New York’s Medical Cannabis Operators Could Switch to Adult Use by Year’s End

Under a revised regulations proposal, a one-time special licensing fee of $20 million would apply for medical licensees to enter the adult-use retail market.

OG Article: here.

View our Fair Use Policy: here.

TONY LANGE AND MELISSA SCHILLER | MAY 11, 2023

New York’s 10 medical cannabis licensees, commonly referred to as registered organizations (ROs), may be given the green light to expand to adult-use dispensing operations sooner than expected. The state’s Office of Cannabis Management (OCM) published a proposed draft of revised adult-use regulations that would allow existing operators to expand up to three retail locations to adult-use sales, including a first site on Dec. 29, 2023—two years before originally proposed. A business’s second and third retail facilities could expand to adult-use sales on or after June 29, 2024, under the 336-page proposal. In addition, ROs would have to pay a one-time “special licensing fee” of $20 million as they transition to the adult-use market to “support New York’s Social and Economic Equity plan,” according to the OCM. See full details below. Jeremy Unruh, Senior VP of Regulatory and Public Affairs for Chicago-based multistate operator PharmaCann, one of New York's 10 ROs, told Cannabis Business Times that the company has spent a long time building out and developing its medical cannabis infrastructure since winning its medical license in New York in 2015. "The challenge is that the state legalized cannabis for adult use more than two years ago, and at the anniversary of that legalization effort, which was the end of March 31st of this year, the only thing they have to show for it is [nine] dispensaries open in a state of 22 million people," Unruh said. "Millions and millions and millions of dollars of tax revenue [are] not being recouped because of the 1,400 to 1,500 illicit commercial operators that are proliferating in New York state. They have millions, hundreds of millions, if not billions of dollars' worth of conditional cultivator product that is literally wasting in warehouses right now because there are no retail outlets." The revised regulations are subject to change ahead of the Cannabis Control Board’s (CCB) regular meeting at 11 a.m. May 11, when the five-member body will consider the proposal. If approved by the CCB, the revised regulations would enter a 45-day period for public comment. The proposed revisions deviate from New York’s intent to roll out an adult-use cannabis program that prioritizes 150 social equity retailers, referred to in New York as Conditional Adult-Use Retail Dispensaries (CAURD), through a “Seeding Opportunity Initiative.” As part of that plan, CAURD licensees were to be given three years to find equal footing in the market before the larger companies that currently serve the state’s medical cannabis program would be allowed to expand their dispensaries to adult use. That three-year provision was approved by the CCB in November but is one of the revisions (to be reduced to one year) in the most recent proposal. "It's very clear from the statute that New York is to prioritize its small and social equity business opportunities, which we absolutely appreciate, and we know that we can be helpful in that," Unruh said. "And they're very clear in creating a two-tier system where ... dispensaries are not allowed to also have an interest in the supply side—the cultivators, the processors, distributors." Scroll to continue with content Less than three months after adult-use sales commenced via one CAURD licensee on Dec. 29, 2022, the Coalition for Access to Regulated and Safe Cannabis (CARSC) filed a lawsuit in the state Supreme Court of Albany, alleging that state regulators overstepped their authority based on provisions of the 2021 Marihuana Regulation and Taxation Act (MRTA). An unincorporated trade association, CARSC includes many of New York’s medical cannabis operators, such as Acreage Holdings, Curaleaf Holdings, Green Thumb Industries, and PharmaCann Inc., NY Cannabis Insider reported. According to CARSC, the policies that have prevented medical cannabis operators and other entrepreneurs—who have the capital to more swiftly open retail sites—from receiving licensure have in turn delayed the availability of safe, regulated cannabis products for medical patients and adult-use consumers alike. Unruh argued that the MRTA, as originally written, allows New York's ROs to secure adult-use licenses to expand their retail outlets to serve the broader market. It's something that he said PharmaCann has been ready to do for more than two years now. "We are in a perfect position to support [small retail dispensary businesses] by wholesaling our goods to those small mom-and-pop operators, particularly when conditional cultivators right now don't seem to be having much success in determining whether or not to plant next year's crop," Unruh said. As of May 10, more than four months after Housing Works first launched adult-use sales, there are nine CAURD operators that have their storefronts open, most of which are in New York City, leaving the illicit market to serve the majority of the state. Now, a week after Gov. Kathy Hochul signed legislation to curb the illicit cannabis market in New York as part of the state budget, cannabis regulators are proposing an expedited timeline to allow non-CAURD licensees to enter the adult-use market. But the costs for entry are steep. Notably, the revised regulations propose that ROs seeking to expand to adult-use retail operations pay a one-time “special licensing fee” of $20 million, with at least $5 million due at the time the license is issued. The remaining $15 million would have to be paid either before the opening of a second adult-use dispensary location, or in $5 million installments within 30 days of each $100 million in revenue generated by the business. Furthermore, ROs would have to pay a $175,000 retail license fee in addition to various adult-use cultivation canopy fees. Also included in the 336-page proposal, medical cannabis businesses would not be allowed to have more than one adult-use dispensary in the same county or borough as any of its other licensed dispensaries. In addition, ROs would have their cultivation operations capped at 100,000 square feet of canopy, unless otherwise authorized by the CCB. Processing would be limited to 80,000 pounds of biomass, or the equivalent amount of cannabis extract or cannabis product, per year, if the RO has purchased more than 25,000 pounds of cannabis or cannabis product at wholesale from another licensee in that calendar year. Medical cannabis operators that expand to adult-use dispensary operations would be required to dedicate a minimum of 70% of shelf space available for adult-use products cultivated and processed by licensees that are not ROs until Jan. 1, 2026. After that date, ROs would be required to dedicate a minimum of 40% of shelf space for those products, as measured by total units in inventory on a 30-day rolling average. To preserve access for medical patients, ROs that expand to adult-use dispensary operations would be required to maintain a medical patient prioritization plan; keep a sufficient supply of medical cannabis products based on historical sales volumes; provide a separate medical consultation area within their retail facilities; have separate lines and access areas for certified patients; and establish priority service or express lanes for those patients. In addition to adult-use retail provisions, other revisions to the proposed regulations include:

1. Provisional licenses and visibility into the application process

2. Realigned supply license tier ownership provisions

3. Updates to goods and services revenues limits

4. Adjustments to microbusiness and cultivator licenses authorizations

5. Social consumption allowances for adult-use dispensaries

6. Updates to environmental and energy usage rules

7. Receivership rules to protect licensee

"New York is a tremendous opportunity," Unruh said. "It will continue to be a tremendous opportunity. It's just a matter of the state getting out of its own way and letting the market actually take off. Letting that market get off of the runway and into the air requires allowing licensed operators to engage with ... and trade with one another. That's how you build an industry. You can whiteboard it all day long and think great theoretical thoughts, but until you actually allow a conditional cultivator to sell his or her product to a conditional adult-use retail dispensary, or until you allow a registered organization to serve adult-use customers by selling conditional cultivator product from their shelves—those are the cross-license relationships that build a cannabis ecosystem here. And unfortunately, the state of New York is just having a lot of trouble understanding that and getting out of its own way."