New York Releases Proposed Regulations for Conditional Adult-Use Retail Dispensaries & Medical Home-Grow

LEGISLATIVE UPDATE New York Releases Proposed Regulations for Conditional Adult-Use Retail Dispensaries and Medical Home-Grow

After months of silence, there is finally some momentum in New York towards the retail sale of adult-use cannabis. The Cannabis Control Board (the “Board”) released proposed regulations pertaining to conditional adult-use retail dispensary licenses. The proposed regulations, which are subject to a 60-day public comment period, would offer the first 100 retail dispensary licenses to applicants that meet certain requirements geared toward goals of social equity. The Board also released proposed regulations for the personal home cultivation of medical cannabis. We provide an overview of both below. CONDITIONAL ADULT-USE RETAIL DISPENSARY REGULATIONS

The proposed regulations offer an initial round of retail dispensary licenses to applicants who demonstrate they are, among other things: (1) majority-owned and controlled by “justice-involved” persons, or (2) a non-profit entity that serves communities disproportionately impacted by cannabis prohibition. A conditional adult-use retail dispensary license lasts four years. Renewal is required after the first two years. After the conditional four-year term ends, the applicant would then be required to apply for a regular adult-use retail dispensary license. To be “justice-involved,” an individual must have been convicted of a cannabis-related offense in New York prior to March 31, 2021. They can also qualify if they are a parent, legal guardian, child, spouse, or dependent of a person with a cannabis conviction. A “justice-involved” applicant also must demonstrate that they “hold or have held, for a minimum of two years, at least ten percent ownership interest in, and control of … a business that had net profit for at least two of the years the business was in operation.” The regulations call this business a “qualifying business.” A nonprofit applicant must, among other things, “intentionally serve justice-involved individuals and communities with historically high rates of arrest, conviction, incarceration, or other indicators of law enforcement activity for marihuana-related offenses.” And, the nonprofit organization must have justice-involved persons serving on the board or as officers. The application for a conditional

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adult-use retail dispensary license requires information such as the applicant’s legal name, the name under which the dispensary will operate, the ownership structure of the applicant, the percentages of ownership interest owned by each interested party, organizational documents including certificates of incorporation, articles of organizations, and bylaws, and information evidencing compliance with the “justice-involved” provisions. In addition, the proposed regulations require a burdensome list of other information about the qualifying business, some of which may be expensive to obtain. This includes: the name of every financial institution used to support the qualifying business for the past three years; submission of fingerprinting for the applicant and each interested party; and audited financial statements of the applicant for the fiscal year ending one year prior to the application’s submission date (or, if formed within the last year, since the applicant has been in existence) including, but not limited to, an income statement, balance sheet, statement of retained earnings or owners’ equity, statement of cash flow, and all notes to these statements and related financial schedules. Even once the application is complete, and even if the “justice involved” requirements are met, the regulations still give discretion to the Board. The regulations contain what is essentially a rubric for prioritizing who will get a license. The rubric focuses on the applicant’s cannabis conviction, and examines whether it occurred in over-policed or low-income areas, or areas otherwise negatively impacted by cannabis prohibition. Applicants whose cannabis arrest or conviction is closer to these areas will be afforded more priority. MEDICAL HOME GROW

The proposed regulations permit certified medical cannabis patients over 21 years old to grow up to three mature cannabis plants and three immature cannabis plants at a time at their private residence. Patients under 21 years old, or who cannot grow cannabis themselves, may designate one “designated caregiver” at least 21 years old to grow on their behalf. At the outset, how does a patient or designated caregiver obtain medical cannabis for home cultivation? You need to obtain it from one of the existing medical cannabis registered organizations already operating in New York. Once a patient or designated caregiver is ready to grow, the regulations impose a number of restrictions. No patient may have more than one designated caregiver, and must designate a single location for their designated caregiver to grow on their behalf. A designated caregiver can grow for up to four certified patients at a time. However, they are limited to growing six cannabis plants for any one patient, and cannot grow more than 12 total plants at a time. Designated caregivers can only grow cannabis at their own private residence, or at the residence of the certified patient. Only six mature and six immature plants may be grown in a private residence at a time, regardless of the number of certified patients and/or designated caregivers that reside there. The regulations do not allow the commercialization of the designated caregiver relationship. Designated caregivers are required to keep any cannabis being cultivated for a certified patient separate from all other cannabis being cultivated. They can receive reimbursement for the cost of goods and materials, but cannot receive other compensation from their patients. Designated caregivers must give any cannabis they grow to the certified patient; they cannot sell any cannabis they grow. Once harvested, a certified patient or a designated caregiver can possess up to five pounds of personal home-grown cannabis in their private residence at any one time. The proposed regulations also require cannabis plants to be stored in a secure location within the private residence, and reasonable measures must be taken to ensure that any plants or home-grown cannabis is not readily accessible to anyone under 21 years old. Essentially, the proposed regulations require that home cultivation take place in an enclosed area that is not easily visible from the street, and that plants and cannabis be stored and locked in a manner that prevents access by unauthorized persons. Is a lock on the door to your home sufficient? It is not clear from the regulations, and some further security method such as a safe is advisable. Over time, the Board will continue to release additional regulations like the proposed conditional retail dispensary license and medical home-grow regulations. Though New York’s journey to its first legal sale of adult-use cannabis is proving to be a long one, we will get there, eventually.

WRITTEN BY Patrick J. Hines, Matthew Parker, & Fallon Martin

OF HODGSON RUSS LLP