Home grown cannabis lawsAs cannabis reform has spread across the United States, it has given birth to a marketplace increasingly driven by business interests. This is the fourth installment in our series looking at how the changing landscape of cannabis policy affects a key group of often-overlooked stakeholders: medical marijuana patients who choose to cultivate their own supply of medicine. Go here for the home grown laws in Washington and Oregon, here for the home grown laws in California and Alaska, and here for the home grown laws in Michigan and Illinois. Though there are undeniably many benefits to the expansion and professionalization of the commercial cannabis industry, it is also important to account for these small-scale medical marijuana producers that started it all.

This week we look at the laws governing home cultivation of cannabis in three states along the east coast: New York, Rhode Island, and Vermont.

New York. New York State approved its medical marijuana program in 2014 to mixed reviews. Though advocates had long pushed for New York to adopt a medical marijuana program, what they got fell far short of what most had wanted. The bill places heavy restrictions on marijuana cultivation and strictly limits qualifying conditions for medical marijuana patient registration. Perhaps most strikingly, the bill passed by the assembly did not permit marijuana to be smoked – only tinctures and oils were authorized. It may not come as a shock, then, to learn that New York also does not allow medical marijuana patients to grow their own cannabis for medicine. There is hope for medical marijuana patients, however, as the state has signaled its intention to expand the medical marijuana program as soon as the end of September. Home cultivation may be a bridge too far at this point, but patients in the Empire State can hopefully look forward to expanded access soon.

Rhode Island. Rhode Island first voted on medical marijuana in 2005, but it took a veto override to defeat the governor’s opposition. Today, Rhode Island’s home cultivation laws look similar to many of the states we have already covered. State law permits patients to possess up to twelve mature cannabis plants. Once the mature plants are harvested, Rhode Island allows patients to possess no more than two and a half ounces of usable marijuana. The law does not specify a limit to the number of immature plants a patient may possess at once.

Vermont. Vermont’s medical marijuana laws also track other states’ rules for home medical marijuana cultivation. Vermont’s legislature first passed its medical marijuana act in 2004, with amendments following in 2007 and 2011. The current law allows patients and their caregivers to possess up to two mature cannabis plants at a time along, with seven immature plants. From these plants, patients may possess up to two ounces of usable marijuana at a time. Not quite as generous as Rhode Island, but as New York aptly demonstrates, it could be much worse.

Perhaps we are biased, but when it comes to cannabis reform generally – and home grown medical marijuana specifically – the west coast is king. Nonetheless, these east coast states (or at least two out of three of them) are helping push the region in the right direction and there is hope for further progress to come.

Next we will turn our sights Southwest and look at homegrown laws in Nevada and New Mexico, as well as Hawaii.

New York and MarijuanaThis is proving to be a big year for cannabis. As a result, we are ranking the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts will analyze one state and our final post will crown the best state for cannabis. As is always the case, but particularly so with this series, we welcome your comments. We have finally crossed the half-way point. The states featured going forward generally have mixed laws when it comes to cannabis. Some good, some bad, and some ugly. Today we turn to number 24: New York.

Our previous rankings are as follows: 25. Wisconsin; 26. Arizona; 27. West Virginia; 28. Indiana; 29. North Carolina; 30. Utah;  31. South Carolina; 32. Tennessee; 33. North Dakota; 34.Georgia; 35. Louisiana; 36. Mississippi; 37. Nebraska; 38. Missouri; 39. Florida; 40. Arkansas; 41. Montana; 42. Iowa; 43. Virginia; 44. Wyoming; 45. Texas;  46. Kansas;  47. Alabama;  48. Idaho; 49. Oklahoma;  50. South Dakota.

Continue Reading State of Cannabis: A Moderate New York State of Mind

If you can't make it with New York cannabis, you still can make it elsewhere
If you can’t make it with New York cannabis, you can still make it eslsewhere

On July 31, 2015, the New York State Department of Health awarded five licenses for medical marijuana cultivation, processing, and distribution authorized by the state’s Compassionate Care Act that went into effect on July 5, 2014. These five license recipients now have a deadline of January 5, 2016, or eighteen months from the date the law went live, to have product available for patients.

To recap, New York was intended to be “the most restrictive” regime of all the states that have adopted medical marijuana laws. Only five registered-organization licenses were awarded, with each registered organization operating one manufacturing center and four dispensaries to be geographically dispersed. There is an outright prohibition on the use of the raw plant in any form (i.e., smoking), with patients needing to ingest the drug through the use of oils and vaporizers. Only five strains of the plant can actually be grown. And there currently exist only ten qualifying conditions for which the drug will be recommended. A cynic could conclude that the law’s architects created a program destined to fail.

In the end, there were 43 applicants for the five licenses. The number of applicants was significantly less than originally anticipated. The New York Post speculated in an article published on May 3, 2015 that, according to “industry insiders,” there were some 300 applicants at last count. With 43 applicants for five licenses, in a vacuum, each applicant had roughly an 11.5% chance to win a license. In the real world, it took some deep pockets to file a top-five application. Our cannabis licensing lawyers worked diligently for months on a license application for a deep-pocketed client who, very close to the end of the application process, ultimately chose not to continue due to the unpredictably of New York’s medical marijuana marketplace. This client had plenty of funding; they simply decided that the costs they were already incurring during only the application process were not warranted by the highly uncertain returns they would get in New York if they actually prevailed. Accordingly, this client began to explore other robustly regulated state marijuana markets.

There can be no doubt that the winning applicants incurred significant expense. Advisers, such as architects, security experts, and yes, lawyers, needed to be retained. A labor peace agreement with a local labor union needed to be put in place. This requirement was the first of its kind among the states with medical marijuana laws. Legal rights to property for the manufacturing center and dispensaries needed to be secured, either through conditional/option contracts or the outright purchase of the property. In an amazing display of self-confidence, one company began construction of a facility shortly after the application deadline, before licenses were issued. Valley Agriceuticals’ application scored 8th among the 43 applicants, so it was not issued a license and it appears to now be stuck with that property.

The applications were evaluated with scoring in ten categories, including product manufacturing, security, transportation and distribution, sales and dispensing, quality assurance and staffing, real property and equipment, geographical distribution, architectural design, financial standing, and “miscellaneous.” According to the Department’s website, “[t]he evaluation process was conducted by a team of professionals from within state government with backgrounds in several fields, including, but not limited to, the practice of medicine, quality assurance, analytical and medicinal chemistry, architecture and code compliance, regulatory compliance, and surveillance of health care facilities.”

With the licenses in place, the five recipients, who have already likely spent millions, will now need to invest more millions, but the questions remain: will New York’s medical marijuana program work for either its patients or its licensees? Given the strangulation hold New York has put on its cannabis program, we question both patient access to medicine as well as whether these ventures will actually be profitable or even feasible for the five licensees.

They say if you can make it in New York, you can make it anywhere. Though that may be true for other industries, we know there are other, better marijuana marketplaces out there where patients have true ease of access to a variety of medicine and where there exists less financial risk for marijuana businesses.

So, if you didn’t succeed in New York’s licensing process, don’t sweat it. There are greener pastures elsewhere.

The cannabis industry must avoid giving fodder for a book like this.
The cannabis industry must avoid giving fodder for a book like this.

Noelle Crombie of the Oregonian blows the lid off Oregon’s lack of any real testing or standards for its medical marijuana products. In her series, “A Tainted High,” Ms. Crombie calls into question the safety of cannabis in Oregon. This is the kind of story that will lead to major realizations and to significant changes and I cannot stress enough how important it is for everyone in the industry to read her article.

A lack of quality testing is not necessarily the most shocking part of Ms. Crombie’s series, as several states still do not require such testing. Rather, it’s that so many commercial medical marijuana manufacturers in Oregon are endangering consumers by using large quantities of unsafe pesticides and other chemicals on and in their products. We have for a while now preached to the marijuana community that products liability will eventually affect it, and this series just emphasizes how shoddy safety practices are putting people at great risk of getting sick or worse. 

To put it bluntly, if the cannabis industry (and not just in Oregon) does not clean up its act when it comes to consumer safety, we can likely expect three things to happen:

  • The government (most likely the State of Oregon) will come in and force a clean-up.
  • There will be a backlash against legalization.
  • Legal cannabis sales will stall or decline.

Ms. Crombie reports the following disturbing facts:

Ten marijuana concentrates, popular extracts made from the plant’s leaves and flowers, were screened. Pesticides were found in nearly all of them. Many of the pesticides detected aren’t regulated under Oregon’s medical marijuana rules, which means that products that contain these chemicals can still be sold.

A total of 14 chemicals were found in eight of the samples, including a half-dozen that the federal government has classified as having possible or probable links to cancer.

Among them: a common household roach killer and another whose health risks prompted the federal government to eliminate it for most residential uses more than a decade ago. Though many growers say they follow organic practices, only one of the pesticides detected in the analysis is approved for use in organic agriculture.

The above means that qualifying medical patients are consuming pesticide-laced cannabis, even in many instances after having been assured by producers, manufacturers, testing companies, and retailers that their products are “organic” or fit for consumption. Ms. Crombie also indicts “[a] combination of lax state rules, inconsistent lab practices and inaccurate test results has enabled pesticide-laced products to enter the medical marijuana market.”

The lack of state mandated testing standards for pesticides and other chemicals is not unique to Oregon, as the following state rundown shows:

California. California has no mandatory quality assurance testing and no mandatory testing for pesticides under its Compassionate Use Act or under any corresponding state regulations.

Colorado. Recreational cannabis must be tested for pesticides, but medical marijuana products do not have the same requirement. SB 260 would mandate pesticide testing for MMJ, but that bill is still awaiting Governor Hickenlooper’s signature — though he is expected to sign it into law. SB 260 requires mandatory testing of MMJ, including for pesticides, but it will not go into effect until July 1, 2016.

Nevada. Nevada requires medical marijuana establishments and independent testing labs abide by its pesticide screening policy.

Florida. Pesticide testing is nowhere even mentioned in either Florida’s Compassionate Medical Cannabis Act of 2014 or in its accompanying administrative regulations.

Illinois.  Illinois’s medical cannabis administrative rules on laboratory testing mandate that: “Immediately prior to manufacturing or natural processing of any cannabis or cannabis-infused product or packaging cannabis for sale to a dispensary, each batch shall be made available at the cultivation center for an employee of an approved laboratory to select a random sample, which shall be tested by the approved laboratory for . . . pesticide active ingredients . . .”

Minnesota. Minnesota selected two labs to test all of its marijuana and, under its permanent manufacturer rules, those labs must accurately test for “pesticide residue” in all products.

New York. New York’s medical marijuana rules require”[t]esting for contaminants in the final medical marihuana product shall include but shall not be limited to those analytes listed below [including] . . . any pesticide/herbicide/fungicide used during production of the medical marihuana product.”

Washington.  Though Washington requires quality assurance testing, it makes testing for pesticides optional. According to WAC 314-55-102(8), “[t]he general body of required quality assurance tests for marijuana flowers and infused products may [but not must] include moisture content, potency analysis, foreign matter inspection, microbiological screening, pesticide and other chemical residue and metals screening, and residual solvents levels.” Washington producers and processors can only use pesticides approved by the state and any product that uses a pesticide must include a statement setting forth exactly what pesticides were used on it. As for Washington’s new MMJ program (which goes into full effect on July 1, 2016), SB 5052 dictates that “medical specific regulations [should] be adopted as needed and under consultation of the departments of health and agriculture so that safe handling practices will be adopted and so that testing standards for medical products meet or exceed those standards in use in the recreational market.”

Alaska. Alaska’s recreational ballot measure doesn’t set forth any specific testing requirements yet, but it does mandate that the Alcoholic Beverage Control Board create rules surrounding the “[h]ealth and safety regulations and standards for the manufacture of marijuana products and the cultivation of marijuana.” So, we’ll have to see what Alaska does for particular testing standards in the future. Concerning medical cannabis, under Alaska’s Medical Uses of Marijuana for Persons Suffering from Debilitating Medical Conditions Act, there’s no mention of quality assurance testing at all.

Could a marijuana product containing high levels of dangerous pesticides and chemicals be considered a dangerous or defective product? Absolutely. Could a cannabis producer, processor, or retailer be sued for its involvement with a pesticide-laced cannabis product? Absolutely. See Marijuana Retailers: Be Mindful of Products Liability and Inaccurate Marijuana Testing Will Lead To Lawsuits.

Bottom Line. If you want to avoid being sued or having your name show up in an article for unsafe cannabis product, you have no real choice but to clean up your act. This is true regardless of the state in which you conduct business.

New York Medical Marijuana ApplicationHere in New York, it feels like we are (finally) off to the races. The New York State Department of Health recently posted the application for medical marijuana manufacturers and dispensaries, with two very important deadlines. The first is a May 5 at 4:00pm EST deadline to submit any questions to the Department regarding the application. The Department will respond to questions by May 14 by listing all questions and answers online. The second and most important deadline is May 29 at 4:00pm EST. That is the deadline by which the Department of Health must to receive any application.

If you are planning to apply for one of the up to five licenses being issued here are some of the things you will need:

  • Money: There is a $10,000 non-refundable application fee, plus a $200,000 registration fee, which will be refunded if you are not selected.
  • Ability: To be considered, you must demonstrate your ability to manufacture approved medical marijuana products consistently and in sufficient quantities. There are a number of specifics with which you will need to comply, many of which are outlined in 10 NYCRR 1004.11.
  • Security: What is your plan for maintaining the security of your premises and controlling against diversion of your products? At minimum you will likely need a good fence, a perimeter alarm, motion detectors, constantly recording video cameras at all points of entry and exit and on your safes and on anywhere you have product, a panic alarm,  and all of the other things necessary to meet the requirements outlined in 10 NYCRR 1004.13.
  • Knowledge: Be sure you are aware of all of the applicable rules and regulations, including everything listed in 10 NYCRR 1004.
  • Property: Do you have sufficient real estate and equipment to perform all of the activities you will list in your operating plan? Your four proposed dispensing facilities should be geographically distributed throughout New York. Having all of your operations in New York City, for example, will likely not be deemed enough to serve the needs of New York State as a whole and could well lead to your application winding up in the rejection pile. The Department of Health will review your proposed manufacturing and dispensing facilities not only for their location, but for their architectural and engineering designs as well. Note that if you do not have all of your equipment and locations locked in, you can post a $2,000,000 bond instead.
  • Public Interest: Your application should explain why it is in the public interest for the Department of Health to approve your application.
  • No Criminals: You, your board members, managers, partners, directors, and the like should all be of good moral character and be competent to manage the business you outline in your application.
  • Labor Agreement: The Department of Health will review whether you have entered into a labor peace agreement as outlined in PHL 3360(14) which will represent or attempt to represent your employees. A Labor Peace Agreement means “An agreement between an entity and a labor organization that, at a minimum, protects the state’s proprietary interests in prohibiting labor organizations and members from engaging in picketing, work stoppages, boycotts, and any other economic interference with the registered organization’s business.”

In addition to the above requirements for the application itself, you will also need to include a number of attachments to your application, perhaps the most important of which is your Operating Plan. This is where you will need to outline your entire planned operation to the Department of Health. Among other things, you will in this attachment be expected to outline your plans for: (i) manufacturing; (ii) transportation and distribution; (iii) dispensing and sales; (iv) security and control of the product; (v) quality assurance; and (vi) record-keeping.

All of your board members, officers, managers, owners, partners, principal stakeholders, directors or members must also complete Appendix A and you are also required to provide an organizational chart outlining the structure of your organization. In Appendix B, you will need to outline your architectural program, with details of each site where you plan to operate. There are a number of rules and regulations with which you will be required to comply should you be granted your application. We strongly suggest that you familiarize yourself with all of those now and be sure that you will indeed be willing to follow them. If you determine that you are not willing to follow those rules and regulations, then you should not bother spending the immense time and money required to complete and submit an application.

If despite all that you see above you still wish to move forward with an application, we strongly urge you to start now both on the application and in garnering the legal and accounting and any other assistance you think you will need to complete it. This sort of application will take a long time and the people best equipped to assist you on it will be snared early in the process and so likely will not even be available towards the end of it.

Now for just a bit of good news: the Department of Health is expected to rule on the licenses in July, which is a exceedingly fast turnaround for something like this.

* This post is by Ryan Malkin. We asked Ryan to write this post because he is one of the country’s preeminent regulated substance lawyers and because we have worked with him on a number of East Coast cannabis licensing matters already. Ryan is licensed in New York, New Jersey and Florida, where he represents alcohol distillers, brewers, suppliers, distributors and retailers and where he is finding himself more and more often called on to handle cannabis business law and regulatory matters, including licensing applications.

When we last checked on the status of New York’s marijuana laws, we were pleased to report that a bill to legalize recreational use had been introduced in the New York Senate. We are disappointed to report today that this bill has been stuck in the Senate’s Finance Committee since January 14, 2015. More disappointing, however, is the status of New York’s medical marijuana program.

We don't really hate New York, but we sure do hate its cannabis laws
We don’t really hate New York, but we sure do hate its cannabis laws

On April 1, the New York Department of Health finalized regulations for the state’s medical marijuana program under the Compassionate Care Act. If only the Department of Health intended the regulations to be an April Fools’ joke. Considering the final regulations, one wonders whether the Empire State is serious about its medical marijuana program. Are the authorities out of touch with reality? Do they have unrealistic expectations? Are they trying to sabotage the program? Any of these conclusions could be drawn from these regs.

As a brief refresher, New York’s medical marijuana program under the Compassionate Care Act was intended to be the most restrictive of all the states that have legalized medical use. The limitations include, among other things: an outright prohibition on the use of the raw plant in any form (i.e., smoking); a limited choice of only five strains available from twenty dispensaries state-wide; and a short list of just ten qualifying conditions for which the drug could be prescribed.

Draft regulations for the program were first published on December 17, 2014. After publication in December, the Department of Health welcomed comments about the draft regulations by any interested party. Despite receiving hundreds of comments from the spectrum of interested parties, including potential patients, prescribing doctors, and interested politicians, no substantive changes to the draft regulations were ultimately made. Some typos were corrected and some formatting issues were ironed out. The department’s position on most comments in its Summary of Assessment of Public Comment was generally that the regulations were sufficient or that the commissioner will address the issue later.

The consensus is that the program as regulated will be unworkable. The sponsor of the law, Assemblyman Dick Gottfried, perhaps best summarized the situation, saying that the final regulations are needlessly restrictive and “gratuitously cruel.”  “I don’t know how anyone would get a license to produce and dispense medical marijuana in New York.” In contrast, the spokeswoman for the Department of Health labeled the legislation as “balanced.” Here is the full statement released by the department in response to a request for comment:

New York State – recognizing that possession and use of marijuana is illegal in the United States but that scientific evidence supports the efficacy of using cannabidiol in treating debilitating and life threatening illnesses and conditions – has created balanced legislation that ensures appropriate access through comprehensive regulations and safeguards. The State developed the regulations through this very critical lens to ensure that the entire program would not be subject to enforcement action or legal challenges. Expanding the initial set of regulations would have subjected the State to unnecessary scrutiny and jeopardized the program’s ability to move forward in any meaningful manner. The Compassionate Care Act and the final regulations strike the required balance by implementing a strong and effective medical marijuana program in New York State.

So where does the program go from here? Assemblyman Gottfried believes the legislation can be fixed: “We’re gonna be looking at possible amendments to the law that will remove some of the obstacles. I don’t know whether the administration would ultimately sign that legislation. We’ll see. There is certainly a lot that the administration could do under the existing law to dramatically simplify the regulations that they’ve put in place.”

It’s hard to imagine that some adjustments to existing provisions could transform the program to be on par with other states’ regimes. Perhaps the broad authority granted to the commissioner, currently Dr. Howard Zucker, will be the cure. Under the regulations, the commissioner is given broad authority to, among other things, increase the number of registered dispensing organizations, to authorize nurse practitioners to prescribe the drug, to expand the list of qualifying conditions (with the department’s guidance), and to, presumably, approve the plant form of the drug. In other words, the solution in New York may be to voice your concerns with the commissioner of the Department of Health.

We hate what we are seeing in New York these days, but what do you think?

 

On October 28, 2014, the United States Department of Justice issued a “Policy Statement Regarding Marijuana Issues in Indian Country.” In this memo, the DOJ stated that its eight enforcement priorities will apply “in the event that sovereign Indian Nations seek to legalize the cultivation or use of marijuana in Indian Country.” At least one Indian tribe in Northern California plans to take advantage of the DOJ’s policy statement to start its own legalized marijuana farm. Other Indian tribal governments are now considering whether to legalize marijuana for medicinal, agricultural, or recreational use on par with state governments.

Nonetheless, social policy relating to substance abuse in Indian Country has long embraced prohibition for non-prescription drug usage and, in some tribal jurisdictions, alcohol usage. The potential legalization of commercial marijuana cultivation, manufacturing, and distribution in Indian tribal jurisdictions raises complex legal questions as well as whether past social policies should be changed in light of rapidly evolving social policy toward marijuana usage in the United States.

In an effort to address the complicated issues relating to legalization on tribal lands, the Canna Law Group, along with co-sponsor Odawi Law, PLLC, will be hosting the first Tribal Marijuana Conference at the Tulalip Resort Casino, from 8:30 a.m.-5:30 p.m. Registration details and the conference agenda can be found here. Speakers include marijuana legal and policy experts, including Ohio State University Professor of Law Douglas Berman, UCLA Professor of Public Policy Mark Kleiman, and Jacob Sullum, senior editor at Reason.com, in addition to tribal authorities from the Tulalip and Lummi Nations.

The goal of the Conference is to educate attendees regarding the federal government’s treatment of marijuana and how to craft regulatory regimes for Indian tribes that will pass muster under the DOJ’s policy statement, all while keeping an eye to the sensitive policy and cultural issues concerning substance abuse on Native lands.

We hope to see you there!

By Ryan Malkin*

Decades of arresting marijuana users has “failed to prevent” its use, “created a violent, illegal drug market,” and “disproportionately impacted African-American and Latino communities,” notes New York Senate Bill S01747, filed January 14, 2015. The New York “marijuana regulation and taxation act” was introduced by senators Krueger, Dilan, Hoylman, Montgomery, and Rivera. The bill, which seeks to bring recreational marijuana to New York, rightly proclaims that “regulating, controlling, and taxing marihuana like alcohol will save criminal justice resources, reduce violent crime, reduce racial disparities, and generate revenue.”

In addition to marijuana, the bill also permits industrial hemp to be farmed in New York, creating new industries, increasing employment and allowing New York farmers to share in the profits from the hundreds of millions of dollars of industrial hemp products sold in the U.S. each year. The bill proposes that regulatory oversight go to the New York State Liquor Authority (the “SLA”). So staying optimistic, let’s look at just some of the privileges the bill would provide to those in the New York marijuana industry.

There are four main license classes, ranging from manufacturer to retailer:

1. Marijuana Producer. This license will permit the holder to produce, process and sell marijuana and concentrated cannabis at wholesale to marijuana processors, retailers or other producers, but not to customers.

2. Marijuana Processor. This license permits the holder to purchase marijuana and concentrated cannabis from a marijuana producer, to process marijuana, concentrated cannabis and marijuana infused products, to package and label marijuana for sale in retail outlets, and to sell it wholesale to marijuana retailers.

3. Marijuana Retailer: This is the license for what is commonly called a dispensary, and it will permit selling marijuana, infused products and concentrates for use by customers off the premises.

4. Marijuana Retailer For On-Premise Consumption. This unique license permits sales to customers for use on the premises with food being incidental to the sale of marijuana. Think of this as the equivalent to your local “pub” or “coffee shop.” No doubt many would like to sell marijuana and alcohol from the same location, but the bill specifically prohibits this activity.

Transportation is also outlined, mandating the transporting of product only in cars or via a trucking company registered with the SLA. The cars are required to have a sign on each side showing the name and address of the licensee with the inscription: “New York State Marihuana Producer License Number…” and, respectively, “New York State Retail Marihuana Store License Number…” Given these transportation requirements, the ancillary market for armed transport may be ripe for opportunity in New York if this bill passes. I just do not think it a good idea to require someone to drive around advertising that their car may contain massive quantities of marijuana.

If passed, the bill gives the SLA 240 days to create the forms, rules and regulations necessary for implementation. That means outlining the qualifications for licensure; books and records requirements; permissible methods of producing, processing, and packing marijuana, infused products and concentrates; sanitation requirements; identity of products; security protocols; etcetera.

Like alcohol, the license privileges will be subject to city, village or town legislative approval and in cities of more than one million each community board provides authorization. Again, following the SLA’s current rules for alcohol, applicants will be required to notify the local city, village, town, or community board at least 30 days before filing the application, notifying them of the intent to file an application for a marijuana producer, processor or retailer.

The applications themselves will, in all likelihood, be similar to the SLA’s applications and process for alcohol. That means, if you are hoping to vertically integrate and hold both a producer/processor license and retail license, think again. It is prohibited for a producer or processor to hold a direct or indirect interest in a retailer. Similarly, retailers are prohibited from making loans to producers.

Now for the dollars and cents: The excise tax imposed on marijuana sold from a processor to a retailer will be 15% of the price at transfer and $35 per ounce on all marijuana flowers, $10 per ounce on leaves and $5 per immature plant. Taxes on concentrated cannabis will be based on the weight of the product used to create the concentrate. If a person holds a producer and processor license, the tax will be at time of sale to a retailer at the same rates based on content of marijuana or concentrated cannabis contained in the product sold.

The full text of the bill, which also makes several other positive changes to the Penal Law and Public Health Law, can be found here.

* Ryan Malkin is one of the country’s preeminent regulated substance lawyers. He is licensed in New York, New Jersey and Florida, where he represents alcohol distillers, brewers, suppliers, distributors and retailers and where he is finding himself more and more called on to handle cannabis business law and regulatory matters.

 

After much debate and some difficulties in the legislature, Governor Andrew Cuomo signed New York State’s Compassionate Care Act into law on July 7, 2014. The intentions of the lawmakers were clear: it would be one of the most restrictive medical marijuana laws in the country — if not the most restrictive. However, the program will not be up and running until January 2016 at the earliest, which will give officials time to develop and tweak the rules.

No Grass in New York.  Under the law adopted, the plant version of marijuana will not qualify as a drug and the raw plant may not be smoked. Patients will need to ingest the drug through edibles, oils, and vaporizers. Of the twenty-three states that have legalized medical marijuana, only Minnesota has a similar prohibition on smoking the plant.

Twenty Dispensaries for the Entire Empire State. New York will implement a “seed to sale” model, with the same company growing the plants, processing and packaging the product, and operating the dispensaries. A total of five licenses will be issued for growing the plant, with each licensed grower allowed to operate up to four dispensaries. It is expected that a total of twenty dispensaries could service the entire state, but an expansion of these numbers is understood as inevitable over time.

A Patient Must Have a “Serious Condition.” To be prescribed medical marijuana, one must be a resident of New York, be certified as needing marijuana by a licensed and qualified medical practitioner registered with the Department of Health, and the ailment must be a “serious condition,” as defined by the law. Serious conditions are defined as cancer, HIV/AIDS, ALS (Lou Gehrig’s Disease), Parkinson’s Disease, multiple sclerosis, damage to the nervous tissue of the spinal cord with objective neurological indication on intractable spasticity, epilepsy, inflammatory bowel disease, neuropathies, Huntington’s Disease, or as added by the Commissioner of the Department of Health. The Commissioner will consider a number of other conditions that may qualify prior to implementation of the program, including Alzheimer’s, muscular dystrophy, dystonia, post-traumatic stress disorder and rheumatoid arthritis. Noticeably lacking from the definition of “serious condition” is general, chronic pain. Illinois’ law also does not include chronic pain as a qualifying condition and only 650 patients in Illinois have so far qualified since applications were first accepted beginning September 1, 2014.

Only Five Strains of the Plant. On December 17, 2014, the Department of Health issued draft regulations for the program. Among other things, the regulations inexplicably limit to five the number of strains of medical marijuana that can be grown. One would expect this limitation will eventually be removed, as that will likely be necessary for New York researchers to participate in developing marijuana’s efficacy. Dozens of strains exist and new strains have recently been developed to treat and cure more illnesses. Certainly, the newest strains to treat epileptic children would not have been developed if all states had limited medical marijuana to five strains as New York intends to do.

Enter: the Lobbyists. One insider recently joked to a journalist that the Compassionate Care Act should be renamed the Lobbyist Employment Act of 2015. With only five licenses available, potential investors in the industry have scurried to align themselves with the most connected and powerful lobbyists. Lobbying records publicly available detail a Who’s Who in the medical marijuana industry retaining a Who’s Who in the New York lobbying market. Among those welcoming lobbying deals is Park Strategies, the lobbying firm run by former U.S. senator Al D’Amato. Lobbyists in New York will have a task specific to New York: working with the labor unions. New York’s Compassionate Care Act requires that union workers be hired as a condition of receiving a license. No other state with medical marijuana has such a requirement.

At this point, New York’s medical marijuana regime is going to be extremely limited and we anticipate it also being extremely expensive for anyone seeking to gain a foothold in it. If we had to compare it to any other state in which our lawyers have handled licensing applications, it would be Minnesota, whose program is just about as limited in most respects as New York’s. We do not like such limited programs as they are bad for patients, bad for business, and bad for competition. But just like those who will spend heavily for a chance to get in the ground floor of what may eventually be a much bigger program, we too will take what we can get, while both hoping for and pushing for more.

I attended the National Cannabis Industry Association luncheon in New York City last week on the state of New York State’s recently enacted Compassionate Care Act. The highlights of this altogether excellent event were speeches by New York State Assemblyman Steve Katz and New York State Senator Diane Savino. Both speeches were thoughtful and both provided insight into the future of the Compassionate Care Act.

Assemblyman Katz detailed the shortcomings of the law’s five license limit and expressed his concerns about the process for awarding this limited number of licenses. The current version of the Compassionate Care Act allows for five cannabis licenses to be granted for the entire state of New York. Each license will be for a completely vertically integrated seed through sale model that allows for a grow and manufacturing facility and four associated dispensaries. Assemblyman Katz talked of how a total of twenty dispensaries for a state as large and populous as New York will be woefully inadequate and will not come close to satisfying market demands.

Assemblyman Katz also expressed concerns about the process for awarding these five licenses, essentially saying that if the there are more than five legitimately qualified applicants seeking a license (and there no doubt will be), any selection process other than a pure and unweighted lottery will be unavoidably corrupt.

We agree with Assemblyman Katz on both counts. Five licenses and twenty dispensaries is not going to be nearly enough to serve New York patients and the only fair and legitimate system for awarding licenses will be through a pure lottery. The problem with lotteries, however, is that they are certain to cut out many experienced, sophisticated and well-funded applicants. In other words, the exact sort of applicants that will help cannabis in New York succeed.

Senator Savino’s speech was more optimistic. Though Senator Savino agreed that the Compassionate Care Act was less than what supporters of the bill had sought, she saw it as a foot in the door and she believes that there will be a number of substantial amendments to the Act during the next eighteen months before its enactment.

We too view enactment of the Compassionate Care Act, in any form, as a positive, but we also think it needs to see considerable expansion. Moving forward, the conversation will be about what the Compassionate Care Act should look like, not whether it should be enacted at all. That in itself is a victory.

Changes are going to need to be made to the Compassionate Care Act in order for New York to create and maintain a medical marijuana system, and the sooner the legislature accepts that, the better.