The Race Toward Legalization: New York Prioritizes Adult-Use Plan

As New Jersey remains in a holding pattern, the Empire State has made a revitalized push in the race toward legalization.  In his annual budget address last week, Governor Andrew Cuomo formally unveiled New York State’s plans for a “first-in-nation” comprehensive cannabis regulatory framework. Much like his colleague Governor Phil Murphy, Governor Cuomo is now calling for swift legislative action and expedited entry into a legal cannabis market estimated to generate up to $300 million in annual tax revenue for the State by the programs third year.

Governor Cuomo’s Fiscal Year 2020 Executive Budget Briefing (the “Budget”) proposes to enact the Cannabis Regulation and Taxation Act (the “Act”), aimed at regulating and controlling the manufacture, wholesale, retail production, distribution, transportation and sale of cannabis, cannabis related products, medicinal cannabis and hemp cannabis. Preliminary highlights of the proposed Act are as follows:

• Establishment of a three-tier distribution model comprised of licensed producers, distributors and retailers, and imposition of a ban on ownership by producers of retail dispensaries
• Creation of the Office of Cannabis Management to oversee administration of the Act and centralize all licensing, enforcement and economic development functions across the medical, adult-use and industrial cannabis markets
• Three-tier taxation scheme at the cultivation and wholesale stages:
  • (1) Cultivation tax at a rate of $1 per dry weight gram of cannabis flower and $0.25 per dry weight gram of cannabis trim
  • (2) Wholesale tax imposed on the sale by wholesalers to retail dispensaries at a rate of 20% of the invoice price
  • (3) Wholesale tax imposed on the same sale at a rate of 2% of the invoice price, to be collected and held in trust for and on account of the county in which such retail dispensary is located
• Establishment of Canopy Growth Corporation’s $100 million Hemp Industrial Park, headquartered in the Southern Tier, to include growing, processing, manufacturing and research facilities
• Continued expansion of the current medical cannabis program and patient access
• Establishment of restorative justice initiative, providing for review and sealing of cannabis convictions, elimination of collateral consequences of conviction (i.e., parole violations) and reinvestment in disproportionately impacted communities

Despite relatively broad strokes, the primary goals of the proposed Act are clear: to foster and protect public health, safety and welfare, encourage responsible, informed and carefully regulated production and use of cannabis, and to promote social justice and equity. Per Governor Cuomo’s Budget, tax revenue generated from the adult-use cannabis market will be deployed for various social and research-related causes, including research on cannabis uses and applications, small business development and loans, substance abuse, harm reduction and mental health treatment and prevention, and public health education and intervention. The Act also proposes to limit the number of producers and retail dispensaries to safeguard against “market collapse”, and encourage participation by underserved communities through social equity licensing opportunities, technical assistance, mentorship and access to capital.