On March 31, 2021, Governor Andrew Cuomo signed into law the Marihuana Regulation and Taxation Act (“MRTA”), which introduces a far-reaching legal regime governing many aspects of cannabis sale and possession.
The MRTA aims to supplant the illegal market for cannabis products with a regulated industry that prevents large companies from dominating the market. Under the MRTA equity programs will be established that will provide loans, grants, and incubator programs to ensure that communities that have been disproportionately affected by cannabis prohibitions, as well as small farmers, have opportunities to participate in the legal industry. There is also significant criminal justice reform.
The key features are described below.
The Act creates a Cannabis Control Board and the Office of Cannabis Management, both placed within the State Liquor Authority. The Board is responsible for creating the regulations for the various cannabis programs and regulating the packaging and marketing of cannabis products, while the Office of Cannabis Management is responsible for implementing the regulations and licensing entities for the cannabis programs.
There is also an Advisory Board that is to have broad geographic representation and be diverse in composition. The Advisory Board will be responsible for approving grants from the Community Grants Reinvestment Fund (see below) and making policy recommendations.
The Office of Cannabis Management will be in charge of evaluating license applicants, using criteria such as social equity status, commitment to environmentally sound policies, public health, and fair labor practices.
The medical cannabis program will be expanded to include additional licensees, expanded patient access and a broader range of products, as well as limited access to the recreational cannabis market.
Regulations implementing the new regime are expected within 12 to 18 months, although the criminal justice reforms go into effect immediately.
Regulation of Growers, Wholesalers and Retailers
The MRTA prohibits vertical integration of cannabis operations except for micro-businesses and registered organizations in the medical program, to prevent aggregation of the retail sector by large cannabis produces.
In evaluating licenses applications from entities with 25 or more employees, priority is to be given to those that have “peace” labor agreements in place, or use union labor to construct its facilities.
There will be several types of licenses, emulating the three-tier model of the alcohol market, with a division between producers, wholesalers, and the retail market, though some crossover would be allowed.
Types of licenses include:
Adult-Use Licenses, including cultivator licenses for cannabis farmers; processor licenses for those converting raw cannabis into products such as tinctures, concentrates, edibles, smokable products, etc.; distributor licenses for wholesalers; dispensaries for retail sales to consumers; and consumption sites, which are dispensaries that allow individuals to use cannabis products at that location.
Other Licenses include cooperative licenses; nursery licenses for the sale of immature plants to other cannabis licensees; delivery licenses for delivery from retail establishments to individuals’ homes; and microbusiness licenses, which would allow the small businesses to cultivate, produce, and retail their own cannabis products (similar to microbreweries).
Fifty per cent of the licenses are targeted for “social equity” applicants, namely applicants from communities affected by the war on drugs, women-owned and minority-owned businesses, MWBEs, distressed farmers or service-disabled veterans, and low income and those who have had, or have a close relative who has had, a marijuana-related conviction.
Medical cannabis organizations will be allowed to enter the recreational market by either paying a fee to have a dual-use location, or distribute their own products to retail dispensaries. Supervision will be moved from the Department of Health to the Office of Cannabis Management. The amount of cannabis that can be dispensed would be enlarged to a 60-day supply, and smokable marijuana will be permitted. The law also creates a new category of “designated caregiver facility,” to allow facilities to administer medical cannabis to patients. Medical patients and their caregivers will be allowed to “home grow” plants within 6 months of the bill’s enactment.
Localities can opt out of sales and may bar “social consumption” sites in their communities. Opting out would require the local governing body to pass a local law to that effect, but would be subject to a permissive referendum to overturn the ban. Any opt-out law must be passed within 9 months of the passage of the bill (i.e., by the end of 2021).
The law has a major overhaul of the criminal regime for cannabis:
The MRTA will automatically expunge the criminal records of those convicted for activities that are no longer criminalized.
Smoking will be allowed wherever cigarette smoking is permitted (which excludes parks, workplaces, etc.).
Individuals will be allowed to grow three mature plants and three immature plants, indoors or outdoors, with a cap per household of six mature and six immature plants. Home growing would be authorized 18 months after the opening of the first recreational dispensaries, in order to allow the regulated cannabis market to develop.
Penalties for possession start as a violation for possession of 3 ounces of flower or 24 grams of concentrate, and escalate to a felony for more than 10 pounds of flower or four pounds of concentrate. Possession of marijuana will eventually be limited to 5 pounds in the home for individuals.
Penalties for the unlawful sale of marijuana starts as a violation for any amount and go up to a felony for sale of over 100 pounds of flower or concentrate.
Impairment by cannabis is incorporated into the offense of Driving While Ability Impaired, but otherwise doesn’t change existing DWI law. Odor of cannabis can be grounds to suspect a driver is intoxicated, but doesn’t by itself provide justification for searching a car for contraband. The MRTA provides funding for training “drug recognition officers” and the development of roadside saliva testing technology.
Taxation has several components:
Taxes on the level of THC, ranging from 0.5 cents per milligram of THC for cannabis flower, 0.8 cents for cannabis concentrate, to 3 cents for edibles. This tax would be payable by wholesalers.
Retail sales would be subject to state sales tax of 9%, and another 4% to be divided between the county and the locality.
Distribution of Revenues
All revenue raised from cannabis sales would go into a new Cannabis Revenue Fund. The fund would be used to pay for the administrative costs of the Cannabis Board and other offices, for the training of additional Drug Recognition Experts, and for an incubator program through the Urban Development Corporation to give social equity applicants training in business management skills.
40% of the remaining funds would go to the Community Grants Reinvestment Fund to support the social and economic equity program to be administered by the Advisory Board, 40% to the state lottery, and 20% to the Drug Treatment and Public Education Fund.
The Community Grants Reinvestment fund would be used for a long laundry list of projects, including job skills services, adult education, mental health treatment, substance use disorder treatment, housing, financial literacy, community banking, nutrition services, after school and child care services.
As with other states, it is yet to be seen how the federal government, which still criminalizes marijuana in all its forms and uses, will react, but the new law adds to the pressure for reform at the federal level.
Note that a law to facilitate banking of cannabis-related revenue is now pending in Congress, and will be the subject of a separate note. Stay tuned!
The foregoing does not constitute legal advice and details will vary depending on circumstances.
Please contact Catania, Mahon & Rider for more information about the MRTA or for assistance in navigating the program.
Jonathan S. Berck
The Marihuana Regulation and Taxation Act (“MRTA”) provides for the award of a variety of licenses. Applicants should get ready now.
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