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Gov. Cuomo Unveils his 2020 Plan to Regulate Cannabis

Albany, NY — The legalization of adult-use cannabis is again becoming a hot topic as the legislature begins the 2020 legislative session. This past week, Governor Cuomo released his 2021 Fiscal Year Budget which includes legislation to create a new regulatory agency tasked with establishing an adult-use cannabis marketplace while overseeing the State’s existing medical and hemp industries. The 261-page legislation builds off the ultimately failed efforts last year and includes a wide range of policies designed to create a framework to foster diversity, social equity, a complex supply chain, and address public safety concerns such as drugged driving and diversion.

The Office of Cannabis Management

To regulate an industry that the Rockefeller Institute of Government estimates could be worth $1.7 billion the Office of Cannabis Management (OCM) would be formed. A Governor appointed five-person Board and Executive Director would be responsible for promulgating all rules and regulations regarding licensing, marketing, enforcement, a social equity plan, record-keeping, and more for hemp, medical, and adult-use cannabis industries. The law is written to allow the OCM broad powers and flexibility in implementation and regulation, making whoever is appointed to the board and executive director positions critical to how New York’s cannabis marketplace will look.

New Sources of Revenue

Undoubtedly, potential new revenues from taxation and licensing are a driving force in the push to get legislation included in the upcoming budget for a state that faces a $6 billion shortfall. While the OCM will ultimately decide the cost of applications and licensing, tax rates have emerged as:

· Cultivation Excise Tax: $1.00 per dry weight gram of cannabis flower, $0.25 per dry weight gram of cannabis trim, and $0.14 per gram of “wet” cannabis

· Retail Sales Tax: 20% with an additional 2% going towards counties or New York City.

These rates mirror those released in the Marijuana Regulation & Tax Act (MRTA) version released last June. As our analysis pointed out at the time; this would result in an effective rate of 46%, the largest in the nation. Not only would such a large rates prices high, potentially boosting black market alternatives, but the large burden on cultivators favors larger operators who can most effectively utilize economies of scale, leaving craft businesses with tight margins.

A Vision for Craft Cannabis

Small business and the potential craft marketplace scored several wins in the legislation. The Governor is looking towards the wildly successful craft beverage industry as a model to foster innovation and spread opportunity; limiting vertical integration to only a special “micro-business” license with yet-to-be-determined production caps. Any licensee who is in involved in the cultivation, processing, manufacturing, or distribution of adult-use cannabis may not also hold a retail license, and vice-versa. The bill also explicitly prohibits the number of dispensary locations to three, limits interest in multiple licenses, and gives the OCM wide latitude to impose production limitations and quotas. These measures are largely designed to prop up small scale operators and avoid the dominance of a few well-funded large players as seen in early to legalize states such as Colorado, Oregon, and Massachusetts.

Socially & Economic Equity

Leading the push for legalization is a call from activists and lawmakers alike to prioritize communities and individuals most affected by over 80 years of prohibition. The bill goes far in attempts to remedy past harms by prioritizing licensing, reducing fees, and providing low or zero-interest loans to those applicants who qualify as being a member of a minority group, women-owned businesses, disadvantaged farmers, communities deemed highly affected by enforcement of marihuana laws, and individuals who have past marihuana related felonies or misdemeanors.

The OCM will also be directed to create a social equity plan that will:

“ensure access to, and participation in, the cannabis industry by social equity and economic empowerment applicants”.

Each applicant will need to either include information on conformation to such plan or detail ways in which those goals will be met and local disadvantaged communities may benefit. We understand the intent of such plan to seek diversity in ownership, management, and employment. Notably absent is any specific appropriation or program funding to disadvantaged communities as sought by many activists and lawmakers.

Pipe-dream or reality for the new decade?

It certainly appears from messaging and the recent hiring of Cannabis Czar Norman Birenbaum, that Governor Cuomo is serious about legalizing adult-use cannabis this year. Much will depend on how uniform the Democratic Caucus can be around the issue. Powerful cannabis advocates such as Assembly Majority Leader Crystal People-Stokes and State Senator Liz Krueger have publicly shown apprehension over the Governor’s proposal while touting their own legislation and cautioning that a consensus will be needed to get this across the finish line.

Last year saw vulnerable democrats in suburbs such as Long Island and Westchester bulk at legalization in the face of opposition from law enforcement and the Parent Teachers Association. Provisions such as a pilot program for roadside THC testing, the ability for counties to opt-out of licensing, and restrictions on advertising to lessen appeals to minors, are designed to push back against opposition and provide a more safe vote for the undecided lawmakers. Whether it will be enough is tough to tell but we can count on this bill evolving with changes and ultimately decided on days if not hours before the budget goes to a vote.

-Kaelan Castetter CEO, Castetter Sustainability Group

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