Current State of New York’s Cannabis Market
New York's Cannabis Control Board approved revised adult-use cannabis regulations on May 11, 2023. The regulations will now undergo a 45-day public comment period upon publication in the New York State Register. While subject to public input, it is anticipated that the regulations will remain largely unchanged, effectively representing the final version. The Office of Cannabis Management (OCM) has announced that adult-use cannabis applications will open in the coming fall, making these revised regulations the guiding framework for prospective applicants.
Here are some noteworthy changes:
1. Governor Holchul’s 2024 budget includes new legislation that increases the civil and tax penalties (up to $20K per day) on unlicensed cannabis sales, for both perpetrators and landlords. It also gives the OCM the right to do inspections on any cannabis business, not just those licensed by the OCM.
2. The Cannabis Crop Rescue Act – introduced by State Assemblywoman Donna Lupardo on 4/20/23 – would allow cannabis farmers to sell their own or another licensed cultivator’s product directly to consumers until Sept. 30, 2023. It also authorizes the state’s Office of Cannabis Management to create a loan or grant program to help cultivators process cannabis into distillate. If voted into law, the act would sow competition between adult use retail establishments and growers. But it would be short lived, with farmers forced to gear up for a retail presence over the next few months, only to shut it down by Sept. 30.
3. Current Conditional Licenses issued:
a. 278 cultivators,
b. 42 processors,
c. 300 retail (215 granted, 85 left),
d. 14 labs and
e. 11 sampler firms.
4. Conversions of Licenses to regular licenses
a. Conditional Cultivators – Conditional Cultivators will be able to convert to one of the following license types once those license types become active with the general licensing round (Expected Aug- Oct. 2023). See below for details on cultivation tiers.
i. Tier 1-4 outdoor cultivator license;
ii. Tier 1 or 2 mixed-light cultivator license;
iii. Tier 2. Greater than 5,000 square feet and up to but not exceeding 12,500 square feet
iv. Tier 1 or 2 combination cultivator license;
v. an adult-use cultivator license authorized for up to 25,000 square feet of mixed light cultivation canopy with no more than 20 lights, provided however, neither the Office nor the Board shall authorize an increase in the number of lights for this license type without the issuance of regulations;
vi. a microbusiness license; or
vii. an outdoor or mixed light cooperative or collective license, provided the cooperative or collective license includes at least 5 adult-use conditional cultivators that are transitioning to adult-use cultivators and meet all other requirements to obtain a cooperative or collective license
Information Provided by New Cannabis Regulations
NEW Timeline
1. The OCM published new regulations on May 11th, which went into a 45 day comment period. The OSM is targeting to have the regulations finalized and officially issued by Labor Day, Sept 4th, however it is likely that they will beat that timeline.
2. The General round of Licensing will occur sometime in the late summer or the Fall, with a 30 Day Notice prior. Expectations are therefore for the application to be announced anywhere from August through October of 2023.
a. While not finalized, the talk around the application is that they are likely to be merit based for a limited number of licenses. Licenses will be segmented by Region (as with the CAURD Application) and, for cultivation, tier. So, for example, an applicant for a Tier 5 cultivation license in Western NY, is likely to only be competing against persons looking to get a Tier 5 cultivation license in Western NY. A Retailer in Western NY would likely only be competing against Retailers in that same region.
Cultivation Canopy Tiers
Indoor, Mixed Light, or Outdoor Cultivation License Canopy Tiers: A cultivator that is authorized to cultivate only indoor, mixed light, or outdoors Each license (only allows one such growing method) is authorized to cultivate cannabis in one of the following canopy tiers:
Tier 5: Greater than 50,000 sq. ft., and up to but not exceeding 100,000 sq. ft.
Tier 4: Greater than 25,000 sq. ft., and up to but not exceeding 50,000 sq. ft.
Tier 3: Greater than 12,500 sq. ft., and up to but not exceeding 25,000 sq. ft.
Tier 2: Greater than 5,000 sq. ft., and up to but not exceeding 12,500 sq. ft.
Tier 1: Up to but not exceeding 5,000 sq. ft.
Combination Cultivator Cultivation Tiers: A cultivator is authorized to cultivate outdoors and with mixed light in one of the following canopy tiers:
Tier 5: Greater than 50,000 square feet and up to but not exceeding 100,000 square feet of outdoor, and greater than 15,000 square feet and up to but not exceeding 30,000 square feet of mixed light.
Tier 4: Greater than 25,000 square feet and up to but not exceeding 50,000 square feet of outdoor, and greater than 12,500 square feet and up to but not exceeding 15,000 square feet of mixed light.
Tier 3: Greater than 12,500 square feet and up to but not exceeding 25,000 square feet of outdoor, and greater than 6,250 square feet and up to but not exceeding 12,500 square feet of mixed light.
Tier 2: Greater than 5,000 square feet, and up to but not exceeding 12,500 square feet of outdoor, and greater than 2,500 square feet and up to but not exceeding 6,250 square feet of mixed light.
Tier 1: Up to but not exceeding 5,000 square feet of outdoor and 2,500 square feet of mixed light.
New Regulation Changes
1. Provisional Licenses were introduced. This is a type of license that may be granted if the applicant submits all the same materials required to be submitted for a final license for the same adult-use license type, except the following: (1) requirements for information regarding a premises under paragraph (4) of subdivision (a) of this section; and (2) information relating to evaluation of applicants based on premises information, if applicable. The intention is to allow persons to use this Provisional license for funding and real estate securing process.
2. True Party of Interest.
The True Party of Interest (TPI) Rule has been modified so that now only persons who (1) own any equity, (2) Have a control position within the company (i.e. Officer, Board Member, etc.), (3) the owner of a company that owns equity in the licensed company, (4) a person who assumes responsibility for a licensees debts, (5) a person with authority to control the licensed entity, (6) a person with a financial interest (i.e., profit sharing) in the licensed entity, or (7) the spouse of any of the above. The final way to qualify as a TPI is where the change has occurred. One can become a TPI if they receive the greater of the following (A) 10% of the gross revenue, (B) 50% of the net profit, or (C) receive more than $250,000 in a single calendar year. This is referred to as the 10/50/250 Rule.
However:
While still a TPI, a person can be a Passive Investor if they own 20% or less of the equity in a licensed entity and have no control over the entity other than a normal shareholder’s vote. Passive Investors do not have to worry about other TPI issues, other than that they are not allowed to invest or participate in businesses outside of their vertical – meaning one can be a passive investor in an unlimited number of cultivation, processing, and distribution licenses, but cannot participate in any way in a retail, consumption, or delivery license, and vice versa.
For Financiers, the 10/50/250 Rule does not apply to re-payments on the principal. This, combined with that rule being based on receiving payment, may create the opportunity for a loan note that takes any interest payments above the 10/50/250 Rule and reloans them as principal to be paid back the next year.
There is now also a process for receivership under Section 124.7 of the new proposed regulations.
Landlord and Financiers will be accepted from TPI issues and will be able to cross tiers (so work with both cultivators and retailers) so long as they do not get involved with financial performance of the licensee (i.e., profit sharing) and their revenues are based either on a flat fee (landlord) or standard interest rate (Financier).
3. Environmental and Sustainability Targets
a. The State has given specific and extensive environmental and sustainability requirements that will be applicable to each license type in a new section of the proposed regulations – Section 125.1.
4. Management Agreements
a. Management agreements will be allowed, but with a few caveats: (1) the employees performing the work must be employed directly by the licensee, though a management agreement contractor can manage the operations, (2) the agreement must be terminable given a reasonable amount of notice, (3) the agreement must expressly state that the management agreement contractor must abide by policies set by the licensee and cannot overrule them in regards to cannabis operations.
b. Management Agreement entities will be allowed to work with different verticals (i.e., retail and cultivation) so long as (1) their compensation is based on a flat fee and (2) they do not generate fees in excess of the 10/50/250 rule. Note that for management agreements, unlike financiers, the basis of the 10/50/250 Rule is the amount of money generated in a calendar year, rather than received.
5. Onsite Consumption for Retailers – All retail licenses will now allow for on-site consumption in a “limited retail consumption area” that must be inside same building or on an adjacent parcel. However, other laws, including NY smoking laws and local ordinances up to and including banning of such limited consumption areas will still apply, so local municipal approval is a major factor here.
Global Go has won 4 CAURD licenses for clients in the New York cannabis market. For more information on the new rules in New York, or if you are interested in opening a cannabis business in New York, contact a Global Go cannabis consultant today by filling out the form below: