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.