New York cannabis regulators are expected to approve a revised adult use cannabis rule package on Thursday, setting the stage for further expansion of the market.
The big item: existing medical cannabis operators in New York, vertically-integrated businesses with multistate footprints, will have a ramp to the adult use market by year’s end. Earlier rules had them waiting an additional two years while “justice-involved” licensees got a head start, prompting, in part, a lawsuit, as Cannabis Wire reported.
Also included: a loosening of the intensely debated true party interest rules; guidelines for on-site consumption and event licenses; and energy and environmental updates.
Regulators are also set to approve 50 additional conditional adult use retail dispensary (CAURD) licenses and to approve an equity plan.
Until now, a sort of interim cannabis industry has been set up, primarily in the form of these CAURD licenses and conditional cultivator licenses that let distressed hemp farmers grow its higher THC cousin for the adult use industry. The idea, regulators and elected officials thought, was to jumpstart the state’s industry by leaning into equity, which was the spirit of the Marihuana Regulation and Taxation (MRTA) Act, with a first-of-its-kind approach to give “justice-involved” individuals and nonprofits a head start.
In December, the state’s first licensed adult use cannabis store opened in downtown Manhattan, owned and run by the non-profit Housing Works, which qualified because of its “justice-involved” mission. So far, just nine of these conditional licensed shops have opened.
Meanwhile, unregulated storefronts capitalized on low rents during the Covid-19 pandemic and secured leases at a time when rules to guide enforcement lacked “teeth” according to city councilmembers. What city residents are left with is, in some areas, an unregulated smoke shop on every corner. Cannabis Wire conducted a survey of two Manhattan neighborhoods and also found that some shops are selling packages of edibles ten times the limit of regulated shops, and that workers didn’t ask for ID to verify age. The problem is so widespread that Gov. Kathy Hochul proposed cannabis enforcement language in her budget and signed the legislation last week.
So, against that backdrop, and with thousands of comments in response to the first draft of the adult use rules package, regulators had their work cut out for them in crafting the revised adult use rule package that dropped on Wednesday ahead of Thursday’s meeting.
There’s a lot to unpack in the details. Here are some of the highlights:
One area where regulators received “significant feedback from the public” was on the definition of a True Party of Interest (TPI), because there are limits on what TPIs can do with regard to licenses. For context, New York lawmakers and regulators have aimed to model the adult use cannabis industry after the state’s alcohol industry, which is commonly referred to as a “two-tier” approach. This approach is why, for example, no adult use licensees will be able to hold both cultivation and retail licenses, with the exception of the ROs, which are already vertically integrated. The goal is to increase competition.
The revised rules raise the threshold for the definition of a TPI so that, for example, a person must receive compensation of $250,000 annually rather than $100,000 in order to be considered a TPI. The revised rules also loosen restrictions on being a TPI across the supply chain.
The revised regulations also create a Limited Retail Consumption Facility license, which would allow retail licensees, including CAURDs, to designate a space in, or adjacent to, their building for consumption.The revised language also allows for a Licensed Premises for Cannabis Events.
The new language with regard to existing medical cannabis license holders, known as registered organizations, or ROs, is extensive, but the major changes are with regard to how soon they can start selling adult use cannabis, and how much they have to pay for that expansion.
Existing registered organizations can open three co-locations that serve both medical and adult use customers, but not before this December. This is two years sooner than the earlier draft of the rules allowed. The second and third store locations cannot open before June 2024.
The fees were amended for ROs that plan to sell adult use cannabis. Before, there was a one-time fee of $5 million, plus $3 million per co-located shop. Now, regulators are proposing a $20 million one-time licensing fee, $15 million of which can be paid out over time.
Some of the new language provides for exceptions to rules dictating density of shops. For example, a term called “medical necessity” means “factors used to determine whether or not the Board will grant a license to a licensee which will result in providing medical cannabis to an underserved geographic area.”
The amended rules expand language around provisional licenses, which could serve as a bridge for applicants that don’t yet have a location secured.
The language also expanded the definition of a “bona fide labor organization.”
Separate from the proposed adult use rule packet, regulators are expected to approve the draft New York Social and Economic Equity Plan.
While regulators will have a public comment period during Thursday’s meeting, regulators will not respond to or answer questions during this time, which is meant for collecting feedback In recent meetings, commenters have called for transparency and more communication in the licensing process.
