The New York Cannabis Control Board has proposed draft regulations to create a conditional adult-use cannabis retail license, the first of its kind to be released in New York state. Most notably, the licenses will be awarded to the individuals impacted by the war on drugs, with the Office of Cannabis Management (“OCM”) stating that they will issue 100-200 license to these “Justice-Involved” individuals.

Eligible Applicants

An applicant must demonstrate:

  1. a significant presence in New York state, either individually or by having a principal corporate location in the state;
  2. that it is incorporated or otherwise organized in the state; or
  3. that a majority of its owners are residents by being physically present in the state no less than 180 calendar days during the current year or 540 calendar days over the course of 3 years;

Additionally, if an Eligible Applicant is an individual, or an entity with one or more individuals, it is eligible for a conditional adult-use retail license where at least one individual:

  1. Is “Justice-Involved,” meaning individuals who were convicted of a marijuana-related offense in New York prior to March 31, 2021; or had a parent, legal guardian, child, spouse, or dependent who was convicted of a marijuana-related offense in New York before March 31, 2021;
  2. Provides evidence of the primary residence of the Justice-Involved individual at the time of said individual’s arrest or conviction; and
  3. The Justice-Involved individual holds or held for at least two years at least 10% ownership and control of a business that had net profits for at least 2 years

If the applicant is a nonprofit it must demonstrate that it:

  1. Is recognized as an entity pursuant to section 501(c)(3) of the Internal Revenue Code;
  2. Intentionally serves Justice-Involved individuals and communities with historically high rates of arrest, conviction, incarceration or other indicators of law enforcement activity for marijuana-related offenses;
  3. Operates and manages a social enterprise that had at least two years of positive net assets or profit;
  4. Has a history of creating vocational opportunity for Justice-Involved individuals;
  5. Has board members or officers who are Justice-Involved;
  6. Has at least five full-time employees.

Ownership and Control Restrictions

An applicant must also satisfy ownership and control restrictions in order to be eligible to apply for a conditional adult-use retail license. For an entity, at least 51% or more of the applicant must be owned in the aggregate by one or more individuals who satisfy the eligibility requirements, and have at least one individual who is Justice-Involved and owns at least 30% of the applicant and exercises sole control of the applicant/licensee.

Application Evaluation

Applicants will be evaluated by any one of the following criteria as determined by OCM:

  • For an individual or entity – whether the Justice-Involved individual themselves was convicted of a marijuana related offense;
  • The Justice-Involved individual’s primary residence at the time of arrest or conviction relative to areas of historically high crime for marijuana offenses, to areas with historically low median income or was provided by a public housing authority; and
  • For a qualifying business – number of employees; number of years the business has been in operation; profitability of the business; type of business (and whether this business was a retail operation); whether the business had a physical location; whether the business received or resolved any violations; fines or fees assessed against the business by state or federal regulatory authorities.

Geographic Limitations

OCM may create regional “geographic zones” for scoring applicants and determine the number of available licenses per zone. As a result, applicants may be asked to rank their location preferences, with OCM selecting from eligible applicants who indicated 1st preference for the given region considering the weighted scoring criteria.

Licensure Requirements and Prohibitions

The licensee must commence operations no later than 12 months from the date the license is issued. For the duration of the conditional period (four years from the date the license is granted), the licensee must maintain the minimum standards for ownership and control described above. After the conditional period concludes, any licensee may apply to transition to a full adult-use retail dispensary license by notifying OCM of their intent to do so 120 calendar days prior to expiration.

The licensee must also enter into a labor peace agreement with a bona fide labor organization and “shall enter into and comply with all terms and conditions of any agreement with any fund approved by the Cannabis Control Board and made available by OCM, including, but not limited to, accepting a dispensary location identified by the fund or office, any loan agreement with such fund, any lease or sublease agreement with the State of New York or its agents, or any other such agreements into which the licensee enters.”

With these draft regulations established, New York state hopes to begin retail sales under this conditional program sometime this year. The attorneys on the Cannabis Industry Team at Harris Beach will continue to monitor developments.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.