New York State Legalizes Recreational Marijuana

On March 31, 2021, New York became the 15th state to legalize recreational adult-use of cannabis when Governor Andrew Cuomo signed the Marijuana Regulation & Tax Act (MRTA) into law. But haven’t we been here before?

We have been hearing about cannabis legislation — ranging from decriminalization and criminal justice reform to research into consumer products, industrial applications, and medical therapies — for the better part of the last 30 years.

This last decade, we have reaped the rewards of activists’ efforts to legalize the plant and its derivative products across use cases as a global commodity. Public buy-in and policymaker reaction have been driven by core messaging around market cap potential, economic impact, and social equity fundamentals.

To understand the impacts of legalization for New York State (NYS), we must look to the recent history of a multitude of policies. Each policy passed with varying measures to rebuild the industry under legalization and efforts to recover opportunities for individuals battered by the decades-long policies and propaganda known as the War on Drugs.

This overview will discuss, in order, the basics of the cannabis industry, a review of NY State Senate Bill S854, and impact projections as provided by the Governor's office.

DEMYSTIFYING CANNABIS LANGUAGE & BUSINESS

The cannabis industry is broken up into three sectors: Adult-Use Marijuana, Medical Cannabis, and (Industrial) Hemp. While the language can be confusing, the hierarchy is quite simple. Cannabis is the parent term. All cannabis products, regardless of terminology or contents, are derived from the Cannabis sativa plant. This plant has over 540 organic chemical properties, of which there are over 100 identified cannabinoids (National Institutes of Health, 2021).

…a what? Cannabinoids are “naturally-occurring, biologically active, chemical constituents… some [of which] possess psychoactive properties” (Merriam-Webster, 2021). Two of the most common cannabinoids, CBD and THC, may look familiar. They are most definitely not interchangeable. Short for cannabidiol, CBD is the non-psychoactive cannabinoid associated with the physical relief and rest felt by consumers. Contrarily, THC (tetrahydrocannabinol) is the psychoactive cannabinoid commonly experienced as and associated with the “heady” feeling of being high. Both cannabinoids come from the same flower of the same plant, Cannabis sativa. Their concentrations vary from flower to flower, depending on the specific strain (variety), gender, and maturity of the plant at the time of harvest.

What does the cannabis industry look like in practice? For the most part, like a standard agricultural supply chain for our common consumer products. Think of the corn and soybeans spanning the midwest or the tobacco and cotton industries of the south. Consider the citrus, hops, and grapes grown along the West Coast and found in your juices, beers, and wines. Crafted like the seasonal apples New Yorkers love to handpick from their local orchard or grocer.

What is not standard about the cannabis industry? As of April 2021, cannabis and its byproducts remain classified as a Schedule I drug by the Drug Enforcement Administration (DEA), alongside heroin, LSD, ecstasy, methaqualone, and peyote. Consequently, the lack of federal legalization creates varying state regulations with idiosyncratic compliance requirements that often create significant agricultural challenges and economic burdens for operators. Unique regulations, particularly around sampling and potency testing, complicate the harvesting, extraction, and quality assurance of final products. Ultimately, the lingering federal status and lacking standardized regulation chokeholds capital financing, supply chain oversight, and interstate commerce for industry stakeholders.

NYS ADULT-USE POLICY OVERVIEW

NY State Senate Bill S854, as provided by the newly-established Office of Cannabis Management, outlines and regulates adult-use cannabis as well as incorporates existing medical marijuana and industrial hemp program legislation. The adult-use cannabis program is divided into three pillars of design and priority:

SOCIAL JUSTICE | State policymakers have voiced a commitment to social equity, “taking bold actions to encourage social justice, public health, and economic development in the lives of all New Yorkers.” The social and economic equity clause mandates that 50% of adult-use cannabis licenses be awarded to social and economic equity applicants and ensures inclusion of:

a. individuals from communities disproportionately impacted by cannabis prohibition enforcement;
b. minority-owned businesses;
c. women-owned businesses;
d. distressed farmers;
e. service-disabled veterans

PUBLIC HEALTH & SAFETY | Operators will be subject to stringent regulatory obligations to facilitate compliance and quality assurance oversight. Measures include record-keeping and tracking requirements, such as product origin and chain of custody. It regulates inspections, including sampling procedures, potency limits, and laboratory testing requirements. See the impact assessment summary provided in the table below for additional context and benefits.

ECONOMIC DEVELOPMENT | There are over 10 types of registered licenses to be issued under NYS’s adult-use cannabis programs. License types range from siloed operators to integrated supply chains. They include microbusinesses, cooperatives, and on-site consumption licenses. Licenses will be awarded for two-year terms, during which transfer of ownership is limited and after which operators must enter an outlined renewal process.

The full bill can be found here (Office of Cannabis Management, 2021). All program descriptions are unique requirements specific to NYS intrastate commerce.

IMPACT ASSESSMENT & PROJECTIONS

Upon appointment, the nominated Cannabis Control Board will establish a suite of fixed and variable fees to fund associated program administrative expenses and social and economic equity benefits.

For all applicants, there will be a non-refundable application fee — rates will vary based on the license type sought, anticipated volume (cultivation or production), and/or any other factors deemed reasonable and appropriate to achieve program policy and purpose. Additional one-time fees may be applied to select integrated operators in an effort to adequately fund social and economic equity and incubator assistance resources. During each license term, a biennial fee will be assessed in scale with cultivation, production, and/or distributed volume or by the gross annual receipts of the licensee (NY Senate Bill S854A, 2021).

As the market develops, the Governor’s office projects the potential for 30,000–60,000 jobs to be created (Cuomo, 2021). These jobs range from seasonal and/or part-time to full-time, including both salaried and wage-earners, across all types of licenses available.

Under S.854-A/A1248-A, tax collection is projected to reach $350 million annually. Excise taxes will range from 4–9% of the retail price. Of local tax revenue, counties will receive 25% and municipalities the other 75%. Gross revenues will first be used to cover reasonable administrative and regulatory oversight costs. The net balance will be split three ways (Cuomo, 2021):

· 40% Education
· 40% Community Grants Reinvestment Fund
· 20% Drug Treatment & Public Education Fund

Building off the 2019 decriminalization law, new measures introduced for criminal justice and reform are metered (Reyes, 2021):

· Employers cannot discriminate against employees for marijuana use during non-work hours
· Cannabis penalty framework will be restructured to avoid historical criminalization under prohibition, reducing penalties for possession and sale
· Automatic expungement or resentencing for all previous marijuana convictions that would now be legal under the law, along with providing necessary funding

As S.854 implementation rolls out, there will be several key events to watch out for that will shape program impact in the years to come.

· Cannabis Control Board and relevant advisory nominations, especially the Chief Equity Officer
· Your local municipality’s vote on whether or not to allow local dispensary licenses
· CCB releases of permit recipient demographics in order to measure adherence to the pre-established social and economic equity provisions

References

Cuomo, O. o. (2021, March 31). Governor Cuomo Signs Legislation Legalizing Adult-Use Cannabis. Retrieved from Office of Governor Andrew M. Cuomo: https://www.governor.ny.gov/news/governor-cuomo-signs-legislation-legalizing-adult-use-cannabis

Merriam-Webster. (2021, April 4). cannabinoid. Retrieved from Merriam-Webster Dictionary: https://www.merriam-webster.com/dictionary/cannabinoid

National Institutes of Health. (2021, April 4). Cannabis (Marijuana) and Cannabinoids: What You Need To Know. Retrieved from National Institutes of Health: https://www.nccih.nih.gov/health/cannabis-marijuana-and-cannabinoids-what-you-need-to-know

NY Senate Bill S854A. (2021, January 6). NY Senate Bill S854A. Retrieved from Office of Cannabis Management: https://legislation.nysenate.gov/pdf/bills/2021/s854a

Office of Cannabis Management. (2021, April 4). Office of Cannabis Management. Retrieved from THE OFFICIAL WEBSITE OF NEW YORK STATE: https://cannabis.ny.gov/

Reyes, A. (2021, March 30). New York State lawmakers pass bill to legalize adult use of marijuana. Retrieved from WKBW Buffalo: https://www.wkbw.com/news/state-news/new-york-state-senate-passes-bill-to-legalize-adult-use-of-marijuana-assembly-debate-continues

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Sara J Wells

Sara J Wells

blockchain-enamored | wall street escapee | digging into puzzles that interest me