Cannabis Business Blog

Key Highlights of Cannabis Regulation and Taxation Act (CRTA)

Without getting too deep into the weeds, below are some key highlights:

Central to Cuomo’s proposal in the CRTA is the creation of a regulatory framework to be administered by a newly established Office of Cannabis Management (OCM).

• • The OCM and licensing rules to cannabis businesses. With regard to the adult-use (21 and over) for the recreational marijuana portion of the legislation, the OCM would regulate and act as the licensing authority for issuing a finite number of non-transferable licenses to cultivators, processors, cooperatives, distributors, retail dispensaries, and on-site consumption licensees – each of which must be made up of officers and directors who are exclusively U.S. citizens or permanent U.S. residents.

Notably, given CRTA’s policies discouraging vertical integration (i.e., having a controlling or financial interest in a company at two or more levels in the supply chain), and its caps on licenses available to particular licensees, the CRTA provides fertile ground for small and mid-sized businesses, and, in particular, for minority, women, veteran, and disadvantaged farmer-owned businesses. For example, CRTA would make it unlawful for cultivator, processor and distributor licensees to have any ownership interest in a retail dispensary license or premises, while limiting the number of dispensary and processor licenses to a particular licensee at three each and the number of cultivator licenses at one each.

• • Taxation. To help fill New York’s coffers, CRTA would impose taxation at three levels on recreational marijuana: (i) a cultivation tax at the rate of $1 per gram of cannabis flower or $0.25 per gram of cannabis trim; (ii) a 20% tax on the sale of marijuana from a wholesaler to a retail dispensary; and (iii) 2% county tax that also gets applied to wholesaler and retail dispensary sales.
  • Opt-out option for counties and cities. Under the CRTA, all counties and cities with populations of 100,000 or more would be eligible to “opt out” of the CRTA. Wasting little time (and disappointing cannabis activists and pun enthusiasts, alike), the Town of Hempstead in Nassau County is considering proposals to preemptively ban the cultivation, processing, distribution, and sale of recreational marijuana within its jurisdiction. This does not mean that possession of marijuana within that county’s jurisdiction would be illegal under New York State law (of course, under federal law, marijuana remains an illicit controlled substance under the Controlled Substances Act), provided that person possesses no more than one ounce of cannabis or five grams of concentrated cannabis (incidentally, the same amount that a retailer would be allowed to sell to a single person in one day).
  • Update on New York State’s medical cannabis program. The CRTA also expands upon New York State’s medical cannabis program, giving the OCM authority to issue licenses, on an expedited basis, to new entrants (including out-of-state companies) in addition to the existing 10 Registered Operators (ROs) under current law. The CRTA also increases access to medical cannabis to patients by creating a broader scope of conditions (including autism) eligible for treatment, and permitting hospitals and other health care facilities to obtain licenses to administer treatments.  
  • Industrial hemp and hemp cannabis, distinguished. Closely tracking the newly enacted Federal Farm Bill and the accompanying guidance from the Federal Drug Administration (FDA), the CRTA also establishes a distinction between industrial hemp and hemp cannabis. Industrial hemp, subject to the New York State Agriculture and Markets Law, is used or intended exclusively for an industrial purpose and those food and/or food ingredients that are generally recognized as safe. Hemp cannabis contains less than a certain volume of tetrahydrocannabinol (or THC, cannabis’ chemical which has psychoactive properties). It is cultivated for its cannabinoid (including Cannabidiol (CBD)) content and is used or intended for human or animal consumption, or use. Similar to the adult-use provisions, the CRTA also enables the OCM to issue licenses to hemp cannabis cultivators and extractors.

Where Do We Go From Here?

As a reminder and word of caution—before anyone gets “reefer madness” from reading this post—CRTA is only proposed legislation for consideration by the New York State legislature.  There are still a myriad of details to be hashed out by state legislators.

A prime example of this fact is that, in an apparent nod to FDA regulations deeming CBD as “unsafe” for human consumption (due to the relative lack of studies on the substance), New York City has just placed an embargo on (but has not confiscated) food products containing CBD. This notwithstanding the 2018 Farm Bill’s recent reclassification of CBD as a legal substance if it is derived from industrial cannabis that contains less than 0.3% of THC.

Additionally, it remains to be seen whether the CRTA’s proposed tax levels may be adjusted as it moves through the legislative process. Indeed, in Washington State, many outdoor producers sell cannabis flower for about $1 per gram, so assuming all else is equal, the proposed New York tax would effectively double the wholesale price. As such, state legislators will have to balance the efforts to raise tax revenue against the need to keep the product out of the black market.

With all that said, CRTA is a promising and exciting development for the prospects of the cannabis industry in New York State. Our Cannabis practice group will be closely monitoring further developments as the CRTA moves through Albany, particularly with a vote on CRTA (or some derivation thereof) coming as early as this April. Ifyou have any questions, please feel free to contact me, Joshua Bloomgarden, josh.bloomgarden@foster.com or at 212.965.4529.