New York Adult Use Cannabis Laws: A Comparison With California
by Andrew Kingsdale
April 20, 2021
On March 31, 2021, New York governor Andrew Cuomo signed into law the Marijuana Regulation and Taxation Act (“MRTA”), making New York the 14th state to legalize adult-use cannabis.
The significance of this new law is hard to overstate. MRTA is uniquely comprehensive, covering medical and adult-use legalization, commercial licensing, and hemp. And while New York’s adult-use market is not likely to surpass California in terms of annual sales, by some estimates the impact of New York’s cannabis legalization—with respect to other states and countries—is expected to be just as significant as California’s legalization.
As a shortcut to grasping the contours of New York’s new adult-use commercial licensing rules, this post will compare and spotlight a few significant differences between New York’s MRTA and California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) and its enabling regulations.
Regulatory Agencies
In New York, one agency—the Cannabis Control Board (“CCB”)—will develop and promulgate all rules and regulations governing “cultivation, processing, packaging, marketing, and sale” of all commercial and medical cannabis and hemp (MRTA §10.¶4.), as well as public safety rules, and licensing regulations for each license type. (§§13, 62.) CCB also will have sole discretion over the number of licenses and permits to be issued, both statewide and locally (§10.¶2.), as well as imposing penalties on licensees for misconduct, including suspending or revoking licenses (§10.¶3.).
A second agency, the Office of Cannabis Management (“OCM”), will help implement the laws, including making licensing recommendations to CCB, maintain registration licensee records, and conduct inspections. (§11.) OCM also is tasked with engaging and coordinating with other states “in order to coordinate and establish uniform policies and best practices in cannabis regulation.” (§20.)
By contrast, in California different cannabis license types are issued, monitored, and enforced by different licensing agencies — the Bureau of Cannabis Control, the CalCannabis Licensing Branch of the Department of Food & Agriculture, and the Manufactured Cannabis Safety Branch of the Department of Public Health. Nevertheless, these agencies are slated for consolidation into a single “Department of Cannabis Control” as soon as July of this year.
Licensee Qualifications
California does not have residency requirements for license holders. New York, however, does require license applicants to have a certain nexus to the state.
MRTA defines “applicant” as a person that “has a significant presence in New York state, either individually or by having a principal corporate location in the state; is incorporated or otherwise organized under the laws of this state; or a majority of the ownership are residents of this state.” (§3.¶1.) Additionally, members of cooperative licensees must be New York residents. (§70.¶2.(a))
License Types
MRTA’s adult-use license types generally match California’s: cultivation, nursery, “processing” (counterpart to “manufacturing” licenses in California), distribution, retail dispensary, delivery, microbusiness, and cooperatives.
One notable difference: New York opted to include an “adult-use on-site consumption” license for long-term consumption lounges (MRTA §77, discussed further below), in lieu of California’s system, which leaves onsite consumption at storefront dispensaries largely up to local authorities. Another is that California has a “cannabis event organizer” license that allows temporary events with consumption (16 CCR §5600) at a wide range of venues with local approval.
Also different: all adult-use cannabis licenses will be biennial (good for two years), instead of annual (as in California). (§§63.¶2., 65.¶5.)
With regard to cultivation and “processing”/manufacturing licenses, New York’s statute does not delineate license types based on total canopy or light source (for cultivators), or based on volatile vs. non-volatile extraction (for manufacturers), unlike California’s MAUCRSA. Instead, MRTA generally leaves those details up to the CCB to decide. (See e.g. §65.¶4.: “The [CCB], on the recommendation of the [OCM] shall have the authority to limit, by canopy, plant count, square footage or other means, the amount of cannabis allowed to be grown, processed, distributed or sold by a licensee.”; compare MAUCRSA, Bus. & Prof. §26050).
One welcome difference for cultivators: MRTA expressly empowers CCB to enact regulations that permit cultivation licensees to “perform certain types of minimal processing without the need for an adult-use processor license” ( §68.¶1). Perhaps this is intended to circumvent California’s burdensome requirement for a separate “processor” license (“processor” as defined in California, meaning a site where curing, drying, and trimming flower may occur, 3 CCR §8201(f)).
Direct delivery to adult-use consumers will be allowed by retail, microbusiness, and delivery licensees (MRTA §3.¶20.; §72.¶1.) CCB is empowered to promulgate rules about the “scope of licensed activities for this class of license,” and it will be interesting to see what, if any, geographical limitations are placed on these licenses. In California, there are technically no geographical limitations by statute, including to jurisdictions that ban retail stores (Cal. Bus. & Prof. §26090(e)).
Unlike California, which places no numerical limitations on the number of delivery workers, in New York “each delivery licensee may have a total of no more than twenty-five individuals, or the equivalent thereof, providing full-time paid delivery services to cannabis consumers per week under one license.” (MRTA §74.)
Distribution licenses have the most significant differences. In New York, distributor licensees appear destined for a circumscribed role in the adult-use cannabis market relative to their California counterparts. First, New York distributors’ pricing may be tightly regulated. Fees for distributing cannabis will be “authorized” by CCB (MRTA §71.¶4), which is also authorized “to promulgate regulations establishing a maximum margin for which a distributor may mark up a cannabis product for sale to a retail dispensary. Any adult-use cannabis product sold by a distributor for more than the maximum markup allowed in regulation, shall be unlawful.” (MRTA §84.¶6)
Second, New York’s distributors will not be the only transportation game in town. Cultivators and processors/manufacturers also may transport cannabis products in their own vehicles or in vehicles hired from transportation companies registered with CCB or OCB. (MRTA §83.¶5.; §126.¶5.) By contrast, in California all transportation of cannabis (except delivery to consumers) must be through distributor licensees (See Cal. Bus. & Prof. §26070(b): “the transportation of cannabis and cannabis products shall only be conducted by persons holding a distributor license.”) although it is not uncommon for California cultivators to have transport-only distribution licenses that allow them to transport their own products thought not those of others.
Third, whereas in California distribution licensees are responsible for the logistics behind all mandatory laboratory testing and quality assurance review (Cal. Bus. & Prof. §26110), in New York this responsibility appears to fall primarily on the “processors”/manufacturers. (MRTA, §82.¶1.: processors must contract with laboratories for testing.)
Finally, whereas in California distributors are responsible for collecting, reporting, and remitting cannabis excise tax impose on retail sales (Cal. Rev & Tax §34011(b), in New York the retailer licensees shoulder the excise tax collecting- and remitting-burden. (MRTA §493(b) and (c))
On-Site Consumption
New York’s enabling statute offers a stand-alone adult-use on-site consumption license (MRTA, §77.). The statute is not big on details. It prohibits certain additional activities on the licensed premises (for example, no “gambling, exposing or simulating, contests, or fireworks,” §77.¶9.), and it lists a number of criteria that CCB may consider when issuing a license, including whether there is “demonstrated need for spaces to consume cannabis” before issuing the license §77.¶5.(d)). We will have to wait for CCB’s regulations for more detail.
In California, local jurisdictions may permit on-site consumption at storefront retailers and similarly licensed microbusiness premises (Cal. Bus. & Prof. §26200(g)), but there is no stand-alone license for on-site consumption only. As noted above, California has a temporary “event organizer” license instead.
Vertical Integration and License Stacking
Whereas California has relatively limited restrictions on cross-license ownership and license “stacking,” New York has strict vertical integration constraints broadly described as creating a “two-tier licensing structure”: retail licensees on the one tier, and cultivation, manufacturing, and distribution licensees on the other.
The two-tier structure derives from Section 80 of MRTA, but in fact vertical integration and multiple-license restrictions appear throughout MRTA.
Section 80, titled “Adult-use cultivators, processors or distributors not to be interested in retail dispensaries,” begins:
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It shall be unlawful for any person authorized to cultivate, process, or distribute under this article to:
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be interested directly or indirectly in any premises where any cannabis product is sold at retail, including for on-site consumption; or in any business devoted wholly or partially to the sale or delivery of any cannabis product at retail, including for on-site consumption, by stock ownership, interlocking directors, mortgage or lien or any personal or real property, or by any other means;
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make, or cause to be made, any loan to any person engaged in the manufacture or sale of any cannabis product at wholesale or retail;
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make any gift or render any service of any kind whatsoever, directly or indirectly, to any person licensed under this chapter which in the judgment of the board may influence such licensee to purchase the product of such cultivator or processor or distributor; or
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enter into any contract or agreement with any retail, on-site consumption or delivery licensee whereby such licensee agrees to confine his or her sales to cannabis products manufactured or sold by one or more such cultivator or processors or distributors. Any such contract or agreement shall be void and subject the licenses of all parties concerned to revocation for cause and any applicable administrative enforcement and penalties.
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(MRTA §80.¶1.; see also §§68.¶4., 69.¶5., and 71.¶2.).
Adult-use retailer licensees face similar cross-licensing restrictions: “No person holding a retail dispensary license may also hold an adult-use cultivation, processor, microbusiness, cooperative or distributor license. . . .” (MRTA §72.¶3. §85.¶7.)
Dispensary (adult-use and medical) as well as on-site consumption owners and investors are limited to having financial interests in only three adult-use retail or on-site consumption facilities, respectively. (§§63.¶1-a, 68-a.¶1., 72.¶2.)
Cultivators may have only one adult-use cultivator license and one nursery license per person (§§68.¶5., 75.¶2), but may also obtain one “processor”/manufacturing license and/or one distributor license “solely for the distribution of their own products” (§68.¶3.).
Similarly, “processor”/manufacturer licensees may have only one adult-use processing license per person (§69.¶4.), but may also obtain one distributor license “solely for the distribution of their own products” (§69.¶1.).
Distributor licensees may not have interest in any other licensee except a cultivator or processor—and in that case the distributor may distribute only “cannabis or cannabis products cultivated and/or processed by such licensee” (§71.¶2.-3.)
As for delivery licenses: “No person may have a direct or indirect financial or controlling interest in more than one delivery license.” (§74)
In California, at present the only restrictions on vertical ownership involve testing laboratories (like in New York). (See MAUCRSA, Bus. & Prof. §26053(b), (c); MRTA, §129.¶3.) In California, anyone holding a testing license is prohibited from engaging in any other type of cannabis activity; testing laboratories are considered referees who are to avoid any potential conflict of interest which would arise if they had ownership interests in non-testing businesses. Looking at the future in California, once “large” cultivation licenses are available, beginning January 1, 2023, those Type 5 licensees will be ineligible for Type 8, 11, or 12 licenses (Testing Laboratory, Distributor, Microbusiness). (B&P 26061(d)).”
Multiple Locations Under One License
New York’s statute defaults to requiring separate cannabis licenses for separate cannabis facilities (§61.¶2.), like in California. Nevertheless, MRTA leaves the door open for allowing multiple “locations” under one license. For example, MRTA states: “one adult-use cultivator license may authorize adult-use cultivation in more than one location pursuant to criteria established by the board in regulation.” (§68.¶5.). Similarly for “processor”/manufacturing licensees: “No cannabis processor licensee may hold more than one cannabis processor license provided a single license may authorize processor activities at multiple locations, as set out in regulations by the board” (§69.¶4.) This is another potential difference to look for in the regulations.
License Transferability
Under both New York’s MRTA and California’s MAUCRSA, licenses and permits are non-transferrable and non-assignable. (MRTA §§126, 128; California Code of Regulations title 3 section 8202(c), title 16 section 5023(c), and title 17 section40115(c).) Also similar to California, in New York changes in license ownership, location, and “substantial corporate change” (defined as fifty-one percent or more change in management/officers/directors/partners) will require agency approval (§67.)
Nevertheless, New York’s statutes at least imply that licenses may be transferred or sold to some extent. For example, MRTA states:
“The board pursuant to regulation, may wholly prohibit and/or prescribe specific criteria under which it will consider and allow limited transfers or changes of ownership, interest, or control during the registration or license application period and/or up to two years after an approved applicant commences licensed activities.”
(§62.¶8, underline added.)
Similarly, with respect to social and economic equity licensees, MRTA states:
“Licenses issued under the social and economic equity plan shall not be transferred or sold within the first three years of issue, except to a qualified social and economic equity applicant and with the prior written approval of the board. In the event a social and economic equity applicant seeks to transfer or sell their license at any point after issue and the transferee is to a person or entity that does not qualify as a social and economic equity applicant, the transfer agreement shall require the new license holder to pay to the board any outstanding amount owed by the transferor to the board as repayment of any loan issued by the board as well as any other fee or assessment as determined by the board.”
(§87. ¶7., underline added.)
In California, cannabis licensees certainly may sell interests in their licensed businesses to new owners, with regulatory approval. But if New York’s cannabis licenses themselves are transferrable and/or saleable in one step, that would be another significant distinction between California and New York.
Local Government Control
California’s dual licensing system requires all state licensees to first obtain a local permit for the same commercial cannabis activity on the same licensed premises. (Cal. Bus. & Prof. §26055.) MAUCRSA also infamously permits local jurisdictions to “completely prohibit” and/or severely restrict (and effectively prohibit) the establishment or operation of any license type within the local jurisdiction. (Cal. Bus. & Prof. §26200(a)(1).) This has led to the unfortunate situation whereby cannabis businesses are actually (or effectively) banned from approximately half of the state’s counties and municipalities.
New York’s adult-use law veers away from this dual-licensing-conundrum. The license applicant still must obtain all permits required by the local jurisdiction (MRTA §64.¶1.(g)(iii)), but MRTA severely curtails local jurisdictions’ ability to outright ban or severely limit adult-use businesses within their borders.
First, New York cities, towns, and villages may ban only adult-use retail and on-site consumption within their borders, but not adult-use “processing”/manufacturing, cultivation, or distribution. (§131.¶1.)
Second, if a local jurisdiction wants to ban adult-use retail and/or on-site consumption, it must do it by January 31, 2022 (nine months after the effective date of MRTA). Otherwise it forfeits that opportunity. (§131.¶1.)
Finally, if the local jurisdiction does not outright ban these businesses , but rather implements “local laws and regulations governing the time, place and manner of the operation of licensed adult-use cannabis retail dispensaries and/or on-site consumption site,” the jurisdiction may do so “provided such law or regulation does not make the operation of such licensed retail dispensaries or on-site consumption sites unreasonably impracticable as determined by the board.” (§131.¶2., italics added) CCB’s interpretation of “unreasonably impracticable” will be closely watched.
Equity
“This legislation is intentional about equity,” said Crystal D. Peoples-Stokes, MRTA’s sponsor and Democratic leader. Indeed, social and economic equity are baked into MRTA in a variety of ways. For example:
- CCB will create and implement a “social and economic equity plan,” and is directed to actively promote diversity and applicants from communities disproportionately impacted by cannabis prohibition (MRTA §87)
- CCB must issue licenses “in a manner that prioritizes social and economic equity applicants with the goal of fifty percent awarded to such applicants, and considers small business opportunities and concerns, avoids market dominance in sectors of the industry, and reflects the demographics of the state”(§10.¶2.; see also §87.¶2.)
- An incubator program will encourage social and economic equity applicants to apply for licenses, and will directly support them if granted a license. (§87.¶4.)
- A “Chief Equity Officer” will ensure compliance with the social and economic equity plan (§12).
- Licensing fees are to be set on a scaled basis for social and economic equity applicants (§15.¶3.)
- Adult-use licensing criteria is to include whether “the applicant qualifies as a social and economic equity applicant or sets out a plan for benefiting communities and people disproportionally impacted by enforcement of cannabis laws” (§64.¶1.(f))
- Upon renewal, “[e]ach applicant must submit to the office documentation of the racial, ethnic, and gender diversity of the applicant’s employees and owners,” and adherence to racial, ethnic, and social diversity may be “a conditional requirement of license renewal.” (§66.¶2.) License renewal applicants must provide evidence of the execution of their plan for benefitting communities and people disproportionally impacted by cannabis law enforcement.
- CCB’s issuance of microbusiness, delivery, and nursery licenses “shall promote social and economic equity applicants” (§§73.¶3., 74, and 75.)
- Forty percent of all tax revenues in excess of the costs to run the adult-use programs will go to a “community grants reinvestment fund,” which is intended to “provide grants for qualified community-based nonprofit organizations and approved local government entities for the purpose of reinvesting in communities disproportionately affected by past federal and state drug policies.” (§§99-ii.¶4.(c)), 99-kk.)
In California, by contrast, most social and economic equity requirements derive primarily from local laws, not state statutes. In 2019, California added The California Cannabis Equity Act (Bus. & Prof §26240 et seq.), under which the Bureau of Cannabis Control assists local equity programs, both financially and with technical assistance, through the Cannabis Equity Grants Program for Local Jurisdictions. Additionally, the state has mandated needs-based license fee waivers. (Cal. Bus. & Prof. §26249.)
California’s Revenue and Tax Code also requires the state’s Controller allocate a portion of excess tax revenues from cannabis (rising to $50 million per year in the 2022–23 fiscal year) “to administer a community reinvestments grants program to local health departments and at least 50 percent to qualified community-based nonprofit organizations,” including “medical care for communities disproportionately affected by past federal and state drug policies.“ (Revenue and Taxation Code § 34019.)
From our perspective, New York intentionally took a more direct path toward social and economic equity at the state level.
Taxes
Unlike California’s weight-based tax at the cultivation level, New York’s adult-use cannabis taxes include a distributor-level tax based on the milligrams of “total THC” in a flower, concentrate, or edible sold by distributors. “Total THC” is defined as “the sum of the percentage by weight or volume measurement of tetrahydrocannabinolic acid multiplied by 0.877, plus, the percentage by weight or volume measurement of THC.” (MRTA §3.¶53.) “THC” is defined as delta-8, delta-9, and delta-10 tetrahydrocannabinol and the optical isomer of such substances. (§3.¶52.)
New York’s other cannabis tax, the retail/excise tax, is based on a cannabis product’s retail sale price, similar to California. (MRTA, Article 20-C, § 493(a)-(c).)
CONCLUSION
These are several significant differences between New York’s and California adult-use cannabis regulations, particularly when it comes to vertical integration, local control, and social equity. There are also many similarities that are not covered in this post (such as track and trace and packaging rules).
Many details are also unwritten as of yet, to be filled in by regulations that CCB will promulgate. As usual, the devil will be in the details.
MRTA does not provide deadlines for when CCB must publication the implementing regulations (or begin accepting applications), though some predict that the regulations will come out this year. Stay tuned for more information and analysis to come.
This information is for public educational purposes only and is not intended as legal advice.