On May 11, 2023, New York’s Cannabis Control Board voted to approve the revised adult-use cannabis regulations. Upon publication in the New York State Register, these draft regulations are subject to another 45-day public comment period. Although the draft regulations are subject to this additional public comment period, it’s unlikely the regulations will undergo significant changes. Therefore, these draft regulations are essentially the final form regulations. The Office of Cannabis Management (OCM) has indicated adult-use cannabis applications will open up in the fall, meaning these revised regulations will function as our roadmap.
The initial draft regulations contained several potentially problematic provisions. The revised regulations made minimal changes, but we have outlined the key changes below.
True Parties of Interest (TPIs)
As a reminder, TPI is a defined term that picks up a number of categories of relationships and combines them into the TPI category which is intended to constitute the universe of individuals and entities with an ownership-like interest in a licensee. It's important because all TPIs are tied to a licensee for purposes of background checks and cross-ownership restrictions.
The most significant change in the revised regulations was to increase the annual threshold by which a contract becomes a default TPI (i.e., even if the contract is not tied to revenue or profit or constitutes control) from $100,000 to $250,000. Note, this could pick up contracts not considered ownership in any other state, such as contracts with accounting, consulting, or legal firms.
Materiality Thresholds for Disclosure
The revised regulations require that a capitalization table be provided by licensees that includes certain equity holders depending on the nature of the entity: (i) for privately held companies, all shareholders above ten percent, and (ii) for public companies, all shareholders above five percent. This may make it easier for companies to raise capital by bringing the disclosure obligations in line with those of other states.
However, the risk of burdensome disclosure remains as all shareholders, and those who are TPIs by virtue of contractual relationships, are still included in the definition of TPIs and not explicitly carved out from regulatory approval procedures.
Out-of-State Ownership Restrictions
The revised regulations still prohibit True Parties of Interest in New York’s retail dispensaries from holding any interests in (including having a goods and services agreement with) supply-side businesses outside of New York (cultivation, cooperatives, processors, distributors, and microbusinesses).
However, the out-of-state restriction no longer applies to True Parties of Interest in a registered organization with dispensing (i.e., ROD) under the revised regulations.
Cross Tier Restrictions
Generally, the cross-tier restrictions remain (i.e., anyone with an interest in the retail side cannot have any interest in the supply side).
However, under the revised regulations, True Parties of Interest in a registered organization that is licensed under Article 4 (i.e., an ROD or ROND, but excluding registered organizations pursuant to the medical cannabis provisions), are now allowed to be “Passive Investors” in (or have a goods and services agreement with) any number of supply-side New York businesses (cultivation, cooperatives, processors, distributors, and microbusinesses).
Municipal Setbacks and Zoning Have Been Modified
The revised regulations have added a prohibition on a municipality from adopting a local law that would allow an adult-use retail dispensary, microbusiness, ROD, or on-site consumption license to be:
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On the same road and within 200 feet of the entrance of a building occupied exclusively as a house of worship;
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On the same road and within 500 feet of the entrance of a building occupied exclusively as a school; or
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On the same road and within 500 feet of a structure and its grounds occupied exclusively as a public youth facility.
Municipalities continue to be authorized to adopt local laws and regulations governing the time, place, and manner; provided, however, that such local laws and regulations shall not be unreasonably impracticable. The revised regulations state that the following activities constitute permissible time, place, and manner restrictions that may be imposed by a municipality:
- Retail Dispensary and On-site Consumption hours of operation; the visual or architectural integrity of the building if located within historical districts; parking; traffic; odor; noise; and distance requirements between the retail dispensary, microbusiness, or ROD and a public youth facility, provided, however, that such distance requirement is no greater than 500 feet from the retail dispensary, microbusiness, or ROD.
Under the revised regulations, no retail dispensary or microbusiness license is allowed within a 1,000 ft. radius of a RO, ROD, or any other retail dispensary or microbusiness in a municipality having a population of more than 20,000 or within a 2,000 ft. radius of a RO, ROD, or any other premises for which a retail dispensary license or microbusiness license has been issued in a municipality having a population of 20,000 or less.
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The CCB can waive these requirements if they determine that issuing the license would promote public convenience and advantage.
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The distance requirement between a retail dispensary or microbusiness and ROs ends in December 2023.
Under the revised regulations, no RO or ROD license is allowed within a 1,000-foot radius of a retail dispensary, microbusiness, or ROD license issued in a municipality having a population of 20,000 or more or within a 2,000-foot radius of a retail dispensary, microbusiness, or ROD license issued in a municipality having a population of 20,000 or less.
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CCB can waive these requirements if they determine that issuing a license would serve a “medical necessity”. The revised regulations provide factors the Board will consider in determining whether a medical necessity exists.
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For on-site consumption, no licensee is permitted within 500 ft of 3 or more existing on-site consumption premises.
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The CCB can waive these requirements if they determine that issuing the license would promote public convenience and advantage.
Community Facility Updates
“Community Facility” has been removed from the regulations. Instead, the regulations now use the defined term “Public Youth Facility,” which means a location or structure owned by a government or government subdivision or agency, that is accessible to the public, where the primary purpose is to provide recreational opportunities or services to children or adolescents of whom the primary population is reasonably expected to be 17 years of age or younger.
On-Site Consumption Opportunities for Adult-Use Dispensaries
On-site consumption will now be permitted at licensed retail dispensaries.
Retail dispensaries can designate a distinct area on their premises where people can use the cannabis products purchased from the dispensary. This area is called a “limited retail consumption facility” and it must be inside the same building as the dispensary, or on an adjacent parcel.
- Note, this expanded opportunity is still subject to the Clean Indoor Air Act and municipal restrictions
Temporary Event Permits
The revised regulations add a new section that allows temporary cannabis events.
Specific licensees are now permitted, with permission, to temporarily squat at another licensee’s premises for up to 30 concurrent days. The licensees that can squat locations are on-site consumption, adult-use retail dispensaries, microbusiness, or ROD. Notably during this period, a licensee can sell cannabis products to consumers at such temporarily added premises during the cannabis event
Social and Economic Equity Applicants
An applicant seeking to qualify as a social and economic equity applicant must apply for social and economic equity status. The revised regulations now all allow a potential opportunity for a provisional license if any applicant that has qualified as a “social and economic equity applicant” is denied a license but is otherwise eligible.
Registered Organizations (Ros) Will Be Permitted to Convert to Adult Use Dispensaries Sooner Than First Contemplated
As a reminder, MRTA allows RO participating in the adult-use market to co-locate up to 3 of these dispensaries for both medical and adult-use sales. The revised regulations allow the ROs to convert their stores sooner:
The fees have been modified as follows:
Adult Use Conditional Cultivators (AUCC) Have Expanded Conversion Options
Under the revised regulations, AUCCs can now convert to:
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Tier 1-4 outdoor cultivator license;
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Tier 1 or 2 mixed-light cultivator license;
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Tier 1 or 2 combination cultivator license;
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an adult-use cultivator license authorized for up to 25,000 square feet of mixed light cultivation canopy with no more than 20 lights, provided however, neither the Office nor the Board shall authorize an increase in the number of lights for this license type without the issuance of regulations;
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a microbusiness license; or
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an outdoor or mixed light cooperative or collective license, provided the cooperative or collective license includes at least 5 adult-use conditional cultivators that are transitioning to adult-use cultivators and meet all other requirements to obtain a cooperative or collective license
Receivership is Now Allowed
Since cannabis is not yet federally legal, cannabis entrepreneurs do not have access to federal bankruptcy courts.
The revised regulations addressed this gap by adding a section on receivership for unexpected license transitions (death, disability, bankruptcy, insolvency, receivership, assignment for the benefit of creditors, shareholder or LLC member disputes, or other exceptional circumstances).
In such instances, an individual may be appointed as receiver, representative, executor, administrator, guardian, conservator, trustee, or assignee, to temporarily operate the licensed business for a period of time determined by OCM.
- The appointee will need to be authorized by the Office and would be subject to corresponding restrictions on ownership and other interests outlined in the regulations. It is worth noting that even if the appointee is authorized by OCM the underlying license is not guaranteed to be renewed.
