The inaugural hearing of the New York Senate Subcommittee on Cannabis stretched more than seven hours on Monday. And the testimony from over a dozen panels focused on the wide range of issues that lawmakers, regulators, and industry members want fixed when the legislature returns for its session in January.
Throughout the joint hearing, which included the Senate committees on Finance, Agriculture, and Investigations and Government Operations, two topics came up repeatedly: lawsuits, and the sprawl of unlicensed sales.
Chris Alexander, executive director of the Office of Cannabis Management (OCM), kicked off the lengthy hearing after he was sworn in. Alexander acknowledged challenges early on in his testimony. While 463 licenses have been awarded, just 27 retailers are operational, due in large part to litigation that has slowed the adult use rollout and, at times, halted licensing altogether. Regulators have said that they plan to issue more than 1,000 additional adult use licenses in the coming months.
Until then, the lack of available shelf space in legal dispensaries is one of the “most pressing issues” facing OCM, and the state’s cannabis market, Alexander said.
“The stalling of the [Conditional Adult Use Retail Dispensary (CAURD)] program has had a significant impact on the rest of New York’s adult-use cannabis supply chain. Small farmers who were already distressed were left with no outlets for their product and have experienced significant financial hardship and uncertainty as a result,” Alexander said.
And in the time that regulators’ hands have been tied due to litigation, unregulated sellers have had their moment, thriving without paying for regulatory fees, testing, or taxes. Alexander gave an update on enforcement data, noting that the OCM enforcement team has conducted nearly 300 regulatory inspections and seized roughly 10,000 pounds of unregulated cannabis, worth approximately $50 million.
“Our story is not unique, but our problem is expansive,” Alexander said, referencing difficulties that other states have had with unregulated sellers. Gov. Kathy Hochul signed enforcement legislation – specifically with an emphasis on imposing steep fines up to $20,000 a day on landlords knowingly renting to unregulated sellers – this spring.
Alexander said during the hearing that OCM’s post-enforcement administrative process is under a brief “pause” as regulators revise it to reflect recent “changes” to rules.
“The pause really is a recognition that we are still doing some fine tuning of that process, working to make sure that we get the largest fines possible for the illicit operators,” Alexander said.
Sen. James Skoufis asked how many entities had been fined and gone through the administrative hearing process, to which Alexander replied “16.”
“That seems like a startlingly low number, given the fact that we all recognize there are thousands of these illegal shops around the state and the enforcement powers have been in place since June,” Skoufis said.
Sen. Liz Krueger, a co-author of the Marihuana Taxation and Regulation Act, which legalized cannabis in New York, represents a swath of the east side of Manhattan. Krueger asked regulators specifically what lawmakers can do to help.
“I just wanted to ask you,” Krueger said to Alexander, “in public, if you close an illegal store and you take the product, but the fines aren’t big enough to actually discourage people from just opening up again – and we did change the law to make the fines much bigger – then I don’t believe it works at all.”
“So,” she continued, “what do you recommend? And maybe it does require legislative action as opposed to just regulatory action. What do I need to do?”
Alexander replied by again acknowledging the persistence of unregulated sales, but without offering potential legislative solutions.
“Even at the $20,000 a day limit for some of these folks who are owning multiple operations across the city or across the state, it is still, you know, a cost of doing business at times,” Alexander said. “And so I just don’t know what the exact number may be to fully deter. But, to be able to take some more significant action at the onset when we issue that notice of closure, a violation of the cannabis law, might be a helpful direction.”
Dan Haughney, OCMs director of enforcement, said that he was “proud” of the work that the enforcement team has done. Haughney didn’t offer many specifics on potential legislation.
“It is a long-term process. I would love nothing more than to be able to go through and, when we finish our inspection, have that store closed. But currently that’s not the process that we have,” Haughney said. “We’ve seen what the initial legislation has given us, now that we’ve been doing this for a number of months. I think there’s quite a few points that we can fine tune things to get really to the heart of the matter, to get the results that everyone in the state wants.”
Cooney asked if there was an issue with the chain of command. Or, in other words, who is in charge of shutting down unregulated shops? There has been confusion, from the state legislature to local community boards, over whose job it is to shutter unlicensed sellers.
“Do we know who’s responsible for shutting down these illegal stores?” Cooney asked.
“The enforcement role does sit with OCM,” Haughney said. “It’s important to highlight, we didn’t get everything that we had asked for,” he said, in reference to the enforcement legislation. He added that local law enforcement isn’t eager to dive into the area of unlicensed sales because it’s time consuming and expensive and for “low level charges, because we’re not looking to recriminalize cannabis.”
Amanda Hiller, acting commissioner and general counsel for the Department of Taxation and Finance, focused part of her testimony on the potency tax on cannabis products, which came up Monday as a barrier for cannabis business owners. She explained part of its utility in enforcement: since that tax must be paid before a product hits the shelves, any product on a shelf for which that tax hasn’t been paid is clearly illegal.
“I understand that a lot of people in the distributive chain have had challenges around that tax.,” Hiller said. “I think the challenge is in identifying a surrogate to the potency task. But if we eliminate the task at that level, then we essentially hamstring enforcement of the tax structure.”
New York City Sheriff Anthony Miranda gave an update on the Sheriff Joint Compliance Task Force, noting that as of September, the task force has conducted 1,175 inspections and issued $36 million in civil penalties. Miranda was one of the few to give some specifics when it came to potential legislation.
“It would help New York City enforcement efforts tremendously to be explicitly granted the authority to enforce cannabis offenses and initiate related legal proceedings under state law. The Senate and Assembly could pass legislation to clarify the critical role of local law enforcement agencies in the enforcement of illegal cannabis sales,” Miranda said. “Specifically, the legislature could clarify the procedures by which local law enforcement agencies inspect and seize cannabis that is intended for illegal sale.”
Dasheeda Dawson, founding director of Cannabis NYC within the Department of Small Businesses Services, spoke about public education efforts that the agency has led.
“Through our outreach efforts, we’ve learned that our communities are frustrated, confused and even angered by what they feel represents New York cannabis legalization thus far,” Dawson said. “However, big cannabis is also attempting to thwart the state’s efforts to focus licensing on those most harmed by pushing lawsuits that position groups of historically excluded against each other.”
One of the lawsuits against the state’s CAURD program, which prioritized justice-involved applicants for the first adult use shops, came from some of the existing medical cannabis operators in the state, known as Registered Organizations, or ROs, which are also some of the largest cannabis companies in the country.
Bryan Murray, executive vice president of government relations for Acreage Holdings, an RO, spent much of his time talking about the unlicensed market.
“We, as Acreage, lament the very challenging roll out of our home state’s adult use program,” Murray said, adding that MRTA laid a “clear” foundation, but the adult use “opportunity was stymied from the outset.”
“Our regulators forgot that an indisputable barrier to achieving the ambitious goals and social equity goals, apart from federal illegality and capital, is an entrenched illicit market, not registered organizations like Acreage. Instead of seeing our ability to protect patients and consumers with access to safe, regulated, quality cannabis, we were directed to wait and wait while the illicit market thrived,” Murray said.
Adam Goers, senior vice president for corporate affairs for Columbia Care, another RO and multistate operator, highlighted that Columbia Care is not part of any of the lawsuits that have stalled the CAURD program.
“There has been this kind of perception that, politically, it’s better for us to kind of fail than it is for us to be seen as being in any way successful whatsoever,” Goers said. “We can be part of the solution.”
Goers suggested that regulators’ delay of allowing the ROs to join the adult use market – intended to allow smaller operators to get going before they had to compete with larger operators – “might cause the failure of the launch of the program.”
“Guess what? Consumers without a legal way to purchase just found that competition in thousands of unregulated shops,” Goers said.
During the hearing, Sen. Gustavo Rivero asked if OCM supported the codification of the CAURD program. Alexander asked OCM’s general counsel, Linda Baldwin, if he could answer. Baldwin chimed in.
“I think we would be very interested in hearing any proposals from the legislature,” Baldwin said, specifically those that clarify the Cannabis Control Board’s “ability or authority to issue new licenses.”
Sen. Michelle Hinchey pressed Alexander for details about how much legal product is at risk of being wasted this year, with so few stores open. Hinchey also tried to get Alexander to commit to a financial “recovery fund” to support these cannabis farmers. Alexander did not commit to any such fund, but pivoted to the short-term growers showcase program, which allowed for market-style partnerships between growers and retailers this fall and have generated roughly $1.5 million in sales so far, regulators said during the October Cannabis Control Board meeting.
The “growers showcases are great, but they are a drop in the bucket,” Hinchey said.
Charlie Williams testified on behalf of the Dormitory Authority of the State of New York (DASNY), an agency that has been particularly opaque with regard to its involvement in the adult use rollout. In early 2022, DASNY was tapped to spearhead a public-private fund that was meant to put up to $200 million toward turnkey cannabis shops for CAURD licensees. While $50 million was seeded by the state, the other $150 million came more than a year later, in the form of a “commitment” in June from Chicago Atlantic. Along the way, CAURD licensees expressed repeated frustration with the agency, a sentiment that resurfaced on Monday.
Williams gave few specifics, but did share that DASNY has signed “24 or 26” leases “at this point.” The big “wrench?” Lawsuits.
OCM is “not able to match any additional CAURD licenses to the dispensaries at this point while the litigation is ongoing. So that really put, you know, a hard freeze on the real estate effort. We continue to build out the ones that we have leased to sign for,” Williams said.
Another topic that came up throughout the daylong hearing was communication – or lack thereof – from OCM. Even Cooney, who moderated the hearing, referred to communications “going into a black hole.” Britni Tantalo, CEO of the New York Cannabis Retailers Association (formerly the CAURD Coalition), said that she and others would like “transparency” from regulators.
Joanne Wilson, CEO of Gotham, a cannabis shop, suggested that the state should pick up the tab for promises it made to CAURDs.
“I agree with you,” Krueger said. “But I don’t necessarily have the power to do that, at least not right now.”
Wilson later emphasized that OCM just doesn’t communicate.
“The thought of having to deal with the OCM makes everybody cringe,” she said.
