by Lori B. Green, Catherine A. Savio, and Brandon Coyle, Nixon Peabody LLP On January 5, 2021, lawmakers in New York reintroduced a bill... New York Takes Next Step Toward Legalizing Recreational Marijuana—How you can best prepare for and benefit from legalized recreational use

by Lori B. Green, Catherine A. Savio, and Brandon Coyle, Nixon Peabody LLP

On January 5, 2021, lawmakers in New York reintroduced a bill that would legalize and tax adult-use recreational marijuana. The bill, S.B. 854, was introduced by Senator Liz Krueger of Manhattan, and is co-sponsored by nearly one-third of the senate chamber. If approved, the bill would allow adults over the age of 21 to purchase marijuana at state-approved and licensed dispensaries. Pressure from neighbor New Jersey’s recent vote to legalize recreational marijuana may push the bill through despite it being identical to four prior unsuccessful bills introduced in the past. After New Jersey voted to legalize adult use, Governor Cuomo has indicated a renewed interest in passing cannabis reform. “I think this should have been passed years ago,” Mr. Cuomo said during a video briefing on January 6, 2020. “This is a year where we do need the funding and a lot of New Yorkers are struggling. This year will give us the momentum to get it over the goal line.” Senate Democrats are in a better position to push the bill forward after securing a supermajority in November’s election, potentially having enough votes to override a veto, should Cuomo disagree with the contents of the bill.

The bill would levy an 18% state tax on the sale of recreational cannabis and allow for additional taxes at the local level. Among the main disputes associated with the legalization of cannabis use is where the tax revenue from the marijuana industry, expected to generate approximately three hundred million dollars per year, would be allocated. The bill proposes economic assistance offered through mandatory tax revenues allocated to the Department of Education, to drug treatment and public education, and to the community grants reinvestment fund. The bill also includes a goal of providing 50% of cannabis licenses to women and minority-owned businesses or those who have been adversely affected by the War on Drugs. Those issued licenses in connection with this social and economic equity plan will be eligible to take part in an incubator program to promote success among the licensees. The bill offers other social protections, including protections from discrimination against legal use of cannabis by adults 21 or older.

Legalizing and taxing marijuana may aid in the state’s economic recovery following the coronavirus pandemic, not only by offering additional tax revenue to the state, but also by creating new jobs associated with establishing and growing the industry. The bill also creates a five-person cannabis board to govern the industry, with three appointments made by the governor. A newly established Office of Cannabis Management, an independent entity to be created within the state’s Division of Alcoholic Beverage Control, would oversee both the recreational program and also the state’s medical marijuana program. The office would handle licensure for the cultivation, processing, cooperative, distribution, retail dispensary, on-site consumption, micro-business delivery, nursery and sale of cannabis, as well as the use of cannabis by persons 21 and older. The office would also be tasked with establishing advertising and packaging regulations for the industry, and discouraging use of cannabis by those under the age of 21. The regulatory scheme includes a process for the issuance of independent laboratory testing permits and special use permits at a commercial level, but permits home cultivation of adult-use cannabis for personal use.

The bill also provides for the regulation of cannabinoid hemp and hemp extract, authorizing the issuance of licenses for cannabinoid hemp processing and retail, and regulating the packaging and labeling of cannabinoid hemp and hemp extract.

Should the bill pass, individual localities that disagree with legalization of recreational use still have options.  The bill allows for an opt-out at the town, city, or village level through the use of a referendum.

Can your business benefit from legalized recreational use?

For those who wish to capitalize on the potential new industry, opportunities range much further than simply opening a dispensary. Here are some things to keep an eye on:

  • Real Estate – Farmland, industrial spaces, and greenhouses can all be used to grow and cultivate cannabis. Real estate owners, agents, developers and investors may be presented with a new industry full of opportunities should the bill be passed.
  • Manufacturing – Processing plants, factories, and laboratory testing facilities will all be necessary to accommodate the legal business. Take steps to prepare for permit and licensing applications.
  • Existing Businesses – Licensing for on-site consumption may be attractive to existing businesses that offer on-site testing of the products for sale such as vineyards and breweries. Given the social and economic equity plan proposed with the bill, women and minority owned businesses will be in a prime position for licensing and success in the industry.
  • Regulatory and Legal – The complex new regulatory scheme proposed by the bill highlights the benefits of retaining experienced counsel and other advisors for guidance to ensure compliance and success in navigating the cannabis industry. Businesses not currently associated with the cannabis industry should also seek the advice of counsel in connection with the bill’s ramifications including its prohibitions on discriminating against the legal use of marijuana by employees.

It remains to be seen if 2021 is the year that the New York Legislature finally adopts a bill to legalize and tax adult-use recreational marijuana. If not, New York and all of its residents will lose significant revenue and business opportunities to New Jersey and its residents, and it will be a major setback for social justice reform in New York that is necessary to combat the disparities created by the War on Drugs.

Lori Green, a partner with Nixon Peabody LLP, co-leads the law firm’s Cannabis practice. She has more than 30 years of domestic and international experience in a wide range of M&A and other business law matters.

Catherine Savio is an associate in Nixon Peabody’s Complex Commercial Disputes practice group. She represents a wide range of clients in federal and state courts, arbitrations, mediations, and administrative hearings.

Brandon Coyle is an associate in Nixon Peabody’s Corporate Transactions group. He focuses his practice on business transactions and general corporate work.

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