The Marijuana Regulation & Taxation Act (the “Act”) was signed into law by Governor Andrew Cuomo on March 31, 2021. Not only does the Act create the foundation for the adult-use marijuana program, it contains sweeping changes to the current medical marijuana regulatory framework as well as criminal reform elements.
Per the Act, the administration of the adult-use and medical marijuana programs will be two pronged. The Act provides the criteria for the composition of a Cannabis Control Board which will be charged with creating regulations for the medical and adult-use programs. The implementation and enforcement of the policies will be conducted through the Office of Cannabis Management which will enforce the policies. It will be a bit more than a “New York Minute” before these regulators are ready to release the more specific provisions of the regulations or application process here is what we do know:
The Act creates ten categories of adult-use license types:
- Adult- Use Cultivator
- Adult-Use Processor
- Adult-Use Distributor
- Adult-Use Retail Dispensary
- Small Business Adult-Use Cooperative
- Registered Organization Licenses (to be used in conjunction with medical registered organizations)
- Adult-Use On-Site Consumption
The Act intentionally prohibits certain types of vertical integration through restrictions on
License Holder combinations. For example, holders of an Adult-Use Cultivator License will be restricted to only one processor license, and may not hold a retail dispensary license, have interest in a retail dispensary, or hold a license to distribute regulated marijuana. Holders of an Adult-Use Processor License are restricted from also holding a retail dispensary license, having interest in a retail dispensary, or holding a license to distribute regulated marijuana. Distributor licensees may not hold a license for, or have an interest in, a retail dispensary. Retail Dispensary license holders are capped at holding three (3) Retail Dispensary licenses. Similarly Adult-Use On-Site Consumption license holders may only hold up to three (3) licenses and are prohibited from holding an interest in an Adult-Use Retail Dispensary, Cultivation, Processor, Microbusiness, Cooperative or Distributor license and cannot qualify as a Registered Organization.
Specific application requirements surrounding social equity are not available currently, however, Article 4 §87 of the Act articulates a goal to ensure that fifty percent (50%) of adult-use cannabis licenses are awarded to social and economic equity applicants and to ensure the inclusion of:
- Members of communities disproportionately impacted by cannabis prohibition enforcement;
- Minority owned businesses;
- Women owned businesses;
- Distressed farmers; and
- Disabled veterans.
Specifically, priority consideration will be given to applicants that demonstrate that an applicant:
- Is a member of a community disproportionately impacted by cannabis prohibition enforcement;
- Has an income lower than 80% of the median income of the county in which the applicant resides; AND
- Was convicted of a marijuana related offense prior to the effective date of the statute (or has a family member that was).
A distinctive feature of the New York framework is the tax plan introduced by the Act which imposes taxes based upon the amount of tetrahydrocannabinol (“THC”) present in the final product type. The tax on marijuana products will follow a tiered structure based on the total amount of THC in the product as disclosed on the product labels. The tax structure is broken out as follows:
- Cannabis flower will be taxed at five-tenths of one cent (0.5) per milligram of THC;
- Concentrated cannabis will be taxed at eight-tenths of one cent (0.8) per milligram of THC; and
- Cannabis edible products will be taxed at three cents (3.0) per milligram of THC.
In addition to the THC-based tax, there will be a nine percent (9%) tax assessed on the sale of adult-use cannabis with a four percent (4%) tax allocated to local cities, counties, towns, or villages. This unique tax structure differs from taxes imposed on adult-use marijuana in almost every other jurisdiction. Illinois has a similar concept where a tax rate of 25% is imposed on cannabis products with a THC Concentration above 35%, while products containing less than 35% THC concentration are taxed at a rate of 10%, but tax structure under the Act is far more granular.
The impact and implementation of this tax structure is not clear yet. However, given the added complexities of the tax structure, the expected ramifications of this granular approach may present unanticipated burdens to participants in the adult-use cannabis program. For example, there will likely be an active regulatory approach to product testing, potency determinations, and labeling requirements as all will play an important role in determining the generated tax revenue. Moreover, the added complexity and additional regulatory involvement might favor larger, more-established cannabis retailers in the New York market, many of whom already have a foothold in the market and will be allowed access to more licenses/locations than market newcomers.
Husch Blackwell continue to monitor the evolving landscape of the New York marijuana programs as well as other emerging markets. For more information contact Steve Levine, Marshall Custer, Alyssa Samuel, Lindy Martinez or your Husch Blackwell attorney.