March 31st marked the end of the Empire State’s recreational cannabis ban and the beginning of the arduous task of establishing what is likely the largest regulated marijuana market in the country.
That was the day Gov. Andrew Cuomo signed the New York Marijuana Regulation and Taxation Act, one of the most progressive cannabis laws passed among the 18 states (and DC) that have fully legalized marijuana. The passage from MRTA marked a historic moment that had emerged from decades of pro-pot activism and political horse-trading, and that was the easy part.
In the months that followed, Cuomo’s administration made little to no progress in establishing a regulatory framework for the potentially multi-billion dollar market.
In comparison, his successor, Governor Kathy Hochul, has accelerated the process: within two weeks of taking office last August, Hochul appointed Tremaine Wright as chairman of the New York Cannabis Control Board and Christopher Alexander as executive director of the Office of Cannabis Management.
Activists, lawmakers, and the New York cannabis industry welcomed the rapid progress, but concerns remain about what companies can open up first, whether the Social Justice Act’s measures are effective, and whether Wright’s estimated 18-month timeline for building the industry might be undermine legalization amid a rising gray market.
And 2022 will likely prove to be a pivotal year in answering those questions.
“Of course it’s been a great year, a great year,” said Senator Jeremy Cooney, a co-sponsor of MRTA.
“We have the ability to set the pace for the rest of the nation when it comes to adult cannabis.”
The passage of the MRTA was a turning point, Cooney said, but Cuomo’s inaction in appointing key appointments slowed the momentum so much that he and other lawmakers were unsure whether the Office of Cannabis Management would materialize.
But Hochul’s rise to the governor’s manor shook that indolence in Albany. Their early appointments to Wright and Alexander suggest the new administration will act on purpose to get the market up and running, Cooney said.
The five-member Cannabis Control Board held its constituent meeting on October 5 and ended with four meetings in 2021. During those meetings, board members voted on measures to expand access to New York’s medical cannabis program and officially launch the state’s cannabinoid hemp program, Chair Wright told NY Cannabis Insider.
We have “recruited and built a pipeline of top talent to join the rapidly growing Office of Cannabis management team,” said Wright. “As the New Year begins, we will build on that success and move on as quickly as possible while making sure that the New York State cannabis industry creates fair opportunities.”
It’s a big job. The board of directors needs to set rules for the emerging industry – from the number of licenses the state approves to creating support structures for entrepreneurs seeking a license – especially social justice applicants.
Wright told NY Cannabis Insider in December that she expects the state’s legal cannabis ecosystem to be in place around April 2023. Then she postponed those target posts to late 2022 at a forum hosted by Crain’s New York store.
Things are moving faster in New Jersey, where Governor Phil Murphy legalized recreational cannabis on February 22nd. Three days later, Murphy completed appointments on the state cannabis regulatory committee, which held its first public meeting on April 12th.
On December 15, New Jersey began accepting license applications from potential cannabis growers, manufacturers, and testing laboratories for adult use.
Meanwhile, communities across New York have until Friday midnight to ban the retail and adult use of cannabis within their borders. These opt-out data “must guide us,” Wright said.
“That will undoubtedly determine where retail and consumer licenses are located.”
The success of MRTA’s social justice efforts will largely be determined by the decisions the state oversight board and other regulatory agencies make over the next year.
The fact that the law explicitly sets out social justice goals shows the legislature’s progressive intent, said Jacob Plowden, New York State student coordinator for sound drug policy.
For example, MRTA has set a goal of distributing 50% of its licenses to social justice applicants, including people negatively affected by the 50-year drug war. It also establishes the position of Chief Equity Officer – currently held by Jason Starr – in the Office of Cannabis Management.
Groups eligible for social justice status include those disproportionately harmed by cannabis enforcement, minority or female-owned businesses, farmers in distress, and veterans with disabilities.
The next year or so should show whether these measures work as intended, Plowden said, adding that if social justice applicants are licensed but lack access to capital, their businesses are likely to stall.
Additionally, he fears that well-off groups could use “figureheads” to qualify for social equity licenses only to take over operations shortly afterwards. Predatory business contracts could also undermine MRTA’s social justice language.
“I think it’s kind of a 50/50 throw; it sounds good right now, but we won’t see it until later (licensing begins), ”Plowden said. “It can get out of hand after a few months.”
Allan Gandelman, president of the New York State Cannabis Growers and Processors Association, said the state needs to ensure that the legal cannabis market does not simply turn over to a handful of multi-state operators. However, he believes that MSOs may be necessary in the state cannabis ecosystem.
Plus, New York Old Market is already well established and an active gray market has emerged since the state legalized cannabis, said Gandelman, the owner and CEO of Cortland-based Main Street Farms, which grows and sells hemp, vegetables, and other products . If state officials take too long to develop a legal market, the illegal market could prevail, he said.
Gandelman cites New York City as a prime example, where today a multitude of bodegas, delivery services, and other illegal businesses sell cannabis in all forms. These companies aren’t regulated, don’t pay taxes, and generally operate with fewer risks than if law enforcement efforts prioritized the cannabis ban.
“The longer it takes, the harder it becomes to put the genie back in the bottle,” said Gandelman. “We are in a difficult situation and it will be a difficult balancing act.”
At the same time, large operators in multiple states are best suited for quick openings, and quick licensing could give these companies a significant head start, he said.
Gandelman said there probably isn’t a solution that makes everyone happy, but regulators need to find one that most people can live with. And with some of New York’s 10 medicinal cannabis companies slated to move into the adult-use space, time is a luxury of limited supply.
It’s a nuanced situation, said Steve DeAngelo, a longtime cannabis entrepreneur and activist who sold cannabis in the northeast, including New York, between 1975 and 2000.
“It’s very complex, and if you don’t think through these rules and how the system works, you can have some very serious and very detrimental” implications for the emerging legal market, he said.
But the time it takes to do this – DeAngelo believes it could take two to three years to open legal retail stores – could undermine New York’s legally regulated cannabis industry.
One possible workaround would be to give old operators temporary licenses that would allow them to sell cannabis outright – provided they test their products, meet safety standards, and pay state taxes.
But it is not clear that state regulators or legislators are seriously discussing this.
David Holland, President of the New York City Cannabis Industry Association, is also keeping a close eye on which companies are allowed to start first.
The state’s 10 registered medical marijuana operators have the resources and experience in other states to potentially achieve full compliance and obtain the license soon after regulations are announced, while smaller players start from scratch, Holland said.
“Some people think that’s okay, others think it’s really unfair; but it’s a hot topic, ”said Holland.
Still, there are things that entrepreneurs looking to get into the cannabis industry can do now to prepare to apply for licenses, Holland said.
Regardless of what type of license a person or group is aiming for, they have to, for example, build a corporate structure (whether a company, a sole proprietorship or something else), formulate a business model and secure a physical location for operations.
“There is a lot that can be done now,” said Holland.
Steven Phan, co-founder of Come Back Daily CBD in Manhattan’s East Village, is already taking steps to move his CBD-based business to the adult cannabis market as soon as possible. He’s protecting a name and working on store decor while awaiting regulations in place, he said.
Until then, Phan added, much of the planning is only guesswork. For example, it’s not yet clear whether a company can sell medical cannabis and adult cannabis from the same location.
Phan predicts that once the market is opened, state regulators may need to adjust some rules as they are unlikely to find loopholes in their mandates until after they are introduced.
“Here’s the reality of the situation: it’s the government,” Phan said. “They make rules for New York State – for all of us – and we hope they get it right the first time.”
“That sounds like a huge undertaking, and it’s kind of unrealistic.”
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