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 cannabis 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, CCB’s other members were selected: Jessica Garcia, Reuben McDaniel III, Jen Metzger, and Adam Perry. (As of December 2023, the CCB’s current members are Chair Tremaine Wright, Jessica Garcia, Adam Perry, Dr. Jennifer Gilbert Jenkins, and Hope Knight.) Damian Fagon was confirmed as OCM’s Chief Equity Officer in June 2022, a position that works closely with CCB to ensure the regulations meet the MRTA’s social equity mandates and community benefit goals.   

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.  

In June 2022, the Cannabis Advisory Board (hereinafter “CAB”) was formed as a group tasked with providing guidance to the OCM and CCB on a range of issues related to hemp, medical cannabis, and adult-use cannabis. Composed of 13 members, who have multidisciplinary experience across various agencies and relevant fields, the CAB also governs and administers the distribution of grants from the state’s community reinvestment fund.

Monthly meetings of the CCB and CAB 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 New York cannabis license types, cannabis 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 nine general cannabis license types, described below. Applications for certain licenses opened to the public in October 2023  and closed in December 2023 (for Cultivator, Processor, Distributor, Retailer, and Microbusiness Licenses). Beginning in February 2022, however, Governor Kathy Hochul approved the OCM to accept applications for Conditional Cultivator licenses, allowing pre-existing licensed hemp and medical cannabis cultivators in the state to start growing adult-use cannabis. This was followed later in the year with Conditional Processor licenses for pre-existing licensed hemp and medical cannabis processors. There is also the Conditional Adult-Use Retail Dispensary (CAURD) License, which is given to certain “justice-involved” individuals (or their family members) and to nonprofits that can prove adding a cannabis license will enhance their mission. All conditional license types are limited in number. 

Cannabis Cultivator License: 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.  

Cultivators may acquire seedlings, cuttings, seeds and clones from licensed nurseries. As per the OCM’s regulations, they are encouraged to use regenerative agricultural practices in their cultivation and to create a sustainability plan that clearly outlines the energy efficiency and environmental conservation techniques of their operation. These license holders must develop sufficient storage, waste disposal and odor control plans. They must create security plans for the premises and ways of logging every staff member and visitor who arrives at the site in person. Cultivators must also have an appropriate inventory system to identify their cannabis, and distinguish each batch from all others in such a way that it can be reliably tracked through the inventory system. All samples must be sent to a third-party laboratory for testing according to the guidelines put forth by the OCM. 

There are four different Cultivator license types: outdoor, mixed-light, outdoor with mixed-light, or indoor. Cultivators who operate an indoor or mixed-light cultivation facility must meet certain lighting and HVAC standards as put forth by the MRTA. 

Each cultivator authorized to grow outdoors, indoors, or mixed-light are categorized into one of the following Tiers:

1. (i)  Tier I. Not exceeding 5,000 square feet;

2. (ii)  Tier II. Greater than 5,000 square feet, not exceeding 12,500 square feet;

3. (iii)  Tier III. Greater than 12,500 square feet, not exceeding 25,000 square feet;

4. (iv)  Tier IV. Greater than 25,000 square feet, but not exceeding 50,000 square feet; or

5. (v)  Tier V. Greater than 50,000 square feet, but not exceeding 100,000 square feet.

Cultivators authorized to grow outdoor with mixed-light are categorized into one of the following Tiers:

(i) Tier I Combination Cultivator. Not exceeding 5,000 square feet of outdoor and 2,500 square feet of mixed light;

(ii) Tier II Combination Cultivator. Greater than 5,000 square feet, but not exceeding 12,500 square feet of outdoor, and greater than 2,500 square feet but not exceeding 6,250 square feet of mixed light;

(iii) Tier III Combination Cultivator. Greater than 12,500 square feet, but not exceeding 25,000 square feet of outdoor, and greater than 6,250 square feet but not exceeding 12,500 square feet of mixed light;

(iv) Tier IV Combination Cultivator. Greater than 25,000 square feet, but not exceeding 50,000 square feet of outdoor, and greater than 10,000 square feet but not exceeding 15,000 square feet of mixed light; or

(v) Tier V Combination Cultivator. Greater than 50,000 square feet, but not exceeding 100,000 square feet of outdoor, and greater than 15,000 square feet but not exceeding 30,000 square feet of mixed light.

Conditional Cultivator License: The Adult-Use Conditional Cultivator License established a pathway for pre-existing licensed hemp and medical cannabis cultivators to grow adult-use cannabis (defined as any cannabis with more than 0.3% THC) during the 2022 growing season. The OCM gave an application window of March 15-June 30, 2022 for this license type. Under the directives signed by Governor Hochul, those holding a Conditional Cultivator license must meet requirements for sustainable and environmentally-friendly growing practices, participate in a social equity mentorship program to provide emerging social and economic equity entrepreneurs with a path to licensure, and engage in a labor peace agreement with a bona fide labor organization. To date, the OCM has approved over 300 Conditional Cultivator licenses. 

Cannabis Processor License: 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.  

Conditional Processor: The Adult-Use Conditional Processor License allows pre-existing businesses already licensed for processing and extraction in New York’s Cannabinoid Hemp Program to process adult-use cannabis for the 2022 season. This license type only applies to businesses that received their license to participate in the Cannabinoid Hemp Program before January 1, 2022. To accommodate New York’s transition to adult-use retail, Conditional Processor license holders are also authorized to distribute cannabinoid products to the state’s legal retail dispensaries until June 1, 2023. After June 1, 2023, Conditional Processor license holders will need to apply for a separate license to distribute cannabinoid products to retailers. The OCM gave an application window of June 28-August 31, 2022. To date, the OCM has approved 39 Conditional Processor licenses.

Cannabis Distributor License: 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.  

Cannabis Retail Dispensary License: 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.   

Conditional Adult-Use Retail Dispensary (CAURD): The CAURD License program was developed to prioritize the awarding of retail dispensary licenses to “justice-involved” individuals and nonprofits. “Justice-involved” is defined as an individual with a New York cannabis conviction or the parent, spouse, child or guardian of someone with such a conviction. The conviction had to have occurred before March 31, 2021 - when the MRTA was signed into law - for the applicant to be considered eligible. Applicants also had to prove they owned a successful business for at least two consecutive years, resided in New York State, and underwent a fingerprint-based background check. Those who are awarded CAURD licenses will be provided certain resources by the OCM and the Dormitory State Authority of New York (DASNY), the latter of which is working to build out retail stores in locations assigned to the license holders. The OCM gave an application window of August 25-September 25, 2022, and began granting the first 36 licenses, from an ultimate group of 150, on November 21, 2022.

The CAURD program has been the subject of several lawsuits, including a federal suit which claimed that its in-state residency requirements violated the U.S. Constitution’s Dormant Commerce Clause, and a New York Supreme Court lawsuit brought by service-disabled veterans who claimed that CAURD barred their opportunity to gain first-mover advantage in the industry. Due to these lawsuits, periodic injunctions have kept CAURD licensees from opening their businesses in certain geographical regions; the most recent, which affected license holders statewide, was lifted in November 2023 following a settlement of the suit.

Cannabis Delivery License: 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 Cannabis Consumption License: 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.  

Cannabis Nursery License: 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.  

Cannabis Cooperative License: 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.  

Cannabis Microbusiness License: 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.   

Similar to Cultivator License holders, Microbusiness License holders are categorized into Tiers based on the size of their operation and “cultivation canopy” area for growing:

1. (i)  Indoor canopy not to exceed 3,500 square feet;

2. (ii)  Mixed light canopy not to exceed 5,000 square feet; or

3. (iii)  Outdoor canopy not to exceed 10,000 square feet.

Microbusinesses may eventually have the option to apply to transition into full-fledged Cultivator businesses. It is therefore advisable that all Microbusiness License applicants study the regulations that apply to Cultivator Licenses as well as Microbusiness Licenses. 

As per the OCM’s regulations, similar to Cultivator Licensees, Microbusiness license holders are encouraged to use regenerative agricultural practices in their cultivation and to create a sustainability plan that clearly outlines the energy efficiency and environmental conservation techniques of their operation. These license holders must develop sufficient storage, waste disposal and odor control plans. They must create security plans for the premises and ways of logging every staff member and visitor who arrives at the site in person. They must also have an appropriate inventory system to identify their cannabis, and distinguish each batch from all others in such a way that it can be reliably tracked through the inventory system. All samples must be sent to a third-party laboratory for testing according to the guidelines put forth by the OCM. 

What’s a Cannabis 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 Cannabis 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. Cannabis microbusinesses are allowed to sell cannabis products directly to consumers, but are not required to do so. Under the OCM’s regulations, a microbusiness is a primarily cultivation-focused operation that also does some mix of processing, distribution, delivery and/or retail. 

Microbusinesses are one of the few license classes allowed by the OCM to provide free samples of cannabis to negotiate a sale to a retail dispensary or onsite consumption lounge that does not currently carry the product. They may also provide these establishments with nominal branded products. Microbusiness license holders are authorized to distribute cannabis to any entity authorized to sell cannabis directly to consumers, and they may allow licensees authorized for retail sales to pay on credit.

According to the OCM, microbusinesses are prohibited from purchasing cannabis products from another cultivator unless there is significant crop failure. No person is allowed to be a true Party of Interest in more than one Microbusiness License. However, a microbusiness may be a landlord, financier or goods and services provider to a larger cultivator, processor, distributor or cooperative license holder.  

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 New York 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 continue to be 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’s Next For New York’s Adult-Use Cannabis Market? 

Most recently, the OCM closed its application portal for Cultivator, Processor, Distributor, Retailer and Microbusiness Licenses. The agency is still in the process of creating and refining regulations for the outstanding license types. Members of the public are encouraged to make their comments  on proposed regulations for consideration by the OCM, CAB and CCB. Comments can be submitted via email to regulations@ocm.ny.gov or mailed to New York State Office of Cannabis Management, P.O. Box 2071, Albany, NY 12220.

In New York City, Mayor Eric Adams appointed Dasheeda Dawson as Founding Director of Cannabis NYC, an initiative run through the Department of Small Business Services to support the city’s cannabis industry. Dawson is a liaison between the Department, the OCM and CCB, and community organizations that can help engage and educate the public about building careers in cannabis.

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 in the licensing application process.