More than two years after a bill to legalize cannabis was signed into law, New York regulators have launched an application window for all adults who hope to run a cannabis business in the state’s nascent industry.
But, many developments – and, many of them turbulent – have transpired in those two years, and several important steps lay ahead.
“We know there’s room for improvement as New York works to launch a brand-new cannabis industry and crack down on illicit operators, and I’m committed to working with all stakeholders to get the job done right,” Gov. Kathy Hochul said a statement on Wednesday.
Here is an overview of the situation:
What’s happening today?
Today, a 60-day window for regulators to accept applications for Cultivator, Processor, Distributor, Microbusiness and Retail Dispensary licenses opened on New York Business Express.
New York’s Office of Cannabis Management (OCM) published a number of resources ahead of the launch, including an overview of the Social and Economic Equity (SEE) program through which certain applicants will be prioritized going forward. Regulators also released a map of Communities Disproportionately Impacted (CDI), which will be used in license allocation and prioritization.
Regulators also released information about True-Party Interest rules, which will prevent any individual or group from controlling too much of the industry. Much of this applies to investors, but the state’s licensing structure also aims to keep things competitive by, for example, not allowing someone with a retail license to also have a cultivation license.
OCM also released a form for applicants to notify the municipalities in which they plan to operate. Roughly half of local municipalities have opted out of adult use sales, but they can later opt in if they choose.
What happened before today?
So far, licensing has been conditional. In 2022, Hochul and regulators created a framework for existing hemp farmers, many of whom were struggling, to be first in line to grow adult use cannabis, and for justice-involved individuals, such as those with a cannabis conviction or a family member with one, to be first in line to open shops.
Last December, Housing Works Cannabis Co. became the first legal cannabis shop in the state to open under this framework. Hundreds of conditional grower licenses were issued in 2022, and hundreds of Conditional Adult Use Retail Dispensary (CAURD) licenses have been issued, as well.
But, only 23 CAURD retailers are operating throughout the state. Why?
Lawsuits, lawsuits, lawsuits. Two lawsuits have stalled and, more recently, halted the CAURD rollout.
The first one, last year, challenged the licensing criteria for the CAURD program, which led to an injunction that blocked CAURD licenses from being awarded in five regions, including Buffalo and Brooklyn. The injunction was ultimately lifted.
The next one, from this year, which is still ongoing, challenges the CAURD program entirely, arguing that such a head start goes against the state’s adult use law. As that works through the courts, a judge has paused the CAURD program since August.
This ongoing lawsuit has created ruptures in the state’s industry, as CAURD licensees argue that the state’s existing medical cannabis operators, known as Registered Organizations (ROs), some of whom are involved in the suit, are simply trying to shove their way into adult use sales as soon as possible, rather than waiting their turn. At the last Cannabis Control Board meeting, during the hours of public comment, several took the podium to say “No to ROs.”
An explosion of unregulated sales. In the time between when the adult use bill was signed into law and when the first shop opened, hundreds of illegal shops opened across the state. Many of them concentrated in New York City, and especially so in 2021, when many storefronts remained vacant as a result of Covid.
There are an estimated 1,500 (or more) unregulated sellers of cannabis in the state, despite state and city legislation passed this year to expand enforcement and target the landlords who rent to these sellers.
Hochul’s announcement Wednesday provided a snapshot of subsequent enforcement efforts.
Since June, OCM and the Department of Taxation and Finance have “conducted 246 inspections across the state, and have seized more than 8,500 pounds of illegal cannabis products, which have an estimated street value of more than $42 million,” Hochul’s office wrote, adding that enforcement this week in Manhattan and Brooklyn yielded “nearly 150 pounds of product worth close to $600,000.”
Frustrated and desperate growers. The pace of the rollout has left conditional cultivators with heaps of cannabis and few legal outlets. Some estimates put the unsold cannabis at more than 250,000 pounds.
Farmers took to a recent Cannabis Control Board meeting to testify about their dire mental health, with some saying that they’ll soon need to sell equipment or land.
Regulators and lawmakers have scrambled for solutions. One, which is underway, is the Cannabis Growers Showcase initiative that allows for partnerships between licensed conditional growers and CAURDs, to sell cannabis in a pop-up format across the state. The showcase program “will expire” on December 31, but lessons learned will inform the future of cannabis events in New York.
And, lawmakers passed a bill that would “temporarily allow the sale of adult-use cannabis to Tribal Nations.” It would, essentially, allow for tribes to make a sizable one-time purchase from conditional cultivators. Hochul, however, hasn’t signed the bill, and lawmakers are urging her to do so. Cannabis Wire has reached out to Hochul’s office more than a half dozen times regarding this bill and has been told that Hochul is “reviewing” the legislation.
What’s next?
More enforcement efforts. On Wednesday, Hochul announced that OCM and the attorney general’s office will partner to train municipalities on how best to “pursue padlocking orders” in accordance with the enforcement bill that Hochul signed in May. She also announced that the Workers Compensation Board and the Department of Labor will join in imposing fines and penalties to help combat unregulated operators.
A phased licensing rollout. New York regulators are making careful licensing moves, due in part to tough lessons learned in states that legalized before New York.
The market is “being expanded in phases to ensure that New York’s cannabis market grows in a stable way, avoiding the price shocks and collapses seen in other states that have resulted in the failure of small businesses and significant contractions in overall market value,” Hochul’s office wrote on Wednesday.
However, regulators plan to issue a “significant amount of retail licenses” with the goal of helping to eliminate the unregulated market by giving New Yorkers “as many locations as possible to legally buy cannabis as quickly as possible.”
“Owing to the constantly shifting nature of the retail environment and because the process of opening a storefront is both resource-intensive and lengthy, the number of retail licenses initially issued will likely be larger than the number of stores that are anticipated to open in this first phase,” Hochul’s office wrote. “This approach is designed to guard against market volatility, help small businesses enter the market, and expand consumer access.”
MSOs are coming. The state’s existing medical cannabis operators, which include some of the largest cannabis companies in the U.S., will be allowed to enter the adult use industry in December.
Regulators originally set the date closer to 2025, in an effort to give smaller operators a chance to get up and running, but it was moved up.
Medical cannabis operators that plan to sell adult use cannabis will be the only entities in the adult use industry to be allowed to control their products from seed to sale, as this is how they are currently structured on the medical side. However, they will be required to pay millions.
Consumption spaces. Regulators have not yet released rules for cannabis consumption spaces, but they are forthcoming. (Cannabis Wire is hosting an event on Oct. 26 during which we will interview New York City Councilmember Gale Brewer and Times Square Alliance Executive Director Tom Harris about the future of legal, regulated cannabis tourism and consumption spaces.)
A Senate hearing. The chair of the Senate Subcommittee on Cannabis, Sen. Jeremy Cooney, announced an Oct. 30 hearing on the adult use rollout. He plans to gather input from stakeholders ahead of the start of January’s legislative session.
“As state lawmakers, we can’t just pass bills and hope they work out,” Cooney said when he announced the hearing. “Two years after legalizing adult-use recreational cannabis, New Yorkers are frustrated and disappointed in the State’s ability to launch a safe and legal marketplace.”
