New York’s Office of Cannabis Management issued preliminary guidelines for its upcoming adult use retail market ahead of the official launch of the adult use market, with mixed reactions from folks from within and on the periphery of adult use cannabis.
Amid concerns about pay-to-play opportunities for existing medical operators, the preliminary rules make it clear that the state is favoring new entrants to the market, but restrictions on market stakes could make it difficult for aspiring entrants to obtain out-of-state investment for their dispensary businesses.
“I do think one of the side effects may be to restrict a good amount of capital,” said Kaeland Castetter, a cannabis policy consultant working with prospective applicants. “Other businesses that happened to be vertically integrated are not going to be able to place capital into the retail market in New York.”
Earlier this year OCM awarded 259 conditional adult use cultivation licenses and 25 cannabis processor licenses to already operating hemp farmers. Prospective operators still await any announcements concerning applicants for retail licenses.
Although state regulators have not explained their intentions, last Friday’s issuance of guidelines seem to be preliminary to a broader set of regulations for adult use sales expected before the end of 2022.
“This guidance document serves to provide the framework that will assist Conditional Adult-Use Retail Dispensary licensees plan for how to operate their dispensary before regulations are formally adopted,” wrote OCM in the guidance memo that was released October 28.
The guidelines bar anyone with any stake in any cannabis operation “anywhere” from having any stake or authority over an adult use dispensary. This effectively shuts out all Multi-State Operators from participating in the retail market.
A significant piece of the interim guidelines is the ban on anyone who has any stake in a dispensary operation, having any stake in any other stage of the cannabis supply chain, regardless of where that stake operates. In essence, anyone who has any stake whatsoever in cannabis, regardless of the state, is barred from having any stake in adult use retail in New York. While this potentially protects retail operators from predatory financial situations, it also prevents financial assistance of any sort from operators in an industry that lacks federal support.
The guidelines spell out what current retail applicants can expect to have to work with once the state starts issuing conditional licenses. Numerous prospective operators are viewing the guidelines as a mere preview that is likely to be tweaked before anything is made permanently official. These guidelines make it clear that multi-state operators are not welcome in New York’s retail market, while also raising financing concerns for existing applicants.
A key point of contention in the guidelines is the restrictions on ownership stakes across tiers of the adult use cannabis ecosystem. Specifically, no one with an ownership interest in a prospective adult use cannabis retailer may hold any additional interest in any cultivation or processing operation in New York or anywhere else. That key restriction against operators from “anywhere” runs in defiance of state state cannabis law that specifically bars operators, but only those from within New York.
New York started accepting applications for adult use dispensaries on August 25, 2022. The window for applications closed about one month later on September 26.
This distinction, which goes further than the existing state law, could be viewed as an error from the state, but could also reflect New York’s intention to bar vertical integration with consideration for the possibility of national legalization to the extent that cross-state trade is permitted.
“It’s a good hedge against interstate commerce,” said Castetter..“If you’re gonna separate production from retail and interstate commerce comes along and you have a store that’s owned by a company in New York and that company also has a cultivation facility in Pennsylvania or New Jersey, what happens? They at that point are basically vertically integrated because the state borders don’t matter anymore. So this is New York trying to really enforce the restriction on vertical integration.”
Dehran Duckworth, a current Conditional Adult Use Retail Dispensary (CAURD) applicant, suspects the guidelines were made in anticipation of federal legalization.
“The stance that they’re taking on vertical integration is unprecedented, expanding that outside of the state. Typically the states just limit that within the same state,” he said.
On the other hand, the guidelines might not be enough to allow adult use sales within the initially promised time frame. Especially considering municipal and real estate hurdles that can always get in the way of cannabis operations.
“It’s nice to finally see something but boy it’s a little, too little, too late for our December opening,” said Duckworth.
Regulations could also make it difficult for aspiring retailers to get their businesses up and running, considering the limited amount of resources available for business development. Business owners with out of state operators are barred from providing management services in New York. Although this keeps the door open for aspiring operators with experience in the illicit from going mainstream, it hinders established operators or multi-state operators from getting in on the action, even if it’s in the form of assisting the New York-based license holder.
Wei Hu, an attorney who has consulted with other prospective applicants and is himself a small stake holder in a prospective retailer, is not confident that adult use sales will start by the end of the year. This will likely, in part, be a result of a lack of funding, alongside the slow implementation of state rules.
“Why can’t the state just float state bonds to fund the social equity program?,” he asked.
Branding may not include any references to medical properties, such as using the prefix “Pharma” or including the terms “doctor,” “apothecary,” or “drug.” Much like other states, branding cannot appeal to individual under 21, which means no cartoons, and no variations of the word candy
Retail operations can be open until midnight, utilize a drive-thru window and offer delivery with local municipal approval.
Distributors, such as cultivators or concentrate, tincture or edible processors are required to sell to all dispensaries that are willing to pay up-front for product. Distributors have the option to use credit for transactions without being obligated to complete the transaction. Sampling is limited to customers looking at and smelling flower product.
At this point, CAURD applicants continue to wait for a response from the OCM, which has yet to publicly announce a meeting in which it might announce retail applicant winners. Also, while these guidelines are currently serving as regulation, a more permanent scenario would require a formal public comment series.
This will likely allow aspiring applicants to nit-pick the process, while also allowing MSOs to weigh in.
“A lot of the multi-state operators have a tendency to invest in cannabis. So one can imagine there’ll be some pushback on that,” said Duckworth.
