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One of the major hurdles to clear as New York moves towards the development of a thriving adult-use cannabis marketplace is that of the municipal opt-out. Municipalities are, as always, concerned with controlling the environment over which they have jurisdiction. Since the passage of the Marihuana Regulation and Taxation Act (MRTA), Empire State municipalities have been mulling over a big decision, the municipal opt-out. Under the new law, municipalities have until December 31, 2021 to opt-out of full implementation of the MRTA by prohibiting retail and on-site consumption licensing via local law. Municipalities are not, however, vested with the power to prohibit any other adult-use licensing or otherwise legal cannabis activity within their municipal boundaries.
Surely, the licensing of such point-of-sale cannabis establishments is a contentious issue as municipalities weigh the perceived costs and benefits to cannabis legalization, particularly concerning how retail operations could affect the fabric and culture of their communities. With the allure of a new stream of tax revenue any opt-out decision could have profound effects on a municipality’s economic future.
(the MRTA embeds the imposition of 4% local tax on retail sales with 3% going to the municipality in which the cannabis product was sold and 1% to the corresponding county)
As mentioned above, municipalities have until the end of the year to adopt a local opt-out law. Such law is then subject to a permissive referendum, whereby local citizens have the opportunity overturn it. Even if the law is upheld via referendum, municipalities maintain the option of revoking said law at any time. As there is no provision requiring municipalities to opt-in, those that fail to act on the issue will effectively be opted-in to full implementation of the law beginning January 1, 2022.
Since the bill’s passage in late March, language for such opt-out law has been circulated to elected municipal officials by organizations such as the NY Association of Towns and the NY Conference of Mayors.
To date, several municipalities have indicated their intention to opt-out of full implementation. Others have indicated their intention to study the issue and gauge public sentiment through public hearings prior to deciding on the opt-out. Others still are looking to capitalize on legalization and make their communities a destination for cannabis tourism, as research shows that often people come for the cannabis and stay for more traditional tourist activities like eating out and shopping.
Municipal Powers and Activities in Other States
Prop 64, which legalized cannabis in California in 2016, allows for local-opt out allows for localities to decide whether they want cannabis businesses in their areas, and if so, which kinds, in addition to running their own regulatory schemes, in addition to fees and taxes. But it does not clarify or specify anything beyond this. California has 58 counties in total, and of September 2019, only 89 of the Golden State’s 482 cities allowed recreational cannabis retailers, and only 161 of 482 municipalities allow some form of cannabis business to operate there. Municipalities however do not have the power to ban legal transport through their areas.
The Michigan Regulation and Taxation of Marihuana Act, passed in 2018, gives municipalities the power to ban or limit the number of marijuana establishments within their boundaries. One similarity with California is that municipalities may choose to ban/limit any of the various types of licenses available, as shown in this municipal opt-in list. Further, marijuana establishments are prohibited from being in areas zoned exclusively for residential use or within at least 1,000 feet of a public or private school unless a local government adopts an ordinance reducing the distance requirement. Municipalities may also require that licensees get a municipal license, as well, but like California cannot restrict the transportation of cannabis products within its area, or prohibit the sharing of a location between recreational and medical cannabis establishments.
As of July 2020, 1,419 communities had opted out of allowing recreational marijuana businesses, while 60 opted in.
The Cannabis Regulation and Taxation Act allows municipalities to choose their paths, calling areas that are restricted to cannabis “restricted cannabis zones.” Voters may petition to have restricted placed in their municipality, either on home-grow, one or more types of businesses, or both. The petition must reach 25% of all registered voters in the area. Aside from a petition, municipal authorities may simply enact an ordinance to ban these activities, good for four years.
The Massachusetts Cannabis Control Commission (CCC) has a guidance which lays out all the concerns for municipalities, explaining provisions in the state’s two Marijuana Acts. For one, cannabis establishments will have to have held a community outreach meeting within six months of the licensing application process, and “executed a Host Community Agreement” with the municipality where they would like to work. The CCC then takes the completed application and notifies the municipality that it is finished, after which the municipality will look at the application. No answer from the municipality is a good answer. Municipalities may also have their own licensing processes, on top of the regular process. They may also implement a local tax. Lastly, there are very specific procedures laid out on how a municipality can ban a specific type of cannabis establishment, or limit the number of establishments, if it so wishes.
The Massachusetts Cannabis Control Commission also has a municipal zoning tracker.
Beyond the Opt-Out
While the municipal opt-out is perhaps the most prominent way municipalities can assert control over the adult-use cannabis market in their communities under NY’s new legal and regulatory framework, there are softer ways in which they may exercise their power. Municipalities have the ability to adopt “time, place, and manner” restrictions, of which zoning controls will likely constitute a large part. Municipalities also have the power to submit a “municipal opinion” for or against a license which becomes part of the official application record. Notification requirements to municipalities will also likely factor into the granting or denial of a license.
Suffice it to say, whether you are interested in a point-of-sale retail license or operating solely on the production side of the supply chain, staying on good terms with your governing municipality is a must for any serious operator wishing to avoid potential municipal barriers to adult-use licensing.