THE EQUITY ORGANIZATION

New York State Cannabis Regulation and Taxation Act (CRTA) Recap

Prepared by Natalie Papillion, Founder & CEO of The Equity Organization

Updated February 2020

TABLE OF CONTENTS:

CRTA Overviews

Taxation

Timing & Goals

Local Control & Competition

The Equity Organization

Penalties & Policing

Oversight & Regulation

Social Equity 

Timeline

Penalties & Policing

Revenue Projections & Costs

Employment

Revenue Allocation

Public Health

Market Overview

Medical Marijuana

License Types

Home Cultivation

Licensing Process

Sources

 CRTA OVERVIEW: 

  • Governor Cuomo’s inclusion of a reworked Cannabis Regulation and Taxation Act (CRTA) in this year’s budget proposal has bolstered rumors that legalizing adult-use cannabis will be among his top priorities during this year's legislative session. As a result, New York state lawmakers, consumers and industry leaders are increasingly optimistic 2020 could be the year New York becomes the 12th state in the nation to allow for the sale of adult-use marijuana.
  • The CRTA’s stated purpose is to propose a “comprehensive regulatory approach to legalize cannabis” which would “establish a regulated adult-use cannabis program that protects public health, provides consumer protection, ensures public safety, addresses social justice concerns and invests tax revenue.” The proposal includes creating a new Office of Cannabis Management to specialize in cannabis regulation; the office would oversee the medical, adult-use and hemp programs, including things like administering social equity licensing opportunities, developing an egalitarian adult-use market structure and facilitating market entry through access to capital, technical assistance and incubation of equity entrepreneurs. The proposal also aims to correct past harms to individuals and communities that have disproportionately been impacted by prohibition.
  • Full text of the CRTA found HERE. Full text of the MRTA found HERE.

TIMING & GOALS

ABOUT THE EQUITY ORGANIZATION:

The Equity Organization is a New York-based national nonprofit working to ensure the communities most harmed by the War on Drugs get equitable access to the social, legal and economic opportunities that accompany cannabis legalization. To learn more about The Equity Organization, please visit our website and follow us on  Instagram, Twitter and Linkedin. Additional writing and legislative recaps can be found on our Medium page and in the Resources section of our website. To get in touch with The Equity Organization, please email us at hello@equityorganization.org.

THE PROPOSAL

OVERSIGHT & REGULATION:

  • CRTA: Establishes the Office of Cannabis Management (OCM), within the Division of Alcoholic Beverage Control, to oversee New York’s adult-use cannabis market, medical marijuana market and hemp cannabis market. The Office of Cannabis management would be led by an Executive Director and overseen by a five-member board—all Cuomo appointees. The board would be charged with approving social and economic equity plans, approving the type and number of licenses, creating new licenses and promulgating rules for the cannabis regime. The board would be overseen by an Executive Director, who would have the authority to limit the number, scope and availability of licenses and permits to be issued for cannabis-related activities. In addition, the executive director would be required to appoint a “Deputy Director for Health & Safety (i.e Chief Medical Officer), who would tasked with addressing various public-health related issues (including the state’s existing medical marijuana program, which currently much criticized by eligible patients who say is too costly and unwieldy to navigate). They would also be responsible for appointing a deputy director for social and economic equity.
  • Concern/Issues: While the new CRTA proposal transitions from a single ‘marijuana czar’ (2019 CRTA proposal) to a five-member board for the “Office of Cannabis Management”, under the CRTA the board would be all Cuomo appointees. Many feel the five-member board is ‘a negotiating tactic for Cuomo in dealing with lawmakers in upcoming budget talks’. The MRTA proposal has the ‘Office of Cannabis Management” being governed by a board in which legislators would appoint some members.

TIMELINE:

  • CRTA: Cuomo said he included the marijuana legislation in his budget bills (which must be adopted by April). “I believe it is best done in the budget ... I believe the budget is the opportunity frankly to make some tough decisions and work through tough issues that without the budget can often languish.” He also claims including legalization in the budget works to create a sense of urgency around the topic, and “since the budget also includes popular actions like funding for schools, the maneuver could help win over marginal votes”. Cuomo concedes it could take ~18 months before legal sales would occur in NYS (if the package is agreed to by lawmakers in 2020). If Cuomo and NYS legislators are successful in passing legalization legislation during the 2020 session, New York would become the 12th US state to legalize cannabis for recreational use, and it would be the second state to legalize via a legislative measure (first was Illinois in 2019).
  • Concern/Issues: A similar effort failed in 2019, though rising public support and competitive pressures—coupled with NYS’s $6b budget deficit and need for new revenue sources—could make passage in 2020 easier. Many NYS lawmakers are claiming that more New Yorkers and lawmakers now see the value of legalizing cannabis. Assembly Majority Leader Crystal Peoples-Stokes said "If you look at the polls, if you look at the numbers, if you look at the states around us that have gone legal adult use, if you just go to Massachusetts and look at the number of New York State license plates there are at there dispensaries it might be an indication that some of our elected people across the state are changing their minds''. An example? A formerly anti-legalization lawmaker like Sen. Pete Harckham (a moderate Democrat who represents a swath of the Hudson Valley), wasn't in favor of the idea last year, but after doing further research on the issue (he traveled to legal state Massachusetts to meet with members of law enforcement, school officials and community leaders and visited a dispensary), says he’ll be a “yes” this year. "A couple of the things we learned was that on weekends as many as 50 percent of the cars can be from New York, so we're losing a lot of tax revenue for sure," Harckham said. "The main thing we learned is that the sky is not falling." The issue he is most concerned with resolving is what to do with the tax revenue—Harckham recently voiced his support for the MRTA, because “25% of the revenue under that bill goes to treatment, prevention and education”. That said, lawmakers acknowledge that even if legalization passes as a part of the budget, it could be some time before the state sees tax revenues.  "Once we legalize adult use, it's gonna take us at least 18 months before there's a regulatory process in place that would identify what potential revenues could be and what their uses could be," said Assembly Majority Leader  Peoples-Stokes. and taking a unified approach with other legislatures may also act as a catalyst, he said.

REVENUE PROJECTIONS & COSTS

  • CRTA: In his 2020 State of the State address, Cuomo stated that "cannabis legalization has the potential to have a significant economic impact on distressed areas in New York creating thousands of new jobs, spurring billions in economic activity and generating an estimated $300 million in tax revenue when fully implemented. CRTA’s 2020 budget proposal estimates NYS would receive $20m in cannabis excise tax revenue for the 2021 fiscal year (would come from licensing fees paid by existing NYS medical marijuana operators seeking to join NYS’s broader, adult-use marketplace), $63m in 2022 and $188m by 2025. Re: costs, Cuomo’s budget proposal includes a $34.3 million increase to support the creation of the Office of Cannabis Management within the Division of Alcoholic Beverage Control.  It also asks for $1.1 million in “resources to support nine additional hemp oversight and inspection related staff.”
  • Concern/Issues:
  • Economic experts say those numbers are inaccurate and/or inflated, especially given they’re dependent on transitioning the majority of cannabis consumers from the unregulated market. This has been hard to do in all legal states, given higher prices (driven by taxes) in the regulated market (and the CRTA would levy some of—if not the—highest cannabis-related taxes in the country).
  • For example, Canada is struggling with cannabis revenues that have come in way under projections. Why?  A dearth of dispensaries, lack of product diversity, strict advertising restrictions, and expensive products—plus, a fragmented roll-out of the adult-use program—are considered to be major factors.
  • Timing is also a factor here. Illinois' rolled out adult-use sales via a multi-phased launch (existing medical cannabis companies got recreational licenses first). However, the limited number of dispensaries—coupled with strict regulations re: cultivation size— has started to result in severe shortages. The slow start is actually pretty normal in a newly legal state, and state officials and cannabis policy experts said this week it was all part of the plan to prevent a rush to market by would-be business owners eager to cash in. Regulators wanted to “intentionally slow things down to make sure we made space for new entrance to the market.

REVENUE ALLOCATION:

  • CRTA: Marijuana excise tax revenues to flow into the state’s general fund, and decisions re: how to spend those funds would be made on an annual basis (part of the budget).[1] Cuomo’s proposal says marijuana revenue would go towards “implementation costs, traffic safety efforts and the social and economic equity plan, as well as substance misuse, harm reduction and mental health treatment and prevention programs, among other things” but opposes specific amounts allocated to certain areas because “they want flexibility as the industry grows and changes”.
  • Concern/Issues: CRTA has no such provisions as to what percentage—if any—of cannabis-related revenue would be placed in a community reinvestment fund aimed at assisting communities most impacted by criminalization Critics say this could easily lead to a situation where all cannabis-related tax revenue go into Cuomo’s other focus areas (i.e roads—something the Contractors Association has called foror the MTA). for example. A competing legalisation bill (The MRTA) guarantees 50% of revenue would be directed into community reinvestment, as well as dictates how much funding should be allocated for drug treatment and traffic-safety programs.

MARKET OVERVIEW:

  • CRTA: Would create a three-tier market structure (similar to NYS’s current alcohol distribution model) and would generally prohibit vertical integration of businesses. According to Cuomo’s office that structure— along with licensing limits and supply management—are intended to “control market concentration and encourage social equity applicant participation.”
  • Concern/Issues: Under the CRTA, the Office of Cannabis Management has the authority to grant some or all of the 10 Registered Organizations (ROs) that currently have medical marijuana licenses the ability to cultivate, process, distribute and sell adult-use cannabis products without abiding by the restrictions that prohibit overlapping ownership interests across tiers (subject to a competitive bidding process determined by the Office of Cannabis Management).

LICENSE TYPES:

  • CRTA: Creates 6 major adult-use license categories (cultivator, processor, cooperative, distributor, retail dispensary, on-site consumption license). Prohibits vertical integration and bans most overlapping ownership interest across multiple license categories (i.e persons or entities holding a cultivator license are prohibited from holding a retail dispensary license and cannot have any direct or indirect interest in one). Also establishes “special-use” permits—nursery permit (produce clones, immature plants and seeds), solicitors/brokers permit (allows solicitors/brokers to get commissions for facilitating cannabis sales), delivery permit (for cannabis dispensaries and third parties to deliver directly to consumers), catering permit (service of cannabis products at hotel/restaurant/club/ballroom events). On-site consumption would be banned from opening within 500 feet of schools and 200 feet of a church, synagogue or other place of worship.
  • Concern/Issues/Counterpoint: The CRTA explicitly prohibits “vertical integration” and bans overlapping ownership interest across multiple license categories (i.e a person couldn’t hold and/or have a direct or indirect interest in a cultivator license and a retail dispensary license). State officials from Colorado are in agreement—they feel a “tiered cultivation and production management system” creates a more sustainable landscape—”it forces companies to grow wisely in conjunction with demand”.

LICENSING PROCESS:

  • CRTA: The Executive Director of the Office of Cannabis Management has the authority to grant some or all of the 10 Registered Organizations (ROs) that currently have medical marijuana licenses  the ability to cultivate, process, distribute and sell adult-use cannabis products without abiding by the restrictions that prohibit overlapping ownership interests across tiers. The ROs that are entitled to the exemption re: overlapping ownership interests regulations will be determined by a competitive bidding process determined by the Office of Cannabis Management. Alternatively, any of the ROs could apply for an adult-use license via the normal process, but that would leave them subject to  ownership interest restrictions.

TAXATION:

  • CRTA: Most states base marijuana taxes on price or weight, The CRTA proposes multiple taxes on cannabis. $1 dollar per dry weight gram of cannabis flower, $0.25 per dry weight gram of cannabis trim, and $0.14 per gram of wet cannabis. There would also be a 20% tax on the sale from a cultivator to a retail dispensary (assumption is this would ultimately be passed on to the customer). There would also be a 2% tax from the county or city (1m people+) where the retail dispensary was located. Unclear if this includes other state and local sales tax. The CRTA would maintain the 7% tax on medical marijauana, with those revenues going towards specific purposes (currently 45% of medical marijuana tax revenues go to the communities housing the grow sites and dispensaries)
  • Issues/Concerns:
  • Overly high taxes, which may promulgate the existence of the illegal/unregulated market. State Sen. Liz Krueger (D-Manhattan)wants to make sure “ we don’t overprice or overtax recreational marijuana because if we do, the illegal market will continue strong and we will fail the assignment… “The right answer is to keep your prices low enough so you are not undercut by the illegal black market.”
  • Research from other legal states show high taxes mean people will continue to buy from the ‘unregulated’ market, which means small businesses will not be able to compete with these prices and will be forced to either fold and/or be purchased by larger, well-financed corporate cannabis operators at “pennies on the dollar”.
  • According to experts, one of the most critical elements in creating a successful legal market is “ensuring that the regulated businesses usurp long-established illicit market operators”. High taxes and onerous regulations can hinder the ability to drive illicit sales into the legal market—which makes life better for unregulated operators while at the same making it impossible for regulated businesses to survive. This is an issue that is currently plaguing California's cannabis market (85% of cannabis sales are still currently in the unregulated market). More research on how California’s cannabis taxation structure can be found here.
  • A report issued by the Institute on Taxation and Economic Policy suggested that weight-based taxes are the efficient approach to taxing cannabis. The Center for New Revenue belives taxing potency should be the next step in the evolution of cannabis taxes. Illinois chose to impose a purchaser excise tax ranging between 10% and 25% depending on a product's level of THC. Michigan (like Colorado and Nevada) imposes an excise tax on marijuana's retail price (10%).  California charges a mix of taxes—15% imposed on the retail price, different levels on the weight of wholesale flowers and leaves.
  • An overview of the tax implications of legal cannabis can be found here.

LOCAL CONTROL & COMPETITION

  • CRTA: Allows counties and cities of 100,000 or more people to decide whether to opt out of marijuana sales. If a county or city opts out, it would be illegal to have stores selling cannabis within that city/county, but it would still be legal for people to possess cannabis within that city/county. Smaller communities would still be able to pass ordinances governing hours of operation and location of dispensaries, but wouldn’t be able to make it “unreasonably impractive” to operate a business. Cuomo’s stated desire to work with neighboring states to create similar/shared guidelines and tax structures could work to discourage the “cross-border buying that sees states compete for revenue.”
  • Concern/Issues: During the 2019 legalization push, some lawmakers wanted to give communities of all sizes the right to opt out. And already, leaders in 6 counties have signaled they wouldn’t allow local marijuana sales (Columbia, Chemung, Nassau, Putnam, Suffolk and Rockland Counties). Cattaraugus and Oneida county leaders have also said they were likely to oppose local sales.

SOCIAL EQUITY:

  • CRTA: Requires the Office of Cannabis Management to create an economic equity plan that “actively promotes racial, ethnic and gender diversity in the adult-use cannabis industry”. The plan must (1) prioritize applicants who qualify as a minority, a women-owned business, a social equity applicant or a disadvantaged farmer and (2) positively impact areas that have been harmed through disproportionate enforcement of the war on drugs. Cuomo’s office has also stated they’ll support technical assistance, training, loans and mentoring for license applicants that qualify under OCM-established social and economic equity criteria.
  • Concern/Issues: Vague. And the CRTA has no such provisions as to what percentage—if any—of cannabis-related revenue would be placed in a community reinvestment fund aimed at assisting communities most impacted by criminalization (the MRTA guarantees 50%). In the NYS Senate, Sen. Liz Krueger, D-Manhattan (sponsor of the MRTA), said she wouldn’t support any legislation that didn’t specifically lay out how the money would be reinvested into communities of color. This sentiment has been echoed by other legislative Democratic leaders—including Democratic Senate Leader Andrea Stewart-Cousins—who have said they want more specific assurance that revenues will go to communities negatively impacted by enforcement of drug laws. Norman Birenbaum, the state’s director of cannabis programs, says Cuomo agrees with the need for reinvestment but believes it shouldn’t be overly prescriptive. This is perhaps the biggest rift between Cuomo and legislators (Assembly Majority Leader Crystal. Peoples-Stokes, a Democrat from Buffalo, recently stated “That’s a big issue… there has never been an appropriation that focused on the multiple generations of people who went to jail. It impacted their children, their families and the communities.”).

PENALTIES & POLICING:

  • CRTA: There are differences on what violations and criminal statutes will look if cannabis is made legal. The CRTA proposes that individuals caught smoking marijuana in public face a $125 fine— and individuals  could face a misdemeanor if they’re caught in possession of 2+ ounces of marijuana.  Furthermore, the CRTA proposal gives regulators the ability to impose fines and revoke cannabis business licenses for underage sales. The CRTA also proposes a new penalty method–a tax department-imposed fine instead of criminal sanctions–for some unregulated marijuana operators. According to Norman Birenbaum, New York State’s director of cannabis programs, this new penalty method (which is also being considered in Massachusetts & California)  is “a way to make sure we have proper incentives for people to operate in the legal market,” and gives the state some “flexibility” in their attempts to try to reduce the illegal marijuana market.
  • Concern/Issues: Overly harsh penalties and/or an overreliance on the criminal justice system. Worth noting—under the MRTA, only people in possession of 3+ ounces of marijuana would receive a violation and face a fine of $125.

EMPLOYMENT & LABOR

  • CRTA: Cuomo’s proposal would allow employers to implement policies prohibiting the use or possession of cannabis—meaning employers would be able fire workers for violating the workplace pot policies and/or failing drug tests that demonstrate they were high while doing work.
  • Concern/Issues:
  • There are currently no accurate drug tests in the market for determining if someone is currently ‘high’  (should come in 1-2 years). Current drug tests (blood, breath, urine, etc.) are inaccurate—they only detect if an individual was high that day or week, rather than if they were high while on the job and/or operating a vehicle. Furthermore, lawmakers in New York City recently prohibited New York City employers from drug-testing job applicants for marijuana use (this marijuana-screening ban excluded certain jobs in healthcare, construction, child care and other fields with safety concerns).
  • Organized labor remains an important issue in the industry. In November 2019, the UFCW (which represents more than 300,000 workers in cannabis and other industries in New York, New Jersey, Connecticut, Massachusetts, Pennsylvania and Rhode Island) called for a regional agreement to prioritize labor peace agreements that support good jobs and consumer safety.

PUBLIC HEALTH:

  • CRTA: Limits the sale of cannabis products to adults 21 and over, and  pledges to work with neighboring states “to establishes stringent quality and safety controls including oversight over the packaging, labeling, advertising and testing of all cannabis products” Allows the state to regulate everything from consumer packaging to specific kinds of vaping devices. The state will also be responsible for dealing with issues re: accidental ingestion of edibles  and marketing or product designs that could appeal to teens or children. It also *explicitly* gives the state authority over marijuana marketing and advertising programs to “prevent predatory marketing and advertising practices targeted toward at-risk populations, which include minors under 21, pregnant or breastfeeding women and groups of people more susceptible to cannabis use disorders”. Licensees also are expected to abide by strict packaging, labeling and advertising restrictions (issued by the Office of Cannabis Management). Cuomo’s budget address also stated he wanted NYS to create “a first of its kind Global Cannabis and Hemp Center for Science, Research and Education with SUNY and other expert partners.”
  • Concern/Issues:
  • Anti-legalization activists, including the  New York state PTA, which represents school parents, continues to oppose the measure. “We’re in the middle of the vaping and opioid epidemics, and to add another drug makes no sense to us,” said NYS PTA Executive Director Kyle Belokopitsky.
  • Republican legislators, including Senate Minority Leader John Flanagan, continue to say legalizing marijuana sends a bad message to children.
  • The New York State Association of County Health Officials is also opposed. "The experiences in other states and the scientific research have proven it will generate preventable deaths and illnesses," said Sarah Ravenhall, the association's director.
  • The bill does not address the impact marijuana consumption can have on parental rights—today positive marijuana tests are being used as grounds to start a child neglect case against a parent.

MEDICAL MARIJUANA:

  • CRTA: Leaves New York’s existing medical marijuana regime largely intact—though it would transfer the administration of existing medical marihuana program from the Department of Health to the Office of Cannabis Management. There are currently 40 medical cannabis dispensaries in New York, and they serve 500K residents (NY’s dispensary-to-patient ratio is 2x as high as Illinois, 3x Michigan and 7x Florida). Some small changes laid out in the CRTA—certified patients would now be permitted to grow their own cannabis at home for medical use and hospitals, nursing homes and other care facilities would be able to register as designated caregiver facilities, permitting the facilities to possess, deliver, transport or administer medical cannabis to certified patients under its care. Furthermore, the Office of Cannabis Management is authorized to license additional medical marijuana providers over and above the 10 currently operating in the state. It also creates a “cannabis research license” that permits a licensee to produce, process, and purchase and possess cannabis for clinical studies and to research the efficacy and safety of using cannabis as part of medical treatment.
  • Concern/Issues:
  • New York’s Medical Cannabis Industry Association is arguably the most powerful industry group operating in New York. Their swelling ranks (they recently welcomed cannabis giants Curaleaf, Green Thumb Industries and Cresco into the fold) indicate they’re optimistic about the state’s 2020 legalization odds in 2020. The NYMCIA is firmly in support of the co-location of medical and recreational dispensaries— a position that’s reflected in the CRTA, as its ban on vertical integration does not necessarily apply to existing ROs. Many advocates believe that rolling New York’s vertically-integrated medical cannabis providers into any adult-use program would guarantee that NYMCIA members (a coalition of powerful, well-connected and well-financed multi-state operators) would be able to corner the adult-use market before small businesses could even get started. And while NYMCIA’s President Ngiste Abeded recently stated that the group understands “social equity will, and should, be at the forefront of this discussion” and is ”prepared to be an advocate and source of investment for the communities that have been most adversely impacted by the war on drugs"—the co-location of existing medical providers has been cited as a major risk to the successful development of small and/or social-equity businesses (Illinois is currently struggling with this issue).
  • New York physicians currently have to take a (paid) course if they want to prescribe medical cannabis—eliminating that requirement may lower the barrier for medical providers.

HOME CULTIVATION/GROW:

  • CRTA: Home cultivation of medical cannabis would be allowed, up to four plants per household, but recreational consumers would not be able to legally grow their own marijuana
  • Concern/Issues: Legislators like Assembly Majority Crystal Peoples-Stokes have gone on record decrying the prohibition of “home grow” for recreational use (would be allowed for medical patients).

SOURCES:


[1] The proposal would deposit revenues from State cannabis taxes in the New York State Cannabis Revenue Fund which would be expended for the following purposes: administration of the regulated cannabis program, data gathering, monitoring and reporting, the governor’s traffic safety committee, initiatives and programs of the social and economic equity plan of the OCM, substance abuse, harm reduction and mental health treatment and prevention, public health education and intervention, research on cannabis uses and applications, program evaluation and improvements, and any other identified purpose recommended by the director of the OCM and approved by the Division of Budget.