Cannabis News of Note for the Week:
Politico: Cannabis banking supporters scramble to reach lame-duck deal
Leafly: Four legalization lessons from the 2022 election
MarketWatch: Curaleaf eliminating positions as it steps up cost-cutting measures
Accelerate Cannabis/Longview Strategic: Digging into New York’s Draft Cannabis Regulations (newsletter, full text below)
Cannabis Reports of Note for the Week:
Accelerate Cannabis/Longview Strategic:
Digging into New York’s Draft Cannabis Regulations
Regs are finally here! New York’s Office of Cannabis Management (OCM) has released a full draft of regulations for all license types (minus delivery) that explores what the industry can expect from regulators in the Empire State.
We hope that the following thoughts help you navigate the draft and prepare for the upcoming 60-day comment period.
“Aggressively Progressive”
Chris Alexander, the OCM’s Executive Director, proudly labeled the draft regulations a blueprint for “aggressively progressive” cannabis policymaking – we tend to agree.
At the core of the OCM’s mission is defining social equity and establishing innovative concepts like funding, site selection, and business development assistance specifically for justice-involved people. This is a progressive concept initially-signified by the CAURD program and its potential as a pilot program to inspire others around the country.
What is important is how the OCM is categorizing diversely-led groups (minority, women, disabled veteran, distressed farmer) through a benefit of priority and reduced application fees. This is similar to New Jersey, and while it gives a reason for new businesses to organize around diverse ownership, it does little to account for the systemic and structural barriers-to-entry around accessing capital, finding property, affording professional services, and fundraising while retaining corporate control.
If the OCM were going to give points here, they could have, signaling that applications might not suffer through the rigamarole of competitive scoring rubrics and the exposure to litigation they bring. Instead this leans into the provisional licensing process with opportunities to cure. Combined with remarks from Chairwoman Tremaine Wright at MJBiz last week that New York is not looking to institute caps on licenses in the near future, New York looks like a relatively open market that intends to compete with the robust and entrenched supply chains that already flourish.
Two-Tiered and Not Kidding Around
New York is modeling cannabis after alcohol and creating a system wherein ‘retailers’ and ‘suppliers’ cannot cross ownership or do business at less than an arm’s length.
The regulators are very serious about this. All spouses count as owners, passive investors (<20% non-decision-making) seem to count as True Parties of Interest through “financial interest,” and there are limited ways to operate as the same brand in more than 3 dispensary locations.
The OCM is trying to protect the local industry and keep major players out of the puzzle as much as possible. By limiting or eliminating vertical integration and limiting the ability for licensees to DBA under an MSO, the state is signaling to locals that their role in the system is being preserved for a time.
They are additionally resolved to keep dispensaries siloed completely; for instance, processors can be white-labelers but cannot work with a dispensary directly to make a specialty or limited edition product. Vertical businesses will need to choose their entrances carefully.
Wait…What?
Here are a few pieces of the draft to check out in more detail.
Business Continuity Plan (p. 48) – Tucked into the standard list of corporate formation documents and attestations is a requirement for a business continuity plan. This plan explains next steps if the owners are no longer able to run the business and is sometimes a curveball for applicants.
Five Years of Charitable Contributions (p. 48) – They want to know everything about your operation in an effort to weed out unsavory or suspicious activity including requesting charitable histories, details of all licenses in other markets, and any enforcement activities or litigation.
Provisional License Approval (p. 51) – It seems there will be a 12-month period for provisional approval where teams will look to finalize site control. It is unclear if proving capital, cannabis experience, or compliance backgrounds will be critical to the initial license application, but we expect a staggered application process similar to the CAURD round where teams will be pre-qualified and cured for completeness.
Nursery Canopy Sizes (p. 53) – Outdoor at 100,000 sq. ft.?! Indoor/Mixed up to 10,000 sq. ft. These are large numbers for plants that are not allowed to grow more than 2 feet tall. There is also no specific indication of vertical farming for canopy measurements so conceivably the 10,000 sq. ft. could be in a much smaller space.
Community Impact Plan (p. 112) – Commitments to social and economic equity are shown in a detailed plan that tracks specific disadvantaged communities and a description of the exact benefits like workforce development, education, community-building, and donation. Additionally the regulators want to see the exact resources available and a plan of how to deploy them into the community. This is one of the more robust ‘Community Sections’ that has been promoted and might act as a lever for the OCM to request a cure (if they desire).
Energy and Environmental Plan (p. 218) – The OCM has a mandate to prioritize sustainability and they outline most of the main aspects of any environmental plan in these regulations. Consider everything from construction choices to packaging, disposal to spill procedures, and details of measuring carbon footprint. This section is by far the most descriptive we have seen and it mentions criteria for everything from HVAC to solar panels.
Specialization or Administrative Burden?
There are four distinct and separate cultivation licenses and three manufacturing licenses to increase the specialization and demands for specific procedures and activities for each license type. The cultivation types are broken down by light and energy usage, conceivably with differences in inspectors, reviewers, or other aspects of regulatory expertise.
On the other hand, this is also setting up a redundant system with more fees and administrative burden. The OCM does mention an “abridged” application process for new styles of license if the rest of the application remains the same. The level of specificity with which they discuss cultivation and processing techniques is unparalleled in other states and hints at active regulators looking for specific SOPs and equipment procedures.
Ultimately New York offers a large list of available product form factors including beverages, topicals, chocolate, etc. This specialization is good for the market and even goes as far as to explicitly mention that naturally occurring versions of components like caffeine are allowed if included in coffee or tea products.
This is what ‘aggressive progressiveness’ might look like, but it also establishes a dynamic system that will require professional services, support from environmental consultants, command of local community politics, and massive amounts of capital to compete with rapidly scaling current license holders from the hemp and medical industries.
Overall, we are very excited to see the draft regulations give hints about what can be expected and as clients approach with questions, our team is prepared to walk through the surprising mix of market dynamics in New York.