As CannaBuff readers certainly know, 2022 promises to be a huge year for New York State’s adult-use cannabis market. A year removed from the Marijuana Regulation and Taxation Act (MRTA) becoming law, the Empire State’s adult-use framework is finally beginning to take shape. At some point this year (possibly late summer or early fall), the Cannabis Control Board (CCB) and Office of Cannabis Management (OCM) will finalize regulations that establish the criteria for the license categories that will make up the adult-use supply chain and retail outlets.
Although these regulations will define the exact requirements that businesses must meet to qualify for one of the state’s coveted adult-use licenses, there are certain steps cannabis entrepreneurs can take right now to prepare for licensing, even in the absence of final regulations.
1. Have a business plan
While it may seem obvious, having a concise business plan and/or a crisp pitch deck is a must for prospective cannabis license applicants. We have received countless phone calls from individuals who are passionate about the industry and have great ideas but have not committed their strategies to paper. The closer we get to application season, the more important it is to have such a document in place. A clean, readily accessible document that sets forth the ethos of the applicant is arguably the most important piece of an application, and the OCM will almost certainly ask for proof of the same. What is more, given the anticipated costs of standing up an adult-use cannabis business, companies who have a readily accessible pitch deck may have an increased likelihood of securing funding from potential investors. Moral of the story: if your business does not have a viable written business plan, turn your attention to preparing this as soon as possible with, if necessary, the help of your peers in the industry, accountants and other professional advisors.
2. Find property and prove it will be secure
The MRTA requires potential applicants to demonstrate they have control or viable access to real property to operate an adult-use cannabis business. See MRTA § 72(4). Whether by signing an option to lease or purchase a site, entering into a purchase agreement contingent upon securing a license, actually leasing a space, or buying a building, the ability to prove to OCM that you have site control for at least the duration of the initial two-year license is critical to being awarded a license.
Instituting a security program at that location goes hand-in-hand with controlling it. In mature cannabis markets, security has been an integral piece of license applications. Because adult-use cannabis remains a Schedule I federal substance, and the MRTA is adamant that adults under 21 are not permitted to legally purchase or consume cannabis, all adult-use cannabis and trimmings must be accounted for from seed to sale. The right and compliant fencing, 24/7 video surveillance, badging in and out, and hiring dedicated security personnel are just a few security staples we anticipate.
3. Draft a social equity plan
One of the stated legislative goals of the MRTA is to “make substantial investments in communities and people most impacted by cannabis criminalization to address the consequences of such criminalization.” Accordingly, the MRTA requires the CCB to “promote diversity in commerce, ownership and employment, and opportunities for social and economic equity in the adult-use cannabis industry.” MRTA § 87(2). Moreover, in considering applications, the MRTA requires that the OCM “actively promote applicants that foster racial, ethnic, and gender diversity in their workforce.” MRTA § 87(6). It is a major advantage for businesses, especially those that do not qualify as social and economic equity applicants, to have sincere plans to show how their cannabis company intends to benefit those communities disproportionately impacted by the enforcement of cannabis prohibition.
To date, regulators have given little guidance on what a social equity plan must entail and for good reason. The benefits each company can offer their respective communities will be unique to the individual business and the community within which it intends to operate. Whether this is by committing to source 50 percent of products from minority-owned cultivators, mentoring a certain number of social-equity processors each year, promoting diversity in employment and/or management, or donating a portion of proceeds to funding cannabis conviction expungements across New York, having a social equity plan is a must, and the more robust the plan, the stronger the application will be.
4. Meet with the municipality you intend to operate in
Finally, the MRTA requires that a retail or on-site consumption applicant must notify the municipality that it is seeking licensure within the municipality’s limits. MRTA § 76(1). In response, the municipality is given the opportunity to submit its position regarding the applicant’s licensing, which will be made part of the record the OCM relies upon to decide whether to award the license. MRTA § 76(4). While notice is not required for other license types, the OCM will likely still consider a municipality’s position in conjunction with a licensing decision for a cultivator, nursery, cooperative, processor, distributor, microbusiness, or delivery license.
With the large number of anticipated applicants, the more the municipality can put its weight behind an applicant with a letter of support, the more successful the business is likely to be in the application process. These letters of support could discuss, among other things, social equity or environmental impact plans, zoning, economic impact or community integration. The more unified the applicant and municipality appear to be, the better positioned the applicant will likely be.
Conclusion
Once applications are officially released, there will likely be a short window for businesses to assemble and submit their materials. The more prepared a prospective applicant is prior to this window opening, the easier it will be to refine its business plan to fit the exact requirements set forth by the CCB and OCM. Put simply, the time is upon New Yorkers to get their plans in order for application season, and the sooner the better.
The Lippes Mathias cannabis practice team will continue to monitor developments in New York’s burgeoning cannabis industry, including when adult-use regulations are published, and when applications are expected to be released. If you have any questions, please contact one of our attorneys.
This article was written by:
Ryan V. Stearns is a partner at Lippes Mathias LLP, where he serves as the co-leader for the firm’s Cannabis Practice Team, advising cannabis companies and related businesses on issues related to legal cannabis business activities and real estate transactions. He can be reached at rstearns@lippes.com.
Thomas B. Hughes, a corporate attorney and co-leader of Lippes Mathias LLP’s cannabis practice team, advises clients in areas related to the growth, cultivation, processing, distribution, marketing, transportation, and sale of cannabis products as well as corporate structuring. He can be reached at thughes@lippes.com.
Joseph W. Schafer advises clients on both New York state and federal cannabis law as it pertains to both cannabinoid hemp, medical and adult-use marijuana, and has handled litigation matters for cannabis-related businesses. He can be reached at jschafer@lippes.com.
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