As expected, Governor Cuomo’s Fiscal Year 2022 Executive Budget Legislation included the introduction of the Cannabis Regulation and Taxation Act (CRTA), which is expected to gain more traction than it did in 2020 due to the fiscal crisis created by the continuing COVID-19 pandemic. The new legislation is a comprehensive plan to regulate all components of cannabis in the state of New York by merging existing laws for medical cannabis and cannabinoid hemp while creating a new regulatory scheme for adult use. New York State will control licensure, ensure quality control and consumer protection, determine product potency and set age and quantity restrictions. The new law is expected to generate a significant amount of much needed tax revenue for the State.
The legislation will create a new Office of Cannabis Management (OCM), which will reside within the Division of Alcoholic Beverage Control (ABC) and will be governed by a Governor-appointed five-member Cannabis Control Board that will oversee all aspects of the State’s cannabis industry, including the establishment of the regulatory scheme to implement the detailed legislation requirements. The Governor’s legislation is intended to “create a robust social and economic equity program to actively encourage members of communities who have been disproportionally impacted by the policies of cannabis prohibition to participate in the new industry through the implementation of a social and economic equity plan – providing technical assistance, training, loans and mentoring to qualified social and economic equity applicants.”
The legislation includes two new taxes on adult-use cannabis products, in addition to state and local sales and use tax. The funds from the two new state taxes will be deposited into the New York State Cannabis Revenue Fund. The Governor expects that the legislation will increase revenue by $20 million in FY 2022 and $118 million in FY 2023, and will continue to grow.
A review of the legislation confirms there will be significant state regulation associated with the cultivation, processing, manufacturing, distribution and sale of cannabis products for adults 21 and over. The legislation also brings together all existing laws that regulate cannabinoid hemp (CBD products), to streamline the licensing of processors and retailers of cannabinoid hemp. The growth and cultivation of all hemp will continue to be regulated by the Department of Agriculture and Markets.
While the majority of the negotiations among the state legislators and the Governor will likely focus on the allocation of the additional tax revenue, many of our clients are more concerned about the impact in their local governments. The legislation specifically allows counties and cities with a population over 100,000 to “opt out” of the provisions that authorize the cultivation, processing, distribution and sale of adult-use cannabis to cannabis consumers through the passage of a local law, ordinance or resolution by a majority vote of the governing body. It is not clear if there will be financial implications to any county and/or city that chooses to opt out.
The legislation specifically preempts counties, towns, cities and villages from adopting any rules, ordinances, and/or regulations that pertain to the operation or licensure of registered organizations, adult-use cannabis licenses or cannabinoid hemp licenses. Further, the legislation prohibits any county, city, town or village from requiring a community host agreement or paying any consideration to the municipality other than reasonable zoning and permitting fees. The legislation provides authority for counties, cities, towns and villages to regulate the hours of operation and location of licensed adult-use cannabis retail dispensaries, as long as such regulation does not make the operation of dispensaries unreasonably impracticable. It is clear the state intends to create a consistent, state-wide system that will not be disrupted by local regulation.
While the state politicians delve into the negotiation of the proposed legislation, local officials in cities and counties with a population of less than 100,000, will be wise to begin a focused review of their current zoning and land use regulations, to understand existing regulations as well as the potential need to make amendments related to the anticipated new industry. For those officials in the larger counties, the political assessment of the potential economic impact of opting out should be assessed immediately.
Disclaimer: Possessing, using, distributing and/or selling marijuana or marijuana-based products is illegal under federal law, regardless of any state law that may decriminalize such activity under certain circumstances. Although federal enforcement policy may at times defer to states’ laws and not enforce conflicting federal laws, interested businesses and individuals should be aware that compliance with state law in no way assures compliance with federal law, and there is a risk that conflicting federal laws may be enforced in the future. No legal advice we give is intended to provide any guidance or assistance in violating federal law.