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Published: Sep 24, 2022

Written by: CannaBuff

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Empire State Cannabis Update: Roadmap for Navigating the Rules of the Adult-Use Market

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A year and a half after New York passed into law its comprehensive cannabis legalization bill, the Marijuana Regulation and Taxation Act (MRTA), the state’s adult-use market is beginning to take shape. Regulators at the Office of Cannabis Management (OCM) and Cannabis Control Board (CCB) have awarded conditional adult-use cultivation (AUCC) and processing (AUCP) licenses to businessowners licensed under the Empire State’s Cannabinoid Hemp Program, and will soon be granting the first Conditional Adult-Use Retail Dispensary (CAURD) licenses to “justice-involved” individuals (those who were arrested or convicted of a cannabis-related offense, or who had a close relative arrested or convicted of a cannabis-related offense) who can demonstrate at least 10% ownership in a business that had net profits for at least 2 years.

And yet these conditional licenses are just a drop in the bucket compared to the full licensing regime set forth in the MRTA.

Soon, the OCM and CCB will fill in the remainder of the details needed for the full rollout of the adult-use landscape by publishing regulations and formal guidance for permanent licensees. Once this guidance is finalized, it will be “go-time” for those who have patiently waited to enter the market to compile and submit their application materials in the hopes of receiving a coveted adult-use license from the OCM.

Despite the fact that there have only been two categories of licenses awarded to date, and we still do not have annual license regulations, we have learned quite a bit from the conditional license application process which should show prospective license holders what they can expect upon obtaining an adult-use license.  We survey the two biggest themes below from what we know so far and what we expect to see once the permanent licenses launch.

OCM Is Listening 

A critical piece in the development of New York’s adult-use market is the publication of official regulations and formal guidance documents. In the conditional adult-use market, we have seen proposed packaging, labeling and marketing regulations that apply to supply-side licensees, as well as license-specific Terms and Conditions for AUCP and AUCC licensees. A common misconception, however, is that once published, these documents are set in stone.

Nope. Draft regulations are just that – drafts.

With respect to official agency regulations, once an initial draft is finalized, OCM is legally required to both publish these documents in the State Register and accept comment from the public for a minimum of 60 days. During this window, anyone (whether prospective licensees, trade groups, or simply interested individuals) is allowed to submit written opinions and suggestions for revisions on the proposed terms. OCM then reads all of these comments, incorporates any revisions it sees fit, and publishes its responses to the comments for the public to review.

While the OCM largely left the regulations pertaining to the CAURD license unchanged, public comments to the Medical Cannabis Program regulations resulted in substantive amendments. The OCM has similarly revised its draft conditional license guidance documents after initial publication due to commentary from those outside the agency, including those related to the packaging and labeling of adult-use cannabis products.

What does this mean? Speak up!  If you believe you have a meaningful revision to the OCM’s published guidance or you simply agree and want to express your support, put it in writing and submit it to the agency. The OCM is legally obligated to field these comments (although, they are not required to implement them.

To be clear, comments must be in writing and directed to the OCM pursuant to their instructions – tweets, LinkedIn posts, Facebook rants and Instagram Live streams will not be considered.

Compliance Matters

That said, once regulations and guidance documents are finalized, it is critical that the prospective or current licensee comply with the rules set forth therein. At this point, absent any amendment from the OCM, CCB or legislature, the rules are effectively final. And following these rules is the quintessential element of operating a successful, compliant adult-use cannabis business.

This is no better highlighted than by the introductory email that AUCC and AUCP licensees received from the OCM upon being granted licensure. In this congratulatory email, the first communication AUCC and AUCP licensees received from the state, the OCM sets forth a laundry list of documentation licensees are required to submit within 30 and 60 days of receiving their respective licenses. And these submissions are nothing to sneeze at.

Arguably the most arduous of this documentation is the “Operating Plan”, which effectively asks licensees to summarize the entirety of their operations for the OCM to review. For example, AUCC licensees were required to provide the OCM with, amongst other submissions: a plant bed diagram created in accordance with the flowering canopy measurement guidelines; photos of the current drying area and a description that includes the dimensions of the drying space and any temperature or humidity controls present and operational; and, an on-premises based identification and traceability system that allows all cannabis products to be traced back to the licensee and specific production site, to the block and bed level, and traced forward up the supply-chain to the next distribution point.

For AUCP licensees, the following minimum documentation must be submitted in connection with their respective Operating Plans: (1) Site Plan, (2) Security Plan, (3) Employee Training and Safety Plan, (4) Product Quality Plan, (5) Product Sampling, Analysis, and Testing Plan, (6) Quality Assurance Plan, (7) Product Recall Plan, (8) Sustainable Energy-Use and Conservation Plan, and (9) Sustainable Packaging Program. Licensees must also produce templates for waste records and transport manifests, and provide written proof that at least one on-site employee has been trained in First Aid and CPR.

Oh, by the way – all of this has to be done within 30 days of being granted the license.

Put simply, preparing a successful application is the tip of the regulatory iceberg. Compliance will always loom large in the adult-use market, especially given that adult-use cannabis remains a federally illegal substance. The earlier licensees can both understand the entirety of their compliance requirements and begin preparing documentation evidencing their adherence thereto, the less risk of pushback or audit from the OCM, and the more they can focus on operating their business.

Conclusion

It is non-negotiable that prospective licensees follow the development of the new adult-use cannabis regulations and guidance closely because their businesses ultimately depend on it. Coordinating public comment early to the OCM has already proven to be a successful way for current and prospective businesses to make their presence known. Yet once the regulations are set in stone, cannabis entrepreneurs must take care to comply with each and every requirement or else they risk audit, penalty, or even forfeiture of their licenses.

As we have consistently noted in our previous CannaBuff articles, the earlier applicants can begin to prepare their materials, the better situated they will be when the next development in the marketplace occurs, whether that is the release of a license application or the terms and conditions for operating under that license.

The Lippes Mathias Cannabis Practice Team will continue to monitor developments in New York’s burgeoning cannabis industry, including when additional adult-use regulations are published, and when permanent license applications are expected to be released. If you have any questions, please contact one of our attorneys

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