Site Control: A Major Concern
One of the major (and majorly controversial) elements of adult-use cannabis licensure under the Marihuana Regulation and Taxation Act (MRTA) is site control. While establishing site control might seem like a relatively straightforward task in most contexts, establishing such control in the cannabis industry can be a huge barrier to entry for prospective adult-use licensees, exacerbated by what will most likely be a limited and competitive licensing process.
Site Control is often defined as “exclusive rights to the proposed location for a cannabis businesses established by ownership, lease, or other means and as evidenced by a lease agreement, contract for sale, title, deed, or similar documentation.”
Securing site control is, in practice, a prerequisite to application for most of the MRTA’s license classes with notable exceptions—specifically, retail and social equity licensees potentially in certain circumstances and at the discretion of the board. Effectively, this means that control must be established prior to applying but as the awarding of licenses will likely be a highly competitive process—that is, not guaranteed even if the application is complete and correct—the risk of wasting several months’ rent for a prospective premises for an associated application that may be denied by the Board remains very real.
That said, the primary exceptions to this likely requirement are retail applicants and social equity applicants. According to the MRTA: “No retail license shall be granted for any premises, unless the applicant shall be the owner thereof, or shall be able to demonstrate possession of the premises within thirty days of final approval of the license through a lease, management agreement or other agreement giving the applicant control over the premises, in writing, for a term not less than the license period.” Here, the statute indicates that retail licensees will enjoy a 30-day window to secure a site immediately post licensure. Interestingly, the other retail-side licenses do not necessarily enjoy such flexibility. For instance, under Section 77 governing on-site consumption licensees states: “no applicant shall be granted an adult-use on-site consumption license for any premises, unless the applicant shall be he owner thereof, or shall be in possession of said premises under a lease, in writing, for a term of not less than the license period…”
Under the MRTA’s Section 64, which introduces probable adult-use application selection criteria, site control is referenced as a critical element for consideration unless the applicant qualifies as a certain priority applicant: “where appropriate and applicable, the applicant possesses or has the right to use sufficient land, buildings, and equipment to properly carry on the activity described in the application or has a plan to do so if qualifying as a social and economic equity applicant.”
Alternatively, the MRTA indicates that consideration of certain adult-use license applications may necessarily be based, in part, on “the land, buildings and facilities that may be used for the licensed activities of the licensee.” Applications for cultivation and processing licenses, in particular, will likely include the submission various security and facility plans including environmental and energy planning, including compliance with energy standards, of the facility to be licensed. The requisite submission of such information inherently ties the applicant to a facility prior to licensure.
Furthermore, even if the applicant has done everything right and a license is, in fact, obtained, establishing site control prior to applying for licensure is still potentially cost-prohibitive. For instance, unless property is owned outright, cannabis businesses forced to lease are often subject to a phenomenon colloquially known as “canna leasing,” wherein landlords offer rates exponentially higher than market rate to cannabis operators specifically.
To make matters worse, canna leasing is not the only issue encountered when leasing premises, either. Landlords may be hesitant to lease to a prospective adult-use cannabis licensee as they consider the effect leasing to cannabis businesses may have on any related federally endorsed mortgages, and other loans, asset, or businesses.
With detailed selection criteria still to be determined in regulation, the Cannabis Control Board (CCB) has a golden opportunity to promulgate rules that seek to ensure that site control requirements are not cost-prohibitive for equity and small business applicants alike. Such regulatory develop is crucial for promoting an adult-use cannabis marketplace by New Yorkers and for New Yorkers, and one in which the barriers to entry do not give an insurmountable competitive advantage to large multi-state operators and other well-capitalized applicants.