New York Has Legalized...Now What?
New Yorkers can finally breathe—or inhale—a little easier. Like a well-rolled joint, March 31, 2021, burned brilliantly as a victory for citizens, businesses, and policymakers alike as Governor Cuomo signed the Marihuana Regulation and Taxation Act, or MRTA, which legalizes recreational adult-use cannabis, into law. The historic signing came on the heels of the state legislature voting to pass the measure yesterday, in the waning hours of the night, following weeks of negotiations with Governor Cuomo. Cuomo released his own plan for legalization via the budget process, the Cannabis Regulation and Taxation Act, or CRTA, earlier this year but lawmakers’ stand-alone legislation won out. The successful version, however, is ultimately a hybrid of both original proposals, the result of an agreement reached between the governor and lawmakers over the weekend.
And while the MRTA has moved from bill to law, many New Yorkers are still wondering what implementation actually means for them, their communities, and their businesses. Here are some common questions:
How do I get a license?
The legislation establishes a Cannabis Control Board (CCB) and Office of Cannabis Management (OCM) to work out the details of licensing. It could be months or even a year before applications become available, however, we do know some of the details:
What licenses will be available?
The MRTA establishes a comprehensive licensing system for the adult-use industry. The bill details the following license types:
Registered organization adult-use cultivator processor distributor retail dispensary
Registered organization adult-use cultivator
Can I be vertically integrated?
The MRTA largely restricts vertical integration. However, there are some exceptions for existing medical registered organizations (“RO’s”) and microbusinesses. A cultivator may also hold a processor and a distributor license for self-distribution, but they cannot hold a retail dispensary license. Further, any person holding a retail dispensary license may not hold another adult-use license.
Who will be prioritized?
With business owners and investors eager to capitalize on the new adult-use marketplace—estimated to be worth a whopping $3.7 billion in the first year—ensuring social and economic equity has been a major legislative concern and a motivating force behind the push for legalization. As such, social and economic equity applicants will be prioritized during the application process, with the explicit goal of fifty percent of all adult-use licenses awarded to priority applicants. These applicants include minority-owned businesses, women-owned businesses, distressed farmers, and service-disabled veterans. Applicants from communities disproportionately affected by the war on drugs, with an income lower than eighty percent of their county’s median, or with a history of marihuana-related offenses, will also be given priority.
When will the applications be available?
The Cannabis Control Board will be required to set regulations for the adult-use program, including the application process. Unfortunately, no official timeline is currently available. However, we expect applications at the earliest this fall with a more reasonable timeframe being early 2022.
How does the MRTA tax cannabis?
The MRTA imposes a two-tier tax structure on adult-use cannabis. The first is a THC-based tax on distribution, which charges per milligram:
Cannabis flower - $0.005 per mg of total THC
Concentrated cannabis - $0.008 per mg of total THC
Edibles - $0.03 per mg of total THC
In addition, there will be at 9% state and 4% local retail tax.
For flower containing 200mg THC, this means a wholesale cost of $4.74/g, a cost to dispensary of $5.74, a final price to the consumer of $12.98, and an effective tax rate of 36.82%. For an 800mg cartridge with a wholesale cost of $19.60, this translates into a $26.00 cost to the dispensary, a final price of $58.76, and an effective tax rate of 49.9%. Twenty gummies containing 100mg THC bought under this schema with a wholesale cost of $8.00 would cost a dispensary $11.00, with a final price to the consumer of $24.86 and an effective tax rate of 55.38% (see figure 1 above).
To our knowledge, this two-tiered hybrid of flat-rate retail and THC-based taxation tied to product’s THC percentage has never been attempted with cannabis or any other consumer goods and presents unique challenges for both entrepreneurs and the state when it comes to the calculation and collection of taxes.
Can I grow cannabis at home?
The MRTA allows for the home cultivation of adult-use cannabis. According to the bill, adults could cultivate up to six plants for personal use, three of which could be mature. In a household with more than one adult, a maximum of twelve plants could be grown, including six mature and six immature plants.
Will my town, city, or village allow for retail sales of cannabis?
As in previous legalization efforts, the MRTA allows any town, city, or village to restrict the implementation of the adult-use program through a local law. Importantly, however, the MRTA only allows for the prohibition of retail dispensaries and on-site consumption sites; no town, city or village could thus restrict any other license type.
For a town, city, or village to restrict cannabis retail sales, they would need to pass a law by December 31, 2021, or within nine months of the effective date of the bill. No restrictions can be made after this time.
In the event that a locality chooses to restrict retail cannabis sales, locals do have recourse—the law may be overruled through local popular referendum.
Will there be social consumption spaces or delivery services in New York?
The MRTA allows businesses to obtain on-site consumption licenses for adult-use cannabis. These applications will be evaluated on a number of considerations, including public convenience, advantage, and interest. Delivery services will also be permitted under the MRTA, provided one obtains an adult-use delivery license.
Under this provision, New Yorkers may soon be able to enjoy recreational consumption in public at licensed lounges – however, due the controversial nature of consumption, we expect pushback on these operations in many municipalities.
The MRTA provides New York the legal framework for an adult-use cannabis market. But the impending rulemaking and licensing processes, combined with opportunities for municipalities to opt-out, means that more drama is a certainty. It could be months before we have a full picture of what the marketplace and the application process will look like. To ensure implementation promotes an equitable and competitive market that benefits individual New Yorkers and their businesses, much work is needed both inside and outside of the impending regulatory process.