Overhauling the State’s Medical Marijuana and Industrial Hemp Markets along the Way

As part of his $170 million budget proposal for fiscal year 2020, Governor Andrew Cuomo revealed his plan to legalize and regulate adult-use cannabis. The decision to include adult-use legislation in the budget signals his intent to legalize recreational marijuana within the coming months. Since the New York State Legislature must approve the budget by April, New York could see adult-use cannabis much sooner than expected. 

The adult-use legislation, called the Cannabis Regulation and Taxation Act (CRTA), establishes the Office of Cannabis Management (OCM), within the Division of Alcoholic Beverage Control, to oversee New York’s adult-use cannabis market, medical marijuana market and hemp cannabis market. 

Adult-Use Cannabis

Legalizing recreational cannabis for adults 21 and older, CRTA would create six adult-use license categories:

1. Cultivator license

2. Processor license

3. Cooperative license

4. Distributor license

5. Retail dispensary license

6. On-site consumption license. 

Like New York’s Alcoholic Beverage Control Law, CRTA prohibits vertical integration, banning overlapping ownership interest across multiple license categories. For example, it will be unlawful for cultivator licensees, processor licensees and distributor licensees to have any ownership interest in a retail dispensary license or premises. 

However, the proposed legislation gives the OCM’s executive director the authority to grant medical marijuana licensees (Registered Organizations) − which are required to be vertically integrated − the ability to be “licensed to cultivate, process, distribute and sell adult-use cannabis.” 

Cultivator licensees, under CRTA, can grow, clone, harvest, dry, cure and trim cannabis, and will be required to sell cannabis to processors only. But cultivators also can apply for one processor and one distributor license. 

Processor licensees, on the other hand, will be permitted to extract and infuse cannabis to make cannabis products and package and label those products. Processors must purchase cannabis from cultivators and can sell cannabis to distributors only. Processor licensees can have up to three processor licenses. 

Distributor licensees can only distribute and sell cannabis purchased from a processor (or a Registered Organization under certain circumstances) and sell it to licensed retail dispensaries. It will be unlawful for distributor licensees to have any economic interest in any retail dispensary license. 

Adult-use retail dispensary licensees only can sell cannabis directly to consumers. No person may have a financial or controlling interest in more than three retail dispensary licenses. This restriction, however, does not prohibit Registered Organizations from obtaining adult-use retail dispensary licenses at locations previously registered by the Department of Health and in operation as of April 1, 2019. Under the current medical marijuana regulations, Registered Organizations can have up to four medical dispensary locations. 

Additionally, dispensaries would not be permitted to sell more than one ounce of cannabis per consumer per day, nor more than five grams of cannabis concentrate per consumer per day. CRTA creates an affirmative duty for dispensary employees to encourage consumers whom they suspect may be abusing cannabis to seek help. 

Finally, the OCM will have the authority to grant on-site consumption licenses to retail dispensaries. On-site consumption licensees cannot sell more than one gram of cannabis to consumers for on-site consumption. 

Governor Cuomo’s proposal would tax cultivators at the rate of $1 per dry weight gram of cannabis flower and $0.25 per dry weight gram of cannabis trim. Wholesalers would be taxed 20 percent of the invoice price to retail dispensaries, plus an additional 2 percent county tax. 

Counties can opt out of the legislation and ban the sale of cannabis within their borders. 

While clear parallels exist between the proposed adult-use legislation and New York’s Alcoholic Beverage Control Law, CRTA would prohibit integrating alcohol in cannabis products.   

Medical Marijuana

CRTA also proposes sweeping changes to New York’s medical marijuana regime, potentially opening the door to new Registered Organizations. Currently, there are only 10 vertically integrated Registered Organizations licensed to cultivate, process and sell medical marijuana in New York. 

Under the proposed legislation, the executive director is authorized to register additional Registered Organizations under an expedited registration plan. Should licensed medical marijuana operators from other jurisdictions seek Registered Organization status, the executive director can grant them a license so long as the laws of the other jurisdiction are consistent with New York’s legislative intent. If this piece of the legislation remains in the bill, it could help sustain the continued growth of New York’s medical marijuana industry. 

Unlike the current medical marijuana legislation, CRTA provides that certified patients and their designated caregivers may grow up to four cannabis plants, implying that certified patients will be permitted to smoke flower, a means of consumption that is not currently legal. 

Moreover, hospitals, nursing homes and other care facilities can register as designated caregiver facilities, permitting the facilities to possess, deliver, transport or administer medical cannabis to certified patients under its care. 

CRTA also permits certified patients to possess up to a 60-day supply of medical cannabis, compared with the 30-day supply limit under the current legislation. 

Cannabinoid-Related Hemp Licensing

CRTA distinguishes “industrial hemp” from “hemp cannabis,” leaving industrial hemp under the purview of the New York Agriculture and Markets Law. 

Hemp cannabis is defined as the plant Cannabis sativa L. and any part of such plant with a THC concentration of not more than an amount determined by future regulations, used or intended for human consumption or use for its cannabinoid content. 

CRTA creates a “cannabinoid grower” license and a “cannabinoid extractor” license. Cannabinoid growers will be permitted to cultivate and sell hemp cannabis for its cannabinoid content. Meanwhile, cannabinoid extractors will be permitted to extract and manufacture hemp cannabis from licensed growers for sale of products marketed for cannabinoid content and used for human consumption. 

Like adult-use cannabis, the proposed legislation expressly prohibits the integration of alcohol in hemp cannabis products.