On March 10, 2022, the New York Cannabis Control Board (“CCB”, the oversight body of the Office of Cannabis Management (“OCM”))  released proposed draft regulations creating new Conditional Adult-Use Retail Dispensary Licenses, which will be the first retail licenses released in New York. The licenses are reserved for individuals disproportionately impacted by the war on drugs — “Justice-Involved” individuals. New York expects to issue 100-200 of these licenses endeavoring to open these dispensaries in late 2022 or early 2023.

The draft regulations for these licenses under the Marijuana Regulation and Taxation Act (MRTA) will be effective after a public comment period.   As proposed, and subject to changes after the public-comment period, below is a summary of the newly proposed regulations:

Applicant Eligibility

An “Eligible Applicant” is:

  1. An applicant that either:
    • has a significant presence in New York State, either individually or by having a principal corporate location in the state;
    • is incorporated or otherwise organized in the state; or
    • has a majority of the owners are residents by being physically present in the state no less than 180 calendar days during the current year or 540 calendar days over the course of 3 years;
  2. An individual, or an entity with one or more individuals, where at least one individual who:
    • is “Justice-Involved,” meanings individuals who were; or had a parent, legal guardian, child, spouse, or dependent who was; or were a dependent of an individual who was convicted of a state marijuana-related offense in New York before March 31, 2021;
    • provides evidence of the primary residence of the Justice-Involved individual at the time of said individual’s arrest or conviction; and
    • holds or held for at least two years at least 10% ownership and control of a business that had net profits for at least 2 years, or a qualifying nonprofit.
  3. If not an individual applicant, the applicant can be a nonprofit that is:
    • recognized as an entity pursuant to section 501(c)(3) of the Internal Revenue Code;
    • intentionally serves Justice-Involved individuals and communities with historically high rates of arrest, conviction, incarceration or other indicators of law enforcement activity for marijuana-related offenses;
    • operates and manages a social enterprise that had at least two years of positive net assets or profit;
    • has a history of creating vocational opportunity for Justice-Involved individuals; has board members or officers who are Justice-Involved; and
    • has at least five full-time employees.

Applicant Ownership and Control Restrictions

An applicant must also satisfy the following ownership and control restrictions:

For an entity, it must:

  • Be at least 51% owned in the aggregate by one or more individuals who satisfy both sections (1) and (2) above; and
  • Have at least one individual who (A) satisfies both “eligibility” items (1) and (2) above and (B) owns at least 30% and exercises sole control of the applicant or licensee.

Application Evaluation

Applicant eligibility will be evaluated on any of the following criteria which shall be weighted as determined by OCM:

  • Whether the applicant qualifies as an Eligible Applicant;
  • The primary residence of the Justice-Involved individual at the time of arrest or conviction, and whether that address is: relative to areas with historically high rates of arrest, conviction, or incarceration for marijuana-related offenses, relative to areas with historically low median income, or was provided by a public housing authority in New York State or New York City.
  • If a qualifying business: the number of employees, number of years the business has been in operation, profitability of the business, type of business (specifically, whether this business was a retail operation), whether the business had a physical location, whether the business received or resolved any violations, fines or fees assessed against the business by state or federal regulatory authorities.
  • Or any other factors as determined by OCM.

Geographic Limitations

OCM may create regional “geographic zones” for the scoring of applicants and determine the number of available licenses per zone. For regional geographical zones where there are more applicants than available licenses, OCM may select from Eligible Applicants who indicated a first preference for the given region based on weighted scoring of the evaluation criteria.

License Details (this list is not exhaustive)

  • The “Conditional Period” is four years from the date the license is granted.
  • The licensee must commence operations no later than 12 months from the date the license is granted, or as otherwise determined by OCM.
  • Must only acquire cannabis products from entities authorized to distribute cannabis products in the state.
  • For the duration of the conditional period, the licensee must maintain the minimum standards for ownership and control described above.
  • The licensee “shall enter into and comply with all terms and conditions of any agreement with any fund approved by the CCB and made available by OCM, including, but not limited to, accepting a dispensary location identified by the fund or OCM, any loan agreement with such fund, any lease or sublease agreement with the State of New York or its agents, or any other such agreements into which the licensee enters.”
  • The licensee shall commence operations no later than 12 months from the date the license is granted, or as otherwise determined by the OCM.
  • Conditional licensees must apply to transition to an adult-use retail dispensary license in order to continue operations after the Conditional Period.

The initial regulations of course leaves open many questions and areas of clarity which should likely be addressed during the public comment period and the revisions resulting therefrom.

It is best to discuss your proposed business with a New York Canna Business Lawyer.  Please feel free to contact us if we can be of any assistance or answer any questions.

**This post is for informational purposes only, For legal advice, contact a Canna Business Lawyer**

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