NY Cannabis Law: Marijuana Regulation and Taxation Act (MRTA)

On March 31, 2021, New York’s cannabis law, called the Marijuana Regulation and Taxation Act (MRTA), was signed into law, legalizing the production, sale, and use – for adults aged 21 and over – of cannabis in the state. The NY cannabis law established an Office of Cannabis Management (OCM), a government administrative department, to promulgate rules and regulations for adult-use and business licensing, and is notable for featuring the most sweeping social equity measures included in any cannabis legislation in the country to date.  

Since the passage of the MRTA, numerous developments have occurred to shape New York’s burgeoning cannabis industry. While the OCM is still in the process of finalizing regulations for adult-use, great strides have been made toward creating an equitable cannabis economy.   

What is the Office of Cannabis Management (OCM)? 

The MRTA instituted the OCM and the Cannabis Control Board (CCB), a five-person board that oversees the OCM’s comprehensive regulations on adult-use, medical, hemp and other cannabinoid categories. Although the legislation was passed in March 2021, OCM and CCB leadership were not officially solidified until August of that year, when Governor Kathy Hochul named Chris Alexander as the OCM’s Executive Director and Tremaine Wright as CCB Chair. With the appointment to CCB, Wright became one of just a handful of Black women in the United States to hold a position in cannabis regulatory oversight leadership for a governmental organization.  

In the fall of 2021, Jason Starr was confirmed as OCM’s Chief Equity Officer, and CCB’s other members were selected: Jessica Garcia, Reuben McDaniel III, Jen Metzger, and Adam Perry.   

OCM and CCB work together to implement the MRTA’s directives, which include ensuring that New York’s cannabis policies will benefit marginalized communities disproportionately affected by the War on Drugs. The legislation’s language mentions a goal of reinvesting 40 percent of sales tax on cannabis products back toward qualifying communities.  

Monthly meetings of the CCB are streamed live for public viewing, and transcripts are made available afterward on the OCM’s website. For more information on meeting dates and announcements, visit cannabis.ny.gov.  

What are the MRTA’s Adult-Use Cannabis Provisions?  

Article 4 of the MRTA details provisions on several aspects of licensing, processing, packaging, distribution, retail, marketing, and other business components involved in the sale of cannabis products. Under the law, any person aged 21 or older may apply for a cannabis license in one of the defined categories, and applicants who have previous New York State cannabis charges or convictions will not be excluded from consideration for licensing.  

Which Types of Cannabis Licenses Are Available in New York State?  

As set forth in the MRTA, New York will offer the following types of cannabis licenses:  

Cultivator: The Adult-Use Cultivator License authorizes the acquisition, possession, distribution, cultivation, and sale of cannabis from the licensed premises of the adult-use cultivator by such licensee to duly licensed processors in this state. OCM and CCB may establish regulations allowing licensed adult-use cultivators to perform certain types of minimal processing without the need for an adult-use processor license. Cultivation includes agricultural practices related to the planting, growing, cloning, harvesting, drying, curing, grading, and trimming of cannabis. While the law allows for Cultivator License holders to apply for a processor’s license and a distributor’s license solely for the distribution of their own products, it should be noted that Cultivator License holders are not permitted to apply for or hold retail dispensary licenses, nor should they have a direct or indirect financial interest in any adult-use retail dispensary business. Also, no person may hold more than one Cultivator License, as a single license may apply to cultivation in multiple locations throughout New York State.  

Processor: The Adult-Use Processor License authorizes the acquisition, possession, processing, and sale of cannabis from the licensed premises of the adult-use cultivator by such licensee to duly licensed processors or distributors. A person holding an adult-use processor's license may apply for, and obtain, one distributor's license solely for the distribution of their own products. Processing includes blending, extracting, infusing, packaging, labeling, branding and otherwise making or preparing cannabis and cannabinoid products. It does not, however, include cultivation. Processor License holders are not permitted to apply for or hold retail dispensary licenses, nor should they have a direct or indirect financial interest in any adult-use retail dispensary business. Also, no person may hold more than one Processor License, as a single license may apply to processing in multiple locations throughout New York State.  

Distributor: The Adult-Use Distributor License authorizes the acquisition, possession, distribution, and sale of cannabis from the licensed premises of a licensed adult-use cultivator, processor, adult-use cooperative, microbusiness, or registered organization authorized pursuant to this chapter to sell adult-use cannabis, to duly licensed retail dispensaries and onsite consumption sites. Any distributor with a direct or indirect financial interest in a cultivator or processor operation is required to distribute products exclusively for that cultivator or processor. Distributor License holders are not permitted to apply for or hold retail dispensary licenses, microbusiness licenses, or onsite consumption licenses, nor should they have a direct or indirect financial interest in any adult-use retail dispensary business. Also, no person may hold more than one Distributor License in New York State.  

Retail Dispensary: The Adult-Use Retail Dispensary License authorizes the acquisition, possession, sale, and delivery of cannabis from the licensed premises of the retail dispensary by such licensee to cannabis consumers. Applicants for the Retail Dispensary License must show proof in the form of a lease or other written agreement that they have control over the premises on which they intend to operate their retail business. Retail dispensaries are required to operate in a store which has its principal entrance on street level and located on a public thoroughfare; the premises must be more than 500 feet from school grounds and more than 200 feet from a place of worship. Retail Dispensary License holders may not have a direct or indirect financial interest in more than three adult-use retail dispensary licenses in New York State, nor will they be allowed to hold cultivator, processor, distributor, microbusiness, or cooperative licenses.   

Delivery: The Delivery License authorizes the delivery of cannabis and cannabis products by licensees independent of another adult-use cannabis license, provided that each delivery licensee may have a total of no more than twenty-five (25) individuals providing full-time paid delivery services to cannabis consumers per week under one license. No person may have a direct or indirect financial interest in more than one Delivery License.  

Onsite Consumption: The Adult-Use Onsite Consumption License authorizes the operation of a business whereby consumers may consume cannabis products on the premises. Applicants for the Onsite Consumption License must show proof in the form of ownership or a lease over the premises on which they intend to operate their business that is at least as long as the term of the license. An exception may be made for premises leased from government agencies, although applicants leasing locations from government agencies will need to provide other forms of documentation. Onsite Consumption businesses are required to operate on premises which have their principal entrance on street level and located on a public thoroughfare; the premises must be more than 500 feet from school grounds and more than 200 feet from a place of worship. All products available to consumers in an onsite consumption business must come from those cultivators, processors, distributors, or retailers that have been licensed by the OCM and CCB, in packaging and containers that meet the requirements set forth by those agencies. Onsite Consumption License holders may not have a direct or indirect financial interest in more than three onsite consumption licenses in New York State, nor will they be allowed to hold cultivator, processor, distributor, retail dispensary, microbusiness, or cooperative licenses.  

Nursery: The Nursery License authorizes the production, sale and distribution of clones, immature plants, seeds, and other agricultural products used specifically for the planting, propagation, and cultivation of cannabis by licensed adult-use cultivators, cooperatives, microbusinesses, or registered organizations. A person or entity holding an Adult-Use Cultivator License may apply for one Nursery License to sell directly to other cultivators, cooperatives, microbusinesses, or other registered organizations.  

Cooperative: The Adult-Use Cooperative License authorizes the acquisition, possession, cultivation, processing, distribution, and sale from the licensed premises of the adult-use cooperative by such licensee to duly licensed distributors, onsite consumption sites, registered organization and/or retail dispensaries, but not directly to cannabis consumers. To be licensed as a cooperative, all members must be residents of New York State and the entity must be registered as a limited liability company (LLC) or limited liability partnership (LLP). No adult-use cannabis cooperative may have a direct or indirect financial interest, including by stock ownership, interlocking directors, mortgage, or lien, personal or real property, or any other means, in any premises or business licensed as an adult-use cannabis retail dispensary.  

Microbusiness: The Microbusiness License authorizes the limited cultivation, processing, distribution, delivery, and dispensing of the applicant’s own adult-use cannabis and cannabis products. Microbusiness License holders are not permitted to hold any of the other licenses described above.   

What’s A Microbusiness? 

 A microbusiness is a cannabis business, subject to certain size and operational restrictions, that covers cultivation, processing, distribution, delivery, and retail of that business’s products in a one-stop shop model. Though the MRTA generally prohibits vertical integration on a large scale, the Microbusiness License allows local brands with less access to capital to cultivate “craft cannabis” within the legal cannabis market through small-scale production and sale.  

Can I Apply for More Than One Cannabis License? 

 Although there are some instances in which the MRTA allows for licensees to hold a combination of licenses—such as, for example, one licensee holding three retail licenses, each governing a separate location—the intention of the MRTA is to limit verticalization of cannabis license holders and essentially to require licensees to operate on either the production or the distribution side. Thus, subject to limited exception, licensees are restricted to holding one license, within one category only, which is not able to be combined with any others. Please consider your options carefully and consult with an experienced cannabis lawyer before submitting your application.  

What Is the MRTA’s Social Equity Plan?  

One of the most important elements of the MRTA is its approach to social equity. As regulations are developed for the cannabis licenses, priority will be given in several categories to those who qualify as social equity applicants: women, minorities, service-disabled veterans, distressed farmers, and people from communities disproportionately impacted by the War on Drugs, including those with prior cannabis charges or convictions or who had a family member incarcerated due to cannabis criminalization. Under the law, the OCM and CCB are creating and refining a social and economic equity plan that allows 50 percent of license applications to be prioritized for people from the qualifying groups.   

Multiple bills in the State legislature are also being introduced to explore expanding the definition of equity applicants, such as to individuals who identify as LGBTQIA+.  

In January 2022, Governor Kathy Hochul outlined a $200 million social equity fund as part of her State of the State plan. The fund will focus on the cannabis program’s social equity entrepreneurs, applicants, and communities harmed by the War on Drugs. It will draw some money from industry revenue, such as licensing fees, but it will also be fueled by private sources, providing capital that can be given more directly to social equity applicants.  

According to CCB Chair Tremaine Wright, the public-private nature of the fund will mean that in some cases, entrepreneurs will be able to receive business loans before New York State begins collecting taxes on the cannabis industry. This setup provides for much more flexibility in how the OCM can support social equity applicants with entrepreneurial training, financial assistance, and the ability to employ a local workforce. Funds are currently slated to go to efforts for the leasing, design, construction, and other needs in establishing cannabis retail businesses. Additionally, the Dormitory Authority of the State of New York (DASNY) will deliver a range of services to aid social equity applicants.  

There is also a plan in place for the redistribution of tax revenue from the legal cannabis industry. Revenue from the nine percent state excise tax on cannabis will go to education (40 percent), community reinvestment (40 percent) and drug treatment (20 percent). Another four percent tax will support counties (25 percent) and cities, towns, and villages (75 percent) that allow cannabis businesses to operate in their jurisdiction. A separate potency-based tax on cannabis products when they are transferred from distributors to retailers will also be in effect where applicable.  

What Is the Adult-Use Cannabis Conditional Cultivator License?  

Social equity applicants are also prioritized under New York’s most recently-announced license type, the Adult-Use Cannabis Conditional Cultivator License. Signed into law by Governor Hochul in February 2022, the Conditional Cultivator License establishes a pathway for existing hemp farmers in the state to apply for a conditional license to grow cannabis in the 2022 growing season for the forthcoming adult-use cannabis market. The legislation ensures that conditionally licensed cannabis farmers must meet certain requirements, including safe, sustainable, and environmentally friendly cultivation practices, participation in a social equity mentorship program, and engagement in a labor peace agreement with a bona fide labor organization.  

As per the language in the law, the Social Equity Mentorship Program will help provide emerging social and economic equity cultivators and processors, including Black, Indigenous and People of Color (BIPOC) growers, minority- and women-owned business owners, and service-disabled veterans with a pathway to licensure through invaluable knowledge gained by partnering with experienced hemp cultivators and processors. The law will additionally create an Environmental Sustainability Program to educate conditional licensees on best practices for ecologically-sound cultivation. 

With a Conditional Cultivator License, farmers can grow outdoors or in a greenhouse for up to two years from the issuance of the license. It also allows them to manufacture and distribute cannabis flower products without holding an adult-use processor or distributor license, until June 1, 2023. Cultivators are limited to one acre (43,560 square feet) of flowering canopy outdoors or 25,000 square feet in a greenhouse and can use up to 20 artificial lights. They can also split between outdoor, and greenhouse grows with a maximum total canopy of 30,000 square feet as long as greenhouse flowering canopy remains under 20,000 square feet. 

To qualify for a Conditional Cultivator License, an applicant must have been an authorized industrial hemp research partner for the Department of Agriculture and Markets, cultivating hemp for its non-intoxicating cannabinoid content for at least two of the past four years and in good standing as of December 31, 2021, when the research program ended. 

How Many Conditional Cultivator Licenses Have Been Approved? 

On April 14, 2022, the CCB convened for its monthly meeting, confirming during the session that 52 Adult-Use Cannabis Conditional Cultivator Licenses had been approved. Part of the law that Governor Hochul signed to establish the license category also included the Seeding Opportunity Initiative, which positions individuals with prior cannabis-related criminal offenses to make the first adult-use cannabis sales with products grown by New York farmers. In the ongoing effort to comply with the social equity directives set forth by the MRTA and the Seeding Opportunity Initiative, the inaugural 52 Conditional Cultivator Licenses have been awarded to qualifying equity applicants as well. 

Currently, the OCM and CCB are in the process of reviewing further Conditional Cultivator License applications and will continue to approve licenses on a rolling basis until June 30, 2022, when the application portal will close.  

How Will New York’s Social Equity Plan Impact Adult-Use Retail Dispensaries? 

The Seeding Opportunity Initiative brought new developments to the plan for retail dispensaries as well as cultivation. While the OCM and CCB are still finalizing regulations and application criteria, expecting to open the portal for retail license applications in Summer 2022, the CCB voted unanimously in March to reserve the first 100 Retail Dispensary Licenses for people who have been convicted on cannabis-related charges, or their relatives.  

According to Chris Alexander, OCM’s Executive Director, New York State has incarcerated over one million people for cannabis throughout the last twenty years. To qualify for the reserved Retail Dispensary Licenses, applicants must have been convicted before March 31, 2021 (when the MRTA was signed into law). Those who have had a parent, legal guardian, child, spouse or dependent convicted are also eligible. 

What’s Next For New York’s Adult-Use Cannabis Market? 

Right now, the most important need for New York’s adult-use cannabis market is for the OCM and CCB to finalize implementing legislation. Potential cannabis license applicants still don't know what final regulations will look like for retail dispensary or onsite consumption licenses, and there are many questions remaining about how the $200 million fund for the Seeding Opportunity Initiative will be managed and distributed.  

Public Comment periods are currently open for amendments to the following areas of regulation: 

Adult-Use Conditional Retail Dispensary Licenses: Open until May 31, 2022 

Proposed Medical Cannabis Regulations: Open until May 9, 2022 

Concerned New Yorkers can still take the opportunity to become involved and contribute to the cannabis conversation through making a public comment. This is the best time and manner to shape the state’s market as an equitable, accessible economy. 

Conclusion            

The Governor’s budget for Fiscal Year 2023 estimates that the state will see $56 million in tax revenue from the cannabis industry, with projections of cannabis generating over $1.25 billion collectively in the next six years. With this in mind, legal cannabis is well on track to revolutionize New York and transform it from the cannabis consumption capital to a full-fledged worldwide epicenter of cannabis commerce. 

 Our Office is poised to play a material role in this current transformation, just as we have in the legalization movement for more than twenty-five years. Our superior vantage point as lawyers with years of experience in the hemp and cannabis space enables us to provide clients with the highest levels of insight and counsel.