New York’s Adult-Use Cannabis Law: Opportunity Starts With The Right Real Estate

Fox Rothschild LLP

Fox Rothschild LLP

Second in a series on the New York State Cannabis/Marijuana Regulation & Taxation Act

The New York State Marijuana Regulation and Taxation Act (MRTA), signed into law on March 31, legalized recreational use of marijuana for adults over the age of 21 in New York State and greatly expanded New York’s medical program. The Office of Cannabis Management (OCM) created by the MRTA will oversee the industry and is expected to provide additional implementing regulations soon, although sales of marijuana pursuant to the new licenses are not anticipated to begin until sometime in 2022 at the earliest.

Although New York’s various new license classes have their idiosyncrasies, they all start with choosing the right real estate for the license type. While many details relating to land use and zoning policies remain to be seen, the MRTA has provided key provisions regarding where future facilities may be located that both the cannabis and real estate industries should consider when assessing the incredible opportunities afforded by the law.

Local Opt-Out, Buy-In and Preemption

The MRTA permits cities, towns and villages to opt out of allowing adult-use cannabis retail dispensaries and/or on-site consumption licenses. Municipalities may exclude retail dispensaries and/or on-site consumption licenses by adopting a local law requesting that the Cannabis Control Board prohibit them within their jurisdiction by December 31, 2021. These bans are not permanent and may be repealed at a later date by local law. Depending on the municipalities that choose to opt out, this could limit retail dispensary and on-site consumption locations.

Otherwise, local municipalities are preempted from adopting any laws, rules or regulations relating to the operation or licensure of adult-use cannabis businesses. However, all local building codes, fire, health, safety and other applicable regulations apply. Municipalities that participate in the adult-use cannabis program may pass local laws and regulations to further regulate time, place and manner of licensed adult-use cannabis retail dispensaries and/or on-site consumption sites (i.e. through local land use and zoning controls). Such local laws must not render operation unreasonably impracticable and must be consistent with the Board’s regulations governing dispensaries, which may also regulate the hours of operation, size and location of a licensed facility.

The extent to which municipalities will enact local laws and regulations to further regulate adult-use cannabis program is unknown. Examples of the actions municipalities took following the legalization of medical marijuana in the state provide some insight into potential local regulatory approaches. For instance, the New York City Zoning Resolution was not amended to specifically address medical marijuana facilities when they were initially permitted by the state. A review of the certificates of occupancy for buildings in New York City that currently contain medical marijuana dispensaries reveals that they are typically classified as either doctor’s offices or retail store uses, as set forth in the Zoning Resolution. To the extent the city maintains this approach, adult-use facilities permitted under the MRTA would be classified consistent with existing use designations. Given the broader scope of the MRTA, it is possible that the city and other municipalities will adopt more robust regulations to implement the adult-use cannabis program.

At the very least, municipalities will have an opportunity to weigh-in on proposed licenses pursuant to the notice requirements provided in the MRTA. Prior to filing an application for a retail dispensary or on-site consumption license, applicants are required to provide notice to the local municipality and, in New York City, such notice must be given to the local Community Board. In the event a municipality or Community Board expresses an opinion regarding the license, it will become part of the record upon which OCM makes its recommendation to the Board to grant or deny the application. The Board must also provide a response to the municipality or Community Board with an explanation of how its opinion was considered. As NYC Community Boards and local municipalities can be difficult to navigate, it is important that applicants understand the complexities and politics in a given area in the early stages of their siting assessment.

Safe Distance Requirements

The MRTA limits the location of retail dispensaries and on-site consumption licenses near schools and churches, similar to what is known as the “200-Foot Rule” under the New York Alcoholic Beverage Control Law. Specifically, no retail dispensary storefront or on-site consumption licenses are permitted within 500 feet of school grounds or 200 feet from a house of worship. No retail dispensary or on-site consumption premises may sell alcoholic beverages. There are additional restrictions placed on advertising and marketing content, which is prohibited within 500 feet of (or where it can be readily observed from) the perimeter of school grounds, playgrounds, child day care providers, public parks or libraries, in public transit vehicles or stations, on publicly owned land or on billboards. In New York City and other densely developed cities, these requirements will limit advertising opportunities and eligible retail dispensary and on-site consumption locations.

Location Within Buildings

The MRTA also provides limitations regarding the location of a licensed premises within a building. Licenses cannot be transferred to any other location, building or part of the building containing the licensed premises without OCM approval. Except for delivery or microbusiness licenses, premises licensed to sell cannabis products must be located in a store with a principal entrance on the street level of a public thoroughfare. On-site consumption premises are also prohibited from having any opening or means of entrance or passageway between the licensed premises and any other room or place in the building, or adjoining or abutting premises, unless access to the facility is otherwise appropriately controlled. Similarly, medical dispensaries must be located within an indoor, enclosed and secure facility. The Board is tasked with ensuring that such facilities are geographically distributed across the state.

Control of the Premises

In order to receive an adult-use on-site consumption license, MRTA requires applicants to either be the owner of the premises, or be in possession of the premises pursuant to a written lease with a term not less than the license period. Similarly, retail license applicants must be the owner of the premises to be licensed or demonstrate possession of the premises within 30 days of final approval of the license through a lease, management agreement or other agreement giving the applicant control of the premises, in writing, for a term not less than the license period. These provisions may present issues for some license seekers because it may require them to invest capital in real estate up front, prior to receiving a license.

Licensing Criteria Related to Location and Environmental Impacts

The Board must develop regulations for use by OCM in determining whether an initial adult-use cannabis license is in the public interest. This determination must be based on several criteria, including:

  • The number, classes and character of licenses in proximity to the location and the particular municipality
  • Evidence that necessary licenses or permits have or will be obtained from the state and all other applicable governing bodies
  • The effect of the license on pedestrian or vehicular traffic and parking near the location
  • Existing and potentially increased noise levels generated by the proposed premises
  • Ability to increase climate resiliency and minimize or eliminate adverse environmental impacts

The Board is also tasked with promulgating rules relating to the safe production of cannabis, including energy efficiency, pesticide use and water conservation. Additionally, for applicants with 25 or more employees, OCM will consider whether they have entered into an agreement with a statewide or local building and construction trades organization for construction work on its licensed facility. Thus, in assessing potential locations, applicants should consider these factors and how they may sweeten the deal through environmental impact mitigation measures, environmentally-friendly policies and labor agreements.

Other Real Estate Provisions to Note

If a license is revoked, the Board may refuse to issue a license to that same premises for a period of up to five years, depending on the reason for revocation, relation of the property owner to the licensee and any relation between the past and future proposed licensees. Thus, it is important that landlords fully vet any potential tenant which proposes to be a cannabis licensee. However, no landlord may refuse to lease a premises solely for conduct permitted by the MRTA unless doing so would cause the landlord to lose a monetary or licensing benefit under federal law or regulations. If there is an existing smoke-free policy at the premises, the landlord is not required to permit the smoking of cannabis products on its premises. Unless federal laws change to establish normalized relationships between banks and their cannabis clients, landlords with existing commercial mortgages may need to refinance to a less traditional lender in order to lease to a cannabis business or risk being in default under their current loans.

While there are many federal, state, and local considerations to keep in mind when proceeding under the state’s new adult-use cannabis program, the potential upside is enormous. The Board, OCM, and local municipalities are expected to enact rules and regulations to implement the MRTA, which will provide further guidance (and rules) for the industry.

For an overview of licensing types, read the first installment in our series, "New York’s Adult-Use Cannabis Law: Multifaceted Licensing With a Purpose."

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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