Management and its Cannabis Control Board in an effort “compel” regulators to “fulfill their responsibilities to create a safe, equitable, and well-regulated adult-use and medical market.” The coalition behind the lawsuit includes three of the state’s RO: Acreage, Curaleaf, and Green Thumb Industries, some of the highest-valued in the U.S.
Jeremy Rivera, co-founder of the CAURD Coalition, said the lawsuit “hurts, to say the least.”
“To have a group of multimillionaires step in and say, ‘Oh, this is not right because we don’t get a chance to come out first.’ Yeah, you guys don’t get a chance to come out first because you have $20 million, $50 million backing you,” Rivera told Cannabis Wire. “It’s not rocket science, it’s ethics. You know, it’s equity.”
There is one line from MRTA that is repeatedly bolded and italicized throughout the lawsuit: “the initial adult-use cannabis retail dispensary license application period shall be opened for all applicants at the same time.”
And, indeed, Peoples-Stokes agrees that existing ROs should be let in “simultaneously” alongside CAURD licensees. Peoples-Stokes also wants ROs to help bridge cannabis access gaps.
“When ROs first opened their businesses, they did not put a lot of medical places in communities of color, or lower income communities. So, the idea is to get them operating, with quality products that are tested, in communities that don’t necessarily have them,” Peoples-Stokes told Cannabis Wire.
Cannabis Wire mapped legal, regulated medical (ROs) and adult use cannabis (CAURD) shops in New York, and there are huge gaps in access, including in western New York at the border of Pennsylvania and north of Albany. Even in regions where licensed shops are located, like in New York City or the Capital Region, they are still few and far between.
There’s another potential development with regard to ROs on the horizon: for the first time in a decade, the state could license new ones; originally, 10 were awarded. A new Office of Cannabis Management report on the state’s medical cannabis program called for more ROs to “reach patients who may be self-medicating with cannabis from sources that are not regulated or held to the same high-quality standards as the medical cannabis products manufactured by ROs in New York State.”
The report contained other suggestions around the addition of more ROs, too, as Cannabis Wire reported in our Cannabis Wire New York newsletter. One legislative recommendation is that the Division of Minority and Women’s Business Development in the Department of Economic Development “establish a procedure to grant temporary certification to minority and women-owned business enterprise applicants which attest that the business enterprise is intending to participate in the medical cannabis industries, which would assist certain applicants applying to register as an RO.”
Meanwhile, regulators and elected officials are thinking about how to curb rampant unregulated cannabis sales, an issue that also factored into the ROs’ lawsuit.
Hochul proposed a plan in late March that leans on steep fines for landlords and lessors that knowingly work with unlicensed operators. The plan, which also lays out greater enforcement powers for cannabis regulators and tax officials, remains under negotiation. Peoples-Stokes said that she “can surely say it’s going to be amended.”
“We’re not going to be successful with our iconic legislation if we don’t shut the illicit businesses down. That’s clear to me,” Peoples-Stokes told Cannabis Wire.