The Deal to Legalize Marijuana in New York
New York State has reached a deal to legalize marijuana. This was the third attempt at legalization as nearly 60 percent of New Yorkers favor legalization of recreational marijuana. Previous deals had failed due to decision-makers’ inability to agree on how to spend marijuana-related tax revenues and how to assign business licenses.
Pressure from progressive legislators and the State’s pandemic-related financial problems made marijuana legalization in 2021 imminent. Licensing fees and taxes on cannabis sales will be a significant source of revenue for the state and local governments and could thereby avoid painful budget cuts and new taxes. Recently, New Jersey passed a law allowing recreational use and that would have likely attracted New York residents. Now, instead of allowing New Jersey to potentially earn New York residents’ marijuana related tax dollars, New York can financially capitalize on marijuana use.
Previous Attempts to Legalize
Complaints by law enforcement, physicians and educational groups, as well as private citizens, contributed to the failure of prior legislation. Many people expressed concern about the health risks of marijuana use including the dangers of cannabis use while driving and marijuana’s impact on those with other medical problems and/or psychiatric and addiction disorders. The main dispute regarded how to allocate state-collected revenue. Advocates pushed for some of the revenue to be allocated to minority communities because racially biased enforcement of marijuana laws disproportionally harmed those communities.
New York’s Previously Proposed 2021 Competing Legalization Legislation
Leading up to the current deal, there were two main proposals New York legislators discussed. One was the 2021 Cannabis Regulation and Tax Act (CRTA) proposed by Governor Andrew Cuomo and the other was the 2021 Marijuana Regulation and Tax Act (MRTA) developed and advocated for by New York State Assembly Majority Leader Crystal Peoples-Stokes and New York State Senator Liz Krueger.
Some of the key provisions of the Governor’s proposed CRTA included the following:
- Office of Cannabis Management. The State would create a new Office of Cannabis Management (OCM) responsible for issuing licenses for producers, distributors and retailers and overseeing both the new adult-use and existing medical and cannabinoid hemp programs.
- Market Structure. There would be a two-tier market structure. New applicants must seek licenses through a competitive bidding process. Licenses would be available for both cultivation and processing, or for distribution, or for retail. However, applicants could not be vertically integrated (i.e., one could not have a license to cultivate, process, distribute and sell cannabis). Existing registered organizations operating in the medical cannabis program can be vertically integrated and still apply for the adult-use program.
- Social Equity. The OCM would establish a Social and Economic Equity Plan to promote diversity in the cannabis market by offering licensing opportunities and assistance to entrepreneurs within the communities most harmed by the disproportionate enforcement of the war on drugs.
- Taxes. The bill would establish tax rates that vary according to the THC content, or potency level of the cannabis, per product categories. In addition, sales by a retail dispensary to a consumer would be subject to a 10.25% surcharge on the final retail sale price plus the applicable state and local sales tax rates.
- Local Control. Counties and cities with a population of 100,000 or more could opt out of the adult-use cannabis program. In addition, local governments that opt-in could still regulate the time, place and manner of cannabis operations through zoning powers.
- Amendments to Other Laws. The bill would amend the Public Health Law, Vehicle and Traffic Law, the Penal Law, the Tax Law and other relevant laws as required to recognize the legalization of marijuana.
Since introduction of the bill, the Governor proposed additional amendments to CRTA including:
- Setting aside a $100 million-dollar Social Equity fund to help minority communities with job placement, mental health and substance use treatment, housing, nutrition, childcare and other services.
- Allowing use of delivery services for cannabis in order to provide more employment opportunities.
- Reducing penalties on certain criminal sales of marijuana.
In contrast to CRTA, MRTA intended to create a program to help individuals from underserved communities or who have been convicted of minor crimes to work in the legal cannabis industry. More importantly, the bill would have allocated a specific percentage of tax revenue to the Community Reinvestment Grant Program. This would provide an incentive for market growth and more money to communities as revenue grows. In contrast, the Governor’s plan established a set amount, $100 million, of revenue to social equity programs.
The Deal in Place
On March 25, 2021, New York legislators and Governor Cuomo reached a deal to legalize marijuana in New York. The proposal was originally meant to be part of the state budget, which comes due April 1, 2021. Lawmakers now believe they will vote on it sooner, as stand-alone legislation. However, we likely will not see the first recreational marijuana sale in New York for at least a year, as state officials have to write many complex rules regarding regulation, licensing and taxation.
The deal includes provisions that more closely mirror the MRTA. For example, the bill will allocate a specific percentage of tax revenue, as opposed to a fixed amount, to communities that suffer the impacts of mass incarceration. Per the legislators’ agreement, New York will reinvest forty percent of most tax revenues in the communities affected by mass incarceration, forty percent will go to public education and twenty percent will go toward education, prevention and treatment on drug abuse.
The state sales tax on marijuana will be 9 percent and the local sales tax will be 4 percent. Once fully implemented, the Governor’s office projects that legalized marijuana could generate approximately $350 million in yearly tax revenue. A study organized by the New York Medical Cannabis Association estimated the cannabis market in New York to be 5.8 billion by 2027, with legalization in place New York should expect to tax $4.2 billion of that market in 2027.
Upstart cannabis businesses, such as small farmers and people from disproportionately impacted communities, will have the opportunity to apply for “equity programs.” These programs will provide grants, loans and incubator programs for those who want to enter the cannabis market. Additionally, half of the business licenses should go to individuals with relatives that have marijuana convictions, minority, women and disabled veteran-owned businesses. The agreement will also allow permit lounges and clubs to allow marijuana consumption, so long as patrons may not consume alcohol on the same premises. Further, the deal allows for businesses to deliver marijuana to their individual consumers.
On the individual level, possession of less than three ounces of cannabis will not incur criminal penalties. Further, mirroring the legalization laws in Colorado and other states, individuals may possess and grow up to six cannabis plants at home. However, to allow the new market to set up, individuals will have to wait at least 6 months from the bill’s signing or 18 months after the opening of the first recreational dispensary (for medical use the former; for recreational use the latter) to begin cultivating marijuana plants at home. Lastly, New York will expunge the record of any person with a conviction for activities that no longer illegal.
Implications for Federal Legalization
Due to increased polarization and higher priority legislation (ex. pandemic related economic relief bills), imminent legalization may be unlikely in Congress. However, members who support legislation are looking to take up the issue as part of broader criminal justice reform. Further, the states themselves continue to pass legalization bills individually.
Conclusion
Look out for the signing of this cutting-edge bill which will permanently change the regulation of marijuana in New York. Anyone considering entering the cannabis industry should first consult an attorney to discuss the current status of the bill.
Photo by Damian Barczak on Unsplash
