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How New York Cannabis Legalization Prioritizes Equity

By Simon Malinowski, The Fresh Toast on

Published in Cannabis Daily

As many states are doing, New York fully embraced the concept of social and economic equity by setting a target goal of 50% of licenses issued to social and economic equity applicants.

After years of fits and starts, New York finally legalized adult-use cannabis and expanded its previously restrictive medical cannabis program. As the nation’s third largest economy and fourth most populous state, New York has the opportunity to set the gold standard for state cannabis industries.

New York’s Marijuana Regulation and Taxation Act (“MRTA”) establishes industry governing bodies — the Cannabis Control Board (“CCB”) and the Office of Cannabis Management (“OCM”), creates license types across the commercial cannabis activity spectrum, sets up a social and economic equity plan, and allocates a significant portion of tax revenue from cannabis sales to social and economic equity programs.

An important political catalyst for the New York legislature’s passage of the MRTA was the expectation that tax revenue generated from cannabis sales will reduce the state’s significant budget deficit and repair of some of the economic damage caused by COVID. Another political objective was correcting social and economic injustices caused by decades of inequitable enforcement of marijuana laws.

Commercially, the MRTA aims to prevent anti-competitive behavior among licensees, creating adult-use licenses for cultivators, processors, cooperatives, distributors, retail dispensaries, microbusinesses, deliveries, cultivation nurseries, and on-site consumption. Industry rules and regulations will be created and implemented by the CCB and OCM, including those related to the number of licenses issued per license type and by geographic area.

Notwithstanding the CCB’s expansive authority to regulate the industry, the MRTA expressly prohibits adult-use vertically integrated operators and generally prevents ownership of multiple licenses. The legislature’s motivation for prohibiting vertical integration is woven into the language of the MRTA: to provide industry newcomers — especially social and economic equity applicants — a better chance to thrive, while also preventing monopolies.

 

The decision to ban vertical adult-use integration for most license types is a hindrance to large, multi-state operators — especially when New York’s medical cannabis businesses are already vertically integrated. However, prohibiting vertical integration likely will encourage regulatory violations involving hidden ownership of cannabis businesses, which has been an issue in other cannabis-legal states with similar prohibitions.

A middle ground solution would have been to limit the number of licenses for vertically integrated businesses without banning such operations entirely. Permitting a mix of vertically integrated operators and “single-purpose” licensees maximizes tax revenue while balancing the MRTA’s stated goal of preventing anti-competitive behavior.

As many states are doing, New York fully embraced the concept of social and economic equity under the MRTA, most notably by setting a target goal of 50% of licenses issued to social and economic equity applicants. The definition of such applicants is necessarily inclusive: those most impacted by the “war on drugs,” low-income individuals, individuals with cannabis-related convictions, minority- and women-owned businesses, “distressed farmers,” and disabled veterans.

The MRTA goes beyond just targeting a percentage of allocated social and economic equity licensees by mandating incubator and financial assistance programs to be administered by the OCM and the Urban Development Corporation. Though many cannabis-legal states account for social equity, state regulations tend not to assist social equity applicants with the know-how and financial support necessary to succeed in the cut-throat world of cannabis production and distribution.

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