New York’s Draft Cannabis Regulations: 10 Key Aspects that Will Impact the Market

Michelle Bodian, Sam Kovach-Orr, Bridgette Nikisher

Vicente Sederberg LLP

Draft regulations to implement the Marijuana Regulation and Taxation Act MRTA have been published. Public comment is due by February 12, 2023. On December 14, 2022, the draft regulations to implement the Marijuana Regulation and Taxation Act (New York’s cannabis law) were published in the state register with a 60-day public comment period. The Office of Cannabis Management (OCM) must receive all comments by February 12, 2023. These draft regulations include the application, eligibility, and licensing procedures for applicants seeking to obtain a license to operate as an adult-use nursery, cultivator, processor, distributor, retail dispensary, microbusiness, cooperative, registered organizations with dispensing (ROD), or registered organizations nondispensing (ROND). While the draft regulations are over 280 pages, below are ten aspects that will most directly impact hopeful and existing New York cannabis businesses.

1. Prohibitions on Ownership/Investment in Multiple License Types

While New York’s cannabis law set the framework for tiered supply chain (mirroring the state’s alcohol and beverage law), the draft regulations greatly expand the limitations on who cannot “cross tiers.” The two tiers are supply (cultivation/nursery/distributor/processor) and retail (dispensary, on-site consumption, delivery). The draft regulations broadly define several terms, including:

• True Party of Interest (TPI)
• Passive Investor
• Financier
• Goods and Services Agreements
• Control or Controlling Interest
• Aggregate Ownership

These definitions, when taken together, prohibit existing cannabis investors from investing in the New York cannabis market and will impede many existing cannabis operators from replicating their success in other states in New York.

2. Undue Influence

The draft regulations set forth robust restrictions on promotional items and activities. These restrictions include a prohibition on a licensee’s ability to give or receive a “benefit equivalent to the value of money” from another licensee. However, licensees are permitted to give branded promotional items “of nominal value” to dispensaries and/or their employees on the condition that the items may not be given to retail dispensary customers. Further, licensees are generally prohibited from providing promotional item giveaways to retail dispensary customers, including branded and unbranded merchandise (excluding samples of non-infused edibles and topical products). (See Part § 124.1).

3. Lack of Materiality Threshold for Private Companies

Most states have a materiality threshold whereby individuals under a certain percentage of ownership or control do not need to be disclosed to the state or listed on cannabis license; in New York these are “passive investors.” New York has a materiality threshold for publicly traded companies (of which there are very few) in line with other states’ thresholds; however, New York’s threshold for private companies is untenable. The draft regulations state that a “passive investor” (aka someone that does not need to be disclosed to the state) is an individual with total ownership of either 5% of a publicly traded company or 20% of a privately held company, and who does not have any other control or influence. A 5% materiality threshold for ownership and disclosure for privately held companies is more consistent with other states. While this would not guarantee access to investment dollars, this would allow greater opportunity for New York licensees to raise capital to finance their operations. (See Part § 118.1(61)

4. Registered Organization Dispensary Moratorium and Need to Divest Assets

While Registered Organizations will ultimately be permitted to conduct adult-use sales, RODs will be prohibited from obtaining authorization for adult-use retail dispensary operations for three years without exception. (See Part 123.18(b)(9) stating “A ROD shall not: be granted authorization to apply for adult-use retail before three years from the first date of a retail adult-use cannabis sale by a licensee authorized under the Cannabis Law.”) In addition, a ROD or its TPIs are not permitted to hold a direct or indirect interest in, or be a TPI, passive investor, landlord, financier, or management services provider, or by any other means, to a cultivator, processor, distributor, cooperative, microbusiness, retail dispensary, on-site consumption, delivery, ROND, registered organization, or cannabis laboratory licensee or permittee, or any person licensed outside of New York State who are licensed to function as any of the aforementioned licenses. This will effectively require all RODs to divest their assets in other states or be blocked from converting to adult use. (See Part 123.17(d)).

5. Processor White Label Restrictions

The draft regulations state that a cannabis processor may only enter into a branding or white labeling agreement with its TPIs or another licensee. As brands are not eligible to become licensees, this will severely limit and prohibit out-of-state brands. (See Part §C 123.5(c))

6. “Community Facility” and “Unreasonably Impracticable”

The draft regulations create a newly defined term, a “community facility.” This term and the rules contained in § 119.2 greatly expand on permitted municipal setbacks.

“Community facility” means a facility that may include, but not be limited to, a facility that provides day care to children; a public park; a playground; a public swimming pool; a library; or a center or facility where the primary purpose of which is to provide recreational opportunities or services to children or adolescents. A municipality may issue a local law regarding community facilities that are not unreasonably impracticable. § 118.1(a)(21).

“Unreasonably impracticable” is not defined; however, Part 119.5 outlines the procedures for CCB review of municipality rulemaking alleged to be unreasonably impracticable. Under Section 131(2) of New York’s cannabis law, municipalities are prohibited from enacting and/or enforcing any rules, regulations, ordinances, or other action “if such action otherwise impedes on duties and obligations of the Board as set forth under the cannabis law, violates any provision of the cannabis law [or the draft regulations], or discriminates against or frustrates the registrant, licensee, or permittee’s ability to carry out the operation of such registration, license, or permit as issued by the Board.” (See Parts § 119.2 and §119.5).

7. Factors in Determining Cannabis Cultivation Canopy Expansion in New York

New York’s draft cannabis regulations outline the factors OCM will utilize to determine whether to grant requests to expand a cultivator’s canopy to a larger tier. These factors include cultivation and sales history, the licensee’s inventory and inventory history, whether the licensee underwent a catastrophic event affecting plants and/or inventory, and the licensee’s adherence to its submitted plans (e.g., the licensee’s operating plan). The draft regulations also include a “catch-all” factor (“any other factors determined by the Board”). Cultivators aiming for long-term growth and expansion should consider how they will demonstrate success in the articulated factors; and whether there are more concrete factors that should be utilized. (See Part § 120.3(a)(5)).

8. Lack of Delivery License Information

While all other license types are discussed in detail in the draft regulations, cannabis delivery is expressly excluded at this time. While OCM has indicated these draft regulations will be promulgated eventually, it leaves many questions unanswered for the time being. New York cannabis delivery guidance has been provided to CAURD licensees, which provides a sneak peek into what the final delivery regulations might say. Still, since delivery is not included in the draft regulations, we can’t be certain. The CAURD delivery guidance also might not align with the final delivery regulations as many of the provisions in the CAURD delivery guidance are special terms for CAURD licensees only. While businesses are planning their entry into the New York, it would be beneficial to know the rules of the game for all possible licenses at the same time.

9. Converting a New York Conditional Cultivator License to a Full License

According to the draft regulations, New York Adult-Use Conditional Cultivators (AUCC) will be permitted to transition to a full license upon the satisfaction of certain conditions; however, the transition will only allow for a Tier IV outdoor license or a Tier II combination cultivator. A Tier IV outdoor will allow greater than 25,000 square feet, but not exceeding 50,000 square feet. A Tier II combination cultivator allows greater than 5,000 square feet, but not exceeding 12,500 square feet of outdoor, and greater than 2,500 square feet but not exceeding 6,250 square feet of mixed light. Currently, AUCCs may cultivate up to 43,560 square feet of flowering canopy outdoors or 25,000 square feet of flowering canopy in a greenhouse. An AUCC can grow outdoors and in a greenhouse if flowering canopy in a greenhouse is equal to or less than 20,000 square feet and the total flowering canopy is equal to or less than 30,000 square feet. This will result in the following potential loss of canopy:

License Type Potential Loss in Square Feet

Outdoor only 6,440

Greenhouse only 18,750

Combo greenhouse/outdoor Outdoor loss: 2,500; Greenhouse (renamed mixed light): 13,750

(See Part § 123.3(g)).

10. 1,000-foot Setback for Cannabis Dispensaries in New York’s Major Cities

The draft regulations require New York municipalities with a population of 20,000 or more to require a 1,000-foot radius from other premises that have been issued the same license type. This means that in many municipalities—including New York City, Buffalo, Syracuse, and Albany—a retail dispensary cannot be located within 1,000 feet of another retail dispensary. (See Part § 119.1(a)(4)). This radius may prove impossible in densely populated cities where property is already scarce. Municipalities were given the option to “opt out” of allowing retail dispensaries, consumption lounges, or both. In the chart below, “opted out” means that the municipality opted out of allowing both retail dispensaries and consumption lounges to operate within its borders.

City County Population Opt-In/Opt-Out? Retail Consumption Lounges

New York New York 8,419,316 Will allow both retail and consumption lounges. Yes Yes

Hempstead Nassau 767,417 Opted out. No No

Brookhaven Suffolk 483,546 Will allow both retail and consumption lounges. Yes Yes

Islip Suffolk 331,499 Opted out. No No

Oyster Bay Nassau 297,822 Opted out. No No

Buffalo Erie 256,480 Will allow both retail and consumption lounges. Yes Yes

North Hempstead Nassau 230,531 Opted out. No No

Babylon Suffolk 211,207 Will allow both retail and consumption lounges. Yes Yes

Rochester Monroe 206,848 Will allow both retail and consumption lounges. Yes Yes

Huntington Suffolk 201,718 Opted out. No No

Yonkers Westchester 199,968 Will allow both retail and consumption lounges. Yes Yes

Syracuse Onondaga 142,874 Will allow both retail and consumption lounges. Yes Yes

Ramapo Rockland 135,560 Opted out. No No

Amherst Erie 125,509 Will allow both retail and consumption lounges. Yes Yes

Smithtown Suffolk 116,669 Opted out. No No

Albany Albany 97,478 Yes Yes

Greece Monroe 95,988 Opted out. No No

Greenburgh Westchester 91,382 Will allow retail, but not consumption areas. Yes No

Clarkstown Rockland 86,488 Opted out. No No

Cheektowaga Erie 86,477 Will allow both retail and consumption lounges. Yes Yes

Colonie Albany 82,849 Will allow dispensaries, consumtpion sites TBD. Yes No

New Rochelle Westchester 79,067 Will allow both retail and consumption lounges. Yes Yes

Tonawanda town Erie 72,159 Will allow retail, but not consumption areas. Yes No

Mount Vernon Westchester 67,896 Will allow both retail and consumption lounges. Yes Yes

Schenectady Schenectady 65,334 Will allow both retail and consumption lounges. Yes Yes

Utica Oneida 60,320 Will allow both retail and consumption lounges. Yes Yes

Clay Onondaga 59,364 Will allow both retail and consumption lounges. Yes Yes

Hamburg Erie 58,266 Will allow retail, but not consumption areas. Yes No

White Plains Westchester 58,137 Will allow both retail and consumption lounges. Yes Yes

Southampton (town) Suffolk 58,094 Will allow both retail and consumption lounges. Yes Yes

Hempstead village Nassau 55,300 Opted out. No No

Union Broome 53,779 Will allow retail but not consmption lounges. Yes No

Irondequoit Monroe 50,302 Will allow both retail and consumption lounges. Yes Yes

Orangetown Rockland 49,909 Opted out. No No

Troy Rensselaer 49,458 Will allow both retail and consumption lounges. Yes Yes

Niagara Falls Niagara 48,252 Will allow both retail and consumption lounges. Yes Yes

Perinton Monroe 46,671 Opted out. No No

Rye town Westchester 46,595 Will allow both retail and consumption lounges. Yes Yes

West Seneca Erie 45,344 Will allow retail, but not consumption areas. Yes No

Binghamton Broome 45,140 Will allow both retail and consumption lounges.Draft zoning regulations: https://www.binghamton-ny.gov/government/departments/planning-zoning-historic-preservation-department/cannabis-zoning Yes Yes

Mount Pleasant Westchester 44,970 Opted out. No No

Webster Monroe 44,522 Opted out. No No

Poughkeepsie town Dutchess 44,177 Will allow retail, but not consumption areas. Yes No

Henrietta Monroe 43,347 Will allow retail, but not consumption areas. Yes No

Lancaster Erie 43,085 Opted out. No No

Freeport Nassau 43,078 Opted out. No No

Cortlandt Westchester 42,426 Will allow retail, but not consumption areas. Yes No

Ossining Westchester 37,642 Will allow retail, but not consumption areas. Yes No

Valley Stream Nassau 37,577 Opted out. No No

Penfield Monroe 37,252 Will allow retail, but not consumption areas. Yes No

Haverstraw Rockland 37,114 Will amend its zoning to permit the use along Route 9W.

Clifton Park Saratoga 36,663 Opted out. No No

Yorktown Westchester 36,538 Opted out. No No

Brighton town Monroe 36,272 Will allow both retail and consumption lounges. Yes Yes

Guilderland Albany 35,696 Will allow retail, but not consumption areas. Yes No

Bethlehem Albany 34,946 Opted out. No No

Carmel Putnam 34,210 Opted out. No No

Riverhead Suffolk 33,549 Will allow both retail and consumption lounges. Yes Yes

Long Beach Nassau 33,507 Opted out.February 2022, petitions circulating to host a referendum. No No

Eastchester Westchester 32,983 Opted out. No No

Salina Onondaga 32,630 Will allow retail, but not consumption areas. Yes No

Clarence Erie 32,440 Opted out. No No

Spring Valley Rockland 32,295 Will allow both retail and consumption lounges. Yes Yes

Rome Oneida 32,253 Will allow both retail and consumption lounges. Yes Yes

Manlius Onondaga 31,884 Will allow both retail and consumption lounges. Yes Yes

Warwick Orange 31,217 Will allow retail, but not consumption areas. Yes No

Newburgh town Orange 30,905 Will allow both retail and consumption lounges. Yes Yes

Cicero Onondaga 30,868 Opted out. No No

Ithaca Tompkins 30,569 Will allow up to 12 cannabis businesses in the city. Please see pages 61-64 for a summary of the proposal: https://www.cityofithaca.org/AgendaCenter/ViewFile/Agenda/2308?html=true Yes Yes

North Tonawanda Niagara 30,487 Will allow both retail and consumption lounges. Yes Yes

Poughkeepsie Dutchess 30,381 Will allow both retail and consumption lounges. Yes Yes

Mamaroneck Westchester 29,670 Opted out. No No

Rotterdam Schenectady 29,593 Will allow both retail and consumption lounges. Yes Yes

Orchard Park Erie 29,509 Will allow retail, but not consumption areas. Yes No

Jamestown Chautauqua 29,504 Will allow both retail and consumption lounges. Yes Yes

Pittsford Monroe 29,410 A referendum held on February 8, 2022 upheld the decision to opt out. No No

Port Chester Westchester 29,342 Opted out. No No

East Fishkill Dutchess 29,299 Opted out. No No

Glenville Schenectady 29,292 Opted out. No No

Wallkill Ulster 28,588 Will allow retail, but not consumption areas. Yes No

Chili Monroe 28,564 Opted out. No No

Gates Monroe 28,398 Opted out. No No

Vestal Broome 28,352 Will allow both retail and consumption lounges. Yes Yes

Newburgh Orange 28,255 Will allow both retail and consumption lounges. Yes Yes

Harrison Westchester 28,135 Opted out. No No

Middletown city Orange 27,963 Opted out. No No

Saratoga Springs Saratoga 27,943 Will allow both retail and consumption lounges. Yes Yes

Queensbury Warren 27,456 Will allow both retail and consumption lounges. Yes Yes

Elmira Chemung 27,402 Opted out. No No

New Windsor Orange 27,296 Opted out. No No

Glen Cove Nassau 27,232 Opted out. No No

Lindenhurst Suffolk 26,979 Opted out. No No

Wappinger Dutchess 26,660 Opted out. No No

Auburn Cayuga 26,601 Will allow both retail and consumption lounges. Yes Yes

Watertown Jefferson 25,622 Opted out. No No

De Witt Onondaga 25,269 Will allow both retail and consumption lounges. Yes Yes

Ossining village Westchester 25,086 Will allow retail, but not consumption areas. Yes No

Palm Tree Orange 24,666 Will allow both retail and consumption lounges. Yes Yes

Kiryas Joel Orange 24,571 Will allow both retail and consumption lounges. Yes Yes

Rockville Centre Nassau 24,492 Opted out. No No

Camillus Onondaga 24,262 Opted out. No No

Halfmoon Saratoga 24,224 Will allow retail, but not consumption areas. Yes No

Fishkill Dutchess 24,151 Will allow retail, but not consumption areas. Yes No

Peekskill Westchester 24,075 Will allow both retail and consumption lounges. Yes Yes

Montgomery Orange 23,827 Opted out. No No

Kingston Ulster 23,070 Will allow both retail and consumption lounges.Creating a Marijuana Task Force to “get community input on the developing regulations and the policies that the MRTA is now in process of.” This task force will have 6 council-appointed members and 3 mayor-appointed members. Yes Yes

Lysander Onondaga 22,790 Will allow retail, but not consumption areas. Yes No

Onondaga Onondaga 22,663 Will allow retail, but not consumption areas. Yes No

Garden City Nassau 22,499 Opted out. No No

Niskayuna Schenectady 22,267 Opted out. No No

Southold Oneida 22,136 Opted out. No No

East Hampton Suffolk 21,952 Opted out. No No

New Hartford Oneida 21,836 Will allow both retail and consumption lounges. Yes Yes

Somers Westchester 21,487 Opted out. No No

Le Ray Jefferson 21,427 Opted out. No No

Grand Island Erie 21,047 Will allow retail, but not consumption areas. Yes No

Hyde Park Dutchess 20,954 Opted out. No No

Lockport Niagara 20,490 Will allow both retail and consumption lounges. Yes Yes

Ogden Monroe 20,341 Opted out. No No

Lockport town Niagara 20,027 Will allow both retail and consumption lounges. Yes Yes

Source: JD Supra https://www.jdsupra.com/legalnews/new-york-s-draft-cannabis-regulations-6181305/