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New York’s Conditional Adult-Use Dispensary License

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The creation of New York’s conditional adult-use retail dispensary license has made headlines. Although New York plans to issue only 50-100 of this new license type, the license type and its underlying rules and regulations is incredibly significant. Why?

First, because the OCM and CCB have issued actual rules and regulations that will apply to a specific license type. The rules and regulations are comprehensive and provide a clear template for rules and regulations for the other license types included in the MRTA. The promulgation of conditional adult-use retail dispensary rules and regulations are a clear indicator that all of the other adult-use rules and regulations are coming soon.

Second, these rules and regulations provide a roadmap for New York’s social equity program, particularly with respect to retail dispensary licenses. Many of the rules and regulations track the Social Equity Fund that we recently wrote about, again highlighting that the CCB and OCM are actively coordinating the interplay between the various aspects of the adult-use cannabis program.

But enough of about the big picture. With any rules and regulations, the devil is in the details and there are a lot of details to unpack here.

Who is eligible for a conditional adult-use retail dispensary license?

Eligibility generally falls into two buckets: (i) individuals or entities in which the ownership is comprised of at least one individual who was convicted of or related to an individual who was convicted of a marijuana-related offense prior to the enactment of the MRTA; and (ii) nonprofit organizations that intentionally serve justice involved individuals and communities with historically high rates law enforcement activity for marijuana-related offenses.

All applicants are required to demonstrate a significant presence in New York, either individually or by having a principal corporate location in New York. For entities, the New York “presence” requirement can be met by a majority ownership interest in the entity being held by individuals who are physically present in New York for at least 180 calendar days in the current year or 540 calendar days over the past three years.

For individuals/for-profit entities there are a few really interesting requirements:

  • the justice involved individual must demonstrate that residence in New York at the time of the qualifying conviction(s);
  • qualifying individual must have or had (for at least two years) at least 10% ownership interest in a business that had net profit for at least two of the years the business was in operation;
  • for an entity to qualify, at least 51% of the entity’s ownership must be owned, in the aggregate, for qualifying individuals and/or entities; OR at last 30% of the entity’s ownership must be owned by a qualifying individual or entity, if the individual or entity has “sole control of the applicant or licensee.”

For nonprofit entities, there are also some interesting requirements:

  • the social enterprise operated by the applicant must have had at least two years of positive net assets or profit (based on tax returns);
  • the applicant has to demonstrate a history of creating vocational opportunities for justice involved individuals;
  • the applicant’s board or officers must include justice involved individuals; and
  • the applicant must have at least five full time employees.
How are applicants evaluated for the conditional adult-use retail dispensary license?

The rules and regulations include separate evaluation factors (which are separate from the application requirements). Some key evaluation factors:

  • if the qualifying individual(s) was his/her/their-self convicted of a marijuana-related offense;
  • if the qualifying individual resided in New York: relative to areas with historically high rates of arrest, conviction, or incarceration for marijuana-related offenses; relative to areas with historically low median income; or, was provided by a public housing authority of New York City or State;
  • for businesses:
    • the number of employees;
    • the number of years the business has been in operation;
    • the profitability of the business;
    • whether the business was engaged in retails or sold products direct to the end-consumer;
    • whether the business had a physical location; or
    • whether the business received or resolves state or federal fines, violations, etc.

On balance, it is pretty clear what the CCB and OCM are trying to do: emphasize awarding licenses to New Yorkers who were justice involved (from a cannabis perspective) and who have a track record of running successful and compliant businesses.

What gets my application denied for a conditional adult-use retail dispensary license?

Assuming you meet all of the eligibility criteria, what gets your application denied? There are some specific no-no’s  and some more malleable prohibitions. The specifics:

  • inconsistent information on an application;
  • failing to timely submit a complete applications, including fingerprints;
  • having a cannabis license cancelled, revoked, or suspended in another state or jurisdiction;
  • is forbidden to traffic cannabis as per Section 137 of the MRTA (the MRTA’s general prohibitions);
  • failing to timely file tax returns or pay taxes; or
  • causing a violation of Sections 72  or 85 of the MRTA (the adult-use dispensary rules).

The “fuzzier” grounds for disqualification:

  • the applicant has demonstrated prior business practices/arrangements that may not comply with state and local laws incidental to the cannabis industry;
  • creates or enhances dangers of unlawful practices in the cannabis industry (with an emphasis on product inversion or diversion); or
  • is not a person of good moral character.

The post New York’s Conditional Adult-Use Dispensary License appeared first on Harris Bricken Sliwoski LLP.

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