2022 was a landmark year for adult-use cannabis in New York State. Due to the creation and rollout of the conditional market, the state’s adult-use supply chain began to take shape as the first licensed cultivation, processing and distribution is underway, with retail stores just around the corner. While this staged approach pushed back the launch of the Marijuana Regulation and Taxation Act’s (MRTA) full licensing structure, the conditional market foreshadowed what New Yorkers can expect the cannabis industry to look like in the coming months. Below we recap three key lessons from 2022 as well as what consumers and hopeful applicants can expect in 2023.
Lessons Learned From 2022
In early 2022, New York legislators amended the MRTA to introduce three new types of licenses to jumpstart the state’s adult-use market: conditional cultivation (AUCC), conditional processing (AUCP), and conditional retail dispensary (CAURD). While eligibility for these licenses was limited to specific groups, as surveyed below, the conditional market previewed what future applicants and licensees can expect when they begin their journey in the space.
The Application Process
The online applications for conditional licenses were sometimes counterintuitive. Conditional licensees faced long applications that required significant documentation and information gathering with respect to their future businesses and operations. As we have noted in our previous CannaBuff articles, one of, if not the most important takeaway about the application process, is that the more prepared a prospective applicant can be prior to the application window opening, the better suited the applicant is when filling out the application. In addition to certain regulations or guidance documents, New York State publicized step-by-step application mock-ups, FAQs and requirement lists prior to the date applications were live to give applicants plenty of runway to gather submission materials. We expect this to remain the same for the permanent market. Accordingly, for individuals seeking a permanent market license, it is never too soon to prepare.
Licensing Rollout & Compliance
After submitting their applications, some applicants saw short turnaround times while others had to wait months to find out whether a license had been issued. Lengthy turnaround times, however, were often the direct result of deficiencies in an applicant’s submissions, which furthers the point that preparation is key. When there were issues with an application, the Office of Cannabis Management (OCM) was very responsive and created a dialogue to assist in curing any issues. While we expect continued leniency going forward from the OCM, because there are fewer eligibility restrictions on permanent market applications, there are expected to be a greater number of applications submitted and an increased burden on the OCM to review all such applications. Thus, the more polished an application is upon submission, the less burdensome the application process should be.
Of course, if you are issued a license, your regulatory obligations do not end. Conditional licensees are required to send in periodic submissions to ensure they continue to meet regulatory checkpoints and their businesses remain compliant with the MRTA and the OCM’s guidelines. As the OCM further develops the adult-use market, licensees and applicants alike should not be surprised to see the goal posts moving, since the adult-use regulations and corresponding license requirements are fluid, and the OCM is still fleshing out compliance issues as its regulators continue their dialogues with stakeholders. This will ultimately result in the finalization of the permanent regulations, but even then, regulations are subject to amendment from the OCM, CCB or legislature. To that end, it is imperative that licensees stay up to date on their requirements.
Enforcement
This year also saw the growth of the unlicensed “gray market,” as a number of businesses opened their doors claiming to be dispensaries or social clubs. These businesses do not hold a license from the OCM and are not subject to any of the regulatory controls that conditional and permanent licensees are, including mandatory product tracking and third-party testing. While there was some initial confusion, the CCB has made clear that these operations are not permissible and any such operators could be punished through criminal and civil penalties, and also denied the right to receive a license from the OCM. Enforcement to date has mainly come in the form of OCM-issued cease and desist letters. However, as the gray market grows, it will continue to pose a threat to the OCM’s legal market, which the state has so much riding on. Therefore, it is expected that regulators and law enforcement alike will increase enforcement tactics, whether in the form of additional warnings, raids, or shutdowns.
What’s to Come in 2023
In 2023, we can expect the Empire State’s adult-use framework to fully take shape. On November 21, 2022, the CCB released 282 pages of proposed regulations that will govern the adult-use cannabis program. These regulations included guidelines for nursery, cultivation, processing, distribution, retail-dispensary, and micro-business operations. Regulations governing delivery services and on-site consumption were not published but should become available at a later date. These long-awaited regulations addressed license-specific authorizations, requirements, and prohibitions, established license fee structures, and provided general business operation requirements and prohibitions.
Of particular note to gray market operators, Section 120.12 of the proposed regulations states that an application for a license, including renewals, may be denied if “the applicant, or any true party of interest of the applicant, has a history of giving away or selling cannabis or cannabis products in an unlicensed and unauthorized manner.”
Under New York law, the regulations are required to undergo a 60-day public comment period. Comments may be submitted by anyone, which the OCM has encouraged, so if you see something you would like to change, speak up by submitting your written comment to the OCM. Those public comments will be read and written responses will be issued by the OCM, as well as any amendments to the initial draft of the regulations. If substantial amendments are made, there will be an additional 45-day public comment period following the re-publication. Even with an expedited review and amendment timeline, the earliest we can expect to see final regulations (and their corresponding permanent license applications) will likely be April or May. A more realistic target is June 2023.
It bears noting that a legal challenge to the CAURD program could affect the timeline for rollouts, especially for retail dispensaries. Variscite NY One, Inc. filed a federal lawsuit claiming that the CAURD program’s eligibility criteria that applicants have a New York specific cannabis conviction was discriminatory against citizens from other states, and thus unconstitutional. The Northern District of New York granted Variscite’s motion for a preliminary injunction, at least temporarily blocking 63 conditional retail-dispensary licenses from being issued for the five geographical regions Variscite sought licensure in: Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn. The ultimate result remains to be seen, but the impacts were felt immediately in those five regions.
Notwithstanding the injunction, the OCM pushed forward, awarding 36 CAURD dispensary licenses in the non-enjoined regions the following day and moved to modify the injunction to apply only to Variscite’s first ranked region, the Finger Lakes, the day after. With much riding on the success of the adult-use industry, the OCM has made clear that it is committed to getting the supply chain in New York fully operational. In the coming months, it is likely the OCM will continue to issue CAURD licenses and release permanent applications as swiftly as possible in order to ensure the success of the Empire State’s fledgling adult-use market.
The Lippes Mathias Cannabis Practice Team will continue to monitor developments in New York’s burgeoning cannabis industry, including any public comments on or revisions to the permanent adult-use regulations, and the timeline of when applications are expected to be released. If you have any questions, please contact one of our attorneys.
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