By Alex Malyshev. Published in the New York Law Journal.
Approximately 18 months after passage of the Marijuana Regulation and Taxation Act (MRTA)—which overhauled New York’s medical marijuana program and was intended to usher in an adult-use market—New York finally appears to be on the verge of opening a limited number of recreational dispensaries in the coming months. Unlike New Jersey, which kicked off its own recreational sales earlier this year by allowing existing medical marijuana dispensaries to begin recreational sales as the initial phase of its program, New York has opted for a staged approach that puts social equity applicants at the forefront, even though the MRTA does envision a process for medical dispensaries to begin recreational sales at some point. The choice appears to be rooted in New York’s desire to give dispensaries majority owned by social equity applicants—mainly individuals impacted by the war on drugs—a head start, before expected competition from better capitalized dispensary owners.
As a result of this choice, New York had to first set up a system of conditional licenses, at both the cultivation and processing level, to supply these dispensaries with product. At a recent event, Chris Alexander, the Executive Director of New York’s Office of Cannabis Management (OCM), indicated that a full kickoff of New York’s adult-use cannabis ecosystem won’t occur until mid-2023. Mr. Alexander was specifically referring to cultivation and processing licenses, which would support the new market. If past is prologue, and New York repeats the process it went through with the social equity program, recreational dispensary licenses will not be awarded until the third or fourth quarter of 2023.
In regards to cultivation, New York opened a three-month application window for previous participants in its hemp cultivation program to participate in its Adult-Use Conditional Cultivation program. That window was open from March to June 2022, with licenses awarded on a rolling basis. The goal was to allow cultivators to start planting their harvest shortly after Memorial Day. Although the OCM had terms and conditions cultivators that had to agree to, it did not have a detailed set of final rules and regulations ready in time for the application window. These licenses are valid for two years and allow the cultivator to apply for a non-conditional license once those rules are promulgated. New York has approved over 250 conditional cultivation licenses, consisting mostly of small farmers.
As a second step, in June 2022, the OCM opened a three-month application window for Adult-Use Conditional Processor licenses, which allows license holders to buy biomass from conditional cultivators and convert it into products to be sold in stores. That application window closed on Aug. 31, 2022. Like the conditional cultivators, the conditional processors are operating pursuant to terms and conditions imposed by the OCM, and will have the opportunity to convert to a non-conditional license during the two-year window for which the conditional license is issued. Among other things, conditional processors must undergo inspections for compliance with Good Manufacturing Practices, and must have systems in place to trace and test products that are being distributed to retailers by (or on behalf of) the processor. As of Sept. 20, 2022, more than 30 conditional processing licenses were approved.
As a final step, on Aug. 25, 2022, New York opened its application window for Conditional Adult-Use Retail Dispensary Licenses, which remained open until Sept. 26, 2022. This license is the backbone of New York’s social equity program and is targeted to “justice impacted” entrepreneurs (meaning entrepreneurs with prior cannabis convictions in New York, or their relatives). Unlike conditional cultivation and manufacturing licenses, the OCM enacted rules for conditional dispensaries after a fairly active public-comment period. While the OCM noted that it may revisit some of those rules at a later point, they are the first detailed roadmap of the OCM’s thinking with respect to issues like ownership, financing, and disclosure, which are critical in light of New York’s restrictions on ownership interests in multiple licenses and license types. These applicants will be supported by the New York Social Equity Cannabis Investment Fund, which will appropriate capital, and the Dormitory Authority for the State of New York, which will help with site selection for these justice impacted entrepreneurs. No licenses have been awarded yet, and sales are not expected to begin until late into the fourth quarter of 2022, or early 2023.
Despite now apparently targeting mid-2023 for the issuance of cultivation and processing licenses—which would essentially put those licenses on a parallel track to this year’s conditional licenses—the OCM intends to issue its proposed rules for comment later this year. Because of the enormous potential of New York’s adult-use cannabis market, we should expect that many sophisticated market participants will be studying those rules closely, and working on their applications in the first half of the year. And, once the application window opens, we can expect competition for the most valuable licenses (and downstate populated locations) to be intense.
Alex Malyshev is a partner and the chair of our Cannabis, Hemp and CBD Industry group.
Reprinted with permission from the September 29, 2022 edition of the New York Law Journal © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or firstname.lastname@example.org.