On Tuesday, New York governor Andrew Cuomo released the details of his much-anticipated plan to legalize cannabis recreationally in the state. It would seal cannabis offenses automatically on criminal records, limit access to anyone not yet 21-years old, and increase tax revenues by approximately $300 million. The proposal is long in coming. Plans to legalize have been months in the talking, inevitable.
While addressing the budget on Tuesday, Cuomo said that regulating the industry would be in the best interests of public health and safety, as it would force companies to comply with strict product quality and testing requirements. Furthermore, according to the Drug Policy Alliance, by lowering racial disparities in arrest and imprisonment rates, it would also promote social justice and equity.
Cannabis Regulation and Taxation Act
During his budget address, Cuomo made an impassioned plea, “Let us stop the disproportionate impact on communities of color. Let us create an industry that empowers the poor communities that paid the price and not the rich corporations that come in to make a profit.” That is well intentioned, but it is no secret that money talks. When New York legalizes recreational pot, it will likely follow this framework:
The proposal would impose three different taxes on recreational marijuana, or adult use. Together, these would add approximately $300 million to state coffers within three years. Any cannabis cultivation will face a $1 tax for every dry weight gram of flower, as well as a $0.25 tax on each dry weight gram of trim. This will add up to a great deal of money very quickly. It does not end there, however.
The second tax would be on suppliers selling to retail stores, and this at 20 percent of the invoice price. The third tax, forced on the exact same sale but at two percent of the invoice price, would sit in trust for the county where the retailer operates. Big cities and counties will have the option of not joining the industry, but they must first pass laws locally to ban cannabis stores from operating in their areas.
“So,” Cuomo explained, “we are not telling them what to do, but they have to affirmatively opt out of the program.” State revenues from cannabis will fund its regulatory program, gather data, monitor and report, set up a traffic committee, develop small business, provide loans, treat and prevent substance abuse and mental health issues, while educating the public and researching cannabis intensely.
Cuomo’s proposal will create an Office of Cannabis Management to oversee all economic development, enforcement, and licensing in one central agency. It would administer all distribution, manufacture, and licensing of marijuana products in all cannabis markets, including recreational, medical, and industrial sectors of the industry.
For industry insiders, what peaked most interest was Cuomo’s plan to distribute cannabis using a three-tier model. According to the Center for Alcohol Policy, in this, the state issues producers, retailers, and distributors completely different licenses, and prohibits manufacturers from owning retail stores, as well. Ultimately, this stimulates competition and protects against the monopoly of the industry.
Similar to the model used for the alcohol market, this one differs from what the state currently uses for its medical cannabis industry, which is a vertical integration one. Vertical integration allows registered organizations to control the entire process, literally from seed to sale. Those advocating for small businesses believe this a major positive, since it opens up the market for new companies to enter.
However, also on Tuesday, the state’s medical marijuana industry said there is hope that the proposed laws will enable existing providers of medical cannabis to join the recreational market too, since “that is the only way to keep prices low enough to ensure patients continue to receive the care they need and to protect against an illicit market.”
Potential Challenges to Cannabis Proposal
There are critics of the bill already. Ari Hoffnung, chief executive officer of Vireo Health of New York, a medical cannabis company that grows weed in Johnstown and dispenses it in Albany, praises New York for taking the huge step forward of legalizing recreational use. However, despite this good direction, he is wary of the proposed model for distribution.
“I think the question that we have is what happens in an environment in which vertical integration is not mandated, but prohibited?” Hoffnung asked. “That is one of the many reasons that we are going to be studying this legislation very carefully.” Additionally, many will be unhappy about the plan to prohibit the cultivation of cannabis at home. Legitimate patients will remain exempt from this.
Lastly, the proposed bill would restrict the number of manufacturers and retail outlets to prevent a collapse of the market, promote equity with cooperatives and specialized cultivation, as well as encourage previously targeted communities to participate by providing incubators, training, and technical assistance. Cuomo’s bill is now up for debate at the Senate and Assembly.