Cannabis Business 101

By Adrian Currie

State Senator Gustavo Rivera hosted a virtual forum in mid-April in which a panel of experts provided business owners and entrepreneurs with the latest updates on New York State’s (NYS) Marihuana Regulation and Taxation Act (MRTA).  The panel covered topics that include conditional license opportunities, the preparation needed to get started with NYS’s legal cannabis sales, and what to expect as a new cannabis business owner or entrepreneur.

The session began with Senator Rivera outlining some of the reasoning behind his support of the MRTA and some of what the bill is purposed to achieve.  “I was very interested, particularly in the fact that at the core of it were restorative justice measures,” said Rivera.  “There was an understanding that for a long time, the criminalization of cannabis had meant, even though the use of cannabis was about the same in every community, there was a disparate impact on communities like the ones that I represent.”

The senator said that the bill is intended to repair some of the harms brought on by the drug-war. “We wanted to make sure that we pass a bill that had social justice at the core of it.”

The bill was signed into law March 31, 2021, legalizing recreational marijuana in New York State. The bill authorizes “a person to apply for a license to cultivate, process, distribute, deliver or dispense cannabis for sale” in the state of New York.  Such persons must be 21 or older.

Rivera explained that retail sales had not begun yet and that the only licenses currently available are the conditional licenses for cultivators.  Those licenses are for farmers and prospective farmers who intend to cultivate cannabis.

He further explained that the Office of Cannabis Management (OCM) has created a list of proposed regulations for the retail sale of cannabis, and parties can provide comment on those regulations via mail or email up to May 31.  “They have made some progress on regulations, guidance, and public health education,” Rivera said.  The regulations can be found on the OCM’s website along with contact information.

The MRTA established The Office of Cannabis Management (OCM), an independent state office within the Division of Alcoholic Beverage Control.  It is the first of its kind in the U.S. and will regulate and control the cultivation, processing, manufacture, distribution, transportation, and sale of cannabis in New York State. This includes medical and recreational cannabis and cannabinoid hemp.

Rivera urged participants to watch out for scammers saying they can help get marijuana convictions expunged from criminal records for a fee, because all records that qualify for expungement will be removed automatically and at no cost. He said scammers may also try selling retail cannabis licenses to business owners and entrepreneurs and to avoid those as well, as the only licenses available for application at this time are the conditional licenses for cultivators.

Tahlil McGough, deputy director of legislative affairs at NYS’s Office of Cannabis Management (OCM), highlighted some of the public service initiatives the OCM is working on to educate New York residents on what the new cannabis law means for them.  He explained that the office launched a Public Health Education campaign in April.

“The focus for this campaign really is to get people to understand that we used to deal with cannabis as a criminal justice and enforcement issue; now we’re transitioning that into a public health issue, where people are thinking about cannabis in a way that’s centered around health and wellness, around safety, as opposed to just focusing around who should be locked in jail and for how long,” McGough said.

He said that the campaign would consist of public service announcements on TV, social media, buses, trains, and other places throughout New York. McGough pointed out that some other states which have already begun their cannabis sales either waited until after sales had begun before starting such campaign initiatives or stopped the initiatives after only a couple of months or so.  But he said that New York State would continue funding its public health education campaign on cannabis indefinitely.

“We’re always gonna be out there reaching out to people,” McGough said, adding that the OCM would be conducting research continuously to refine their methods in how to reach out to the citizens of NYS.

McGough said that the public health education campaign is also designed to ensure that people know that the new MRTA is written and implemented for adults only. It will advise proper storage of cannabis to prevent access to children and pets, provide poison control numbers in the event they are needed, recommend avoiding non-designated areas for cannabis consumption, and suggest caution for women who are pregnant or breastfeeding, as much is still unknown about the effects of cannabis on babies.

McGough encouraged everyone to go online and read the proposed regulations for cannabis and comment on them, explaining that they include things such as how to obtain a license, how much the license will cost, and what a business owner or entrepreneur is and is not allowed to do.

“We take everybody’s comments, and the best comments, the ones that are things we didn’t think about or that we need to add, we add that back in,” he said.  “Then we send them right back out to the public… to look those regs over… to decide if you want to make comments on those as well.” After that the regulations are finalized, said McGough.  Each sector of cannabis – cultivator, retail, etc. – has its own regulations and comment periods.

McGough explained the difference between the regular MRTA program and the conditional MRTA program currently in operation.  The conditional program, he said, resulted from a late start at the OCM because of other things going on.  The conditional MRTA program is meant to cut down the time for the initiation of cannabis sales, and conditional licenses are only available for cultivators and dispensaries, whereas the regular MRTA program will cover all adult-use licenses.

McGough said that the planting should begin soon, as they’ve recently issued 52 licenses with another 50 to 100 conditional cultivator licenses still to be issued.  He said he expects the product to be ready in October or November of 2022 at which time he anticipates conditional licenses for retailers will be approved with retailers ready to receive product for sale.

McGough listed the 9 types of adult-use licenses that can be expected when the regular MRTA is initiated in 2023:

  1. Cultivator: Growing, cloning, harvesting, drying, curing, grading, and trimming
  2. Nursery: Only clones, immature plants, seeds, and other agricultural products
  3. Processor: Extracts concentrated cannabis and/or compounds, or manufactures
  4. Distributor: Wholesale sale to dispensary, on-site consumption, or delivery service
  5. Retail-dispensary: Sells cannabis products directly to consumers
  6. Delivery: Delivers cannabis products to consumers
  7. On-site Consumption: Sells directly to consumers for us on-site at the location (like a bar)
  8. Adult-use cooperative: Democratically controlled. Can cultivate, process, distribute – can’t sell directly to consumer
  9. Microbusiness: May be a cultivator, a processor, a distributor, and a retailer of their own cannabis products. No person can own more than one micro-business license and they can’t have an interest in any other adult-use license type

McGough encouraged business owners and entrepreneurs who are considering getting involved in the cannabis industry, particularly the ancillary sector of it, to move forward with their plans. “You don’t need to start from scratch,” he said. “You can literally just take what you’re doing right now for your career and your job and apply it to cannabis.  And we’re gonna need these people that do these jobs right now to make sure that our entire ecosystem is efficient and functioning and has all of the holes plugged so that we don’t drop off like some of the other states that we see who run into a lot of problems.”

Cristina Buccola is a cannabis attorney currently working with the Bronx Defenders to assist them in helping people navigate the cannabis licenses process. She spoke about the social equity push that MRTA promises.  “It requires that this new law, this new industry, incorporate individuals from communities that have been disproportionately impacted by the war on drugs and also create some kind of diversity among races, among ethnicities, among genders in the distribution of new licenses,” Buccola said.

Under the cannabis law, 50% of cannabis licenses will be distributed to social equity applicants.

Buccola outlined what qualifies an individual as a social equity applicant,. “You’re either a member of a community that’s been disproportionately impacted. You’re a minority-owned business. You’re a women-owned business. You’re a service-disabled veteran or distressed farmer.”

She said the disproportionately impacted communities are determined by the history of arrests and convictions in certain geographically areas, adding that the Cannabis Control Board of the OCM is continuing to draw up those maps.

Buccola explained that minority-owned businesses are considered as such if they have at a minimum a 51% minority ownership. She added that they must pass the ownership control test, ensuring that “no one is offered as, essentially, a puppet and then there’s someone else who’s actually controlling the strings.” Buccola said that the ownership must be “sustainable and continuing” and able to “exercise that day-to-day control over the entity and independently make decisions.”  The business must be independently owned and operated, authorized to do business in New York state and be a small business.

Buccola covered the various ethnicities that account for the minority groups able to apply as social equity applicants, which include African Americans, Hispanics, Native Americans, Asians, Pacific Islanders, and other groups.

Women-owned businesses must be 51% owned by one or more U.S. citizens who are women and pass the ownership control test to qualify as social equity applicants.  Qualifications as minority or women owned businesses will be handled by the OCM and not the usual Minority and Women-owned Business Enterprise (MWBE) certification process.

Buccola explained that service-disabled veterans are those individuals injured in the line of duty who have a rating from the U.S. Veterans Administration (VA) or U.S. Department of Defense (DOD) for a service-connected disability.  Distressed farmers who qualify for the social equity application are those NYS businesses designated as such by the USDA and who are operating in a deficit.  Small farm operators in New York who are also a member of a minority group historically under-represented in farm ownership may also qualify as a social equity applicant.

Some benefits of social equity applicants include access to business mentoring services and prioritization of the application process, along with the 50% of licenses outlined under MRTA, according to Buccola.  In addition, she stated that “New Yorkers with cannabis convictions are going to be at the first of the line to receive one of the first 100 to 200 conditional adult-use retail dispensary licenses.”

Buccola elaborated on how these first retail licenses will be funded and fast-tracked.  “There’s a fund, a public-private fund that consists of $50 million of public money from the state and another $150 million that’s going to be raised… to help these initial 100 [to] 200 applicants in building out their businesses… to open up in what I understand to be pretty premier locations,” said Buccola.

One eligibility requirement for the conditional retail dispensary license is that the applicant have a significant presence in New York, whether that be a corporation, incorporation, or resident of the state.  Other requirements include being justice-involved, meaning the applicant or immediate family member has a cannabis-related conviction prior to MRTA that is no longer a crime under the new law.  The individual must also have an interest in an existing profitable business for the last two years.

Legacy, or legacy operator, refers primarily to an individual who has been operating in the cannabis business prior to the legalization of recreational cannabis but may also refer to individuals with prior cannabis run-ins with the law.

Other requirements must be met for the conditional adult-use retail dispensary licenses in addition to the requirements mentioned above.

“I have a lot of clients that come to me who have been in the legacy, and they say, ‘I want one of these first 100 to 200 licenses,” said Buccola.  I say, ‘Okay, what do your tax returns look like?  Do you have any association with an EIN?’  And so when you start going through the list of requirements that are necessary to secure this type of license, you’re finding that not everyone can satisfy that,” she said.

Not-for-profits can also apply for these licenses but must meet certain qualifications, including tax-exempt status, having on their board a justice-involved individual, and be part of a social enterprise for at least two years, according to Buccola.  “I talked to a lot of tax lawyers, and we’re kind of scratching our head as to how a not-for-profit can also earn income from an enterprise that is, in fact, illegal at the federal level.  And so, that’s yet to be seen, said Buccola,” adding that she looks forward to seeing how the comments from the public will help shape the not-for-profit regulations.

Buccola said nursery and delivery licenses potentially have significant impacts on social equity.  “Historically, those could be entrance-ways for social equity applicants who don’t particularly have as much capital as they need to operate a different type of license,” she said.

Senator Rivera agreed saying, “This is a historical attempt to do things differently.  We’re the first state that actually set this up this way.  So there’s a lot of intent that is in the bill.  And we’re working it out.”  He said conversations that will be happening in the next weeks, months and years will be conversations about how to do this right.

The senator said that social justice is at the core of MRTA.  “We know that the drug war has done nothing but harmed so many of our communities. We wanna make sure that, as we provide economic opportunities, which is what this is now, we wanna make sure that those economic opportunities are available to the right folks in the right way.”

He said that this will be challenging, because other states have not been able to effectively do it.  “But they haven’t really thought it through as much as us,” he said.  “We wanna make sure we get this right.”

Clarence Stanley, executive director of the Bronx Small Business Development Center (SBDC) at Lehman College, spoke about how the SBDC can assist small business owners and startups.  “We’re finding ways to work with small business owners right now in some way, shape, or form, whatever it takes,” Stanley said.  “We work with about 450 businesses a year out of the SBDC at Lehman College.”

The Bronx SBDC is one of 22 campus-based regional centers under the New York Small Business Development Center (New York SBDC), according to SBDC.  The services provided by SBDC are free of charge to New Yorkers and are federally funded by the U.S. Small Business Administration (SBA) as well as by State University of New York (SUNY) and City University of New York (CUNY) host campuses.

Stanley said that the center can discuss and help business owners and entrepreneurs with their business plans but is currently not able to discuss cannabis business plans with clients from a federal standpoint, though he said that will be changing soon.  “We’re gonna separate the cannabis business from the federal side, but we can talk about it on the state side.  So we can talk about it locally.”

Because the SBDC is federally funded, certain guidelines prohibit workers from discussing cannabis business plans with clients.

Nina Parks is a cannabis business operator and volunteer regulator on the San Francisco Cannabis Oversight Committee in California. She shared some of her experiences in the cannabis industry.  “That position [regulator] on the oversight committee is not a paid position at all,” said Parks. “It’s just really important as we move forward to continue to participate, because the city and the state only know as much as we’re going to be able to give them as we’re participating in the rollout.

She shared that her brother’s marijuana arrest helped to inspire her to venture into California cannabis legalization conversations. This later led to her advocating for certain rights and changes to the proposed cannabis bill at the time.  “The regulations actually said that people with convictions could not own their own business, which seemed really contradictory to the legalization of cannabis,” Parks said.

Parks spoke about the private incubator mentorship program between experienced business owners and new entrepreneurs in California’s cannabis business.  In California, general applicants were required to mentor social equity applicants in order to be amongst the first to get cannabis licenses.  “It wasn’t the best partnerships,” said Parks. “There were some that had better intentions, but other people just wanted to get through the door, so they did what they were asked but fell short of impact because they had no knowledge of how to be a teacher or how to be a mentor.”

Parks said some of the mentors felt as though they were incubating their own competition. She encouraged New Yorkers to take full advantage of the Bronx Small Business Development Center (SBDC) and other public incubators initiated by NYS’s new cannabis law.  “For New York, we’re really hoping that the investment into more-like public incubator programs will help people transition and learn the information necessary to become a compliant business owner,” Parks said.

Parks encouraged entrepreneurs to be kind to themselves as they move into this new space of the cannabis industry, emphasizing that it will be a learning experience.

Bronx Journal Radio · Cannabis 101, Clip 14, Parks 2m 51secs 1

She spoke about the challenges surrounding access to real estate in California and how small cannabis business owners have come together under the Equity Trade Network, a collection of small businesses, co-founded by Parks, “committed to helping each other through the pipeline.”  Parks said that Equity Trade Network consists of different branches of the cannabis tree – cultivator, nursery, dispensary, etc.

Equity Trade Network members must demonstrate how their business will help support “racial equity and diversity in the cannabis industry and beyond,” according to the organization.

“Access to network and other people to help you along is super super helpful, because that’s what the big guys have,” Parks said.  “The big guys have access to people within their network that have resources.  And a lot of us are are small businesses, we’re going in alone.  We have limited access to capital, trying to be able to attain real estate.”

Bronx Journal Radio · Cannabis 101, Clip 15, Parks 2m 37secs 1

Parks praised the state of New York for including social equity at the core of its cannabis law but added that investments should also be made in manufacturing and distribution pipelines for equity as well to avoid some of the issues they had in California.  “We saw larger companies be able to roll out those entities.  They were the ones that had control over production and brands to move product,” she said.

Parks added that Equity Trade Certification was developed to ensure that equity brands were on the dispensary shelves.

Parks said that the ability for black and brown communities to network together in the new cannabis industry “is how the small business space is going to survive and thrive.”

Bronx Journal Radio · Cannabis 101, Clip 16, Parks 1m 47secs 1

Rivera asked the panelists to talk about some of the challenges and limitations of the MRTA.  Cannabis remains a Schedule 1 controlled substance at the federal level. Stanley said that the SBDC cannot do SBA guaranteed financing but can work with clients to do conventional bank financing.

Bronx Journal Radio · Cannabis 101, Clip 17, Stanley 1m 28secs 1

Buccola said that the legal status of cannabis creates havoc on the banking industry. She says there are banks that will work with plant-touching entities and plant-touching concerns but that their requirements are extreme. They will technically bank cannabis businesses but extremely strict anti-money laundering procedures must be followed. “That takes time, and that takes effort, and that takes a lot of review, and that is where the money comes from,” Buccola said. “But people can’t just go in and get a regular bank loan.”

Bronx Journal Radio · Cannabis 101, Clip 18, Buccola 2m 17secs 1

Parks said choices for bank loans in California are limited.  “There’s maybe five banks that have taken it on,” she said. “Finally, we found this bank who has actually committed to creating an equity rate, which has been really really nice.  But again, on our side, as a business, there’s a lot of compliance, so we have to make sure that we’re entering in all of our vendors and their licensing and sending emails for them to expect that there’s money coming through.”

Bronx Journal Radio · Cannabis 101, Clip 19, Parks 2m 24secs

Buccola clarified the criteria for the conditional adult-use cultivator license, which is the only license currently available for application, saying, “Unless you have a current hemp license and New York sent you a letter saying you’re eligible to apply for this license, you don’t qualify.”

Bronx Journal Radio · Cannabis 101, Clip 20, Buccola 1m 39secs 1

Buccola added that this may change when the regular regulations are implemented, as New York has specifically placed in MRTA the legality to grow cannabis anyplace agriculture is allowed to grow.  She said that it is important to know whether or not the locality is pro-cannabis or not, however, and that community sign-off isn’t required for cultivator licenses but is highly recommended.

She explained that community sign-off is needed for retail licenses which are forward-facing and for social consumption.  “Regardless, it’s always easier to operate a cannabis business in a locality that you know is hospitable to cannabis,” said Buccola.

Bronx Journal Radio · Cannabis 101, Clip 21, Buccola 1m 9secs

She also highlighted the distinction that New York State creates in dividing up the different cannabis licenses one operator can attain.  “It wanted to divide up the path of cannabis such that we would have the most entry, the most participants in the program,” Buccola said.   “So what did it do?  It said, ‘no vertical integration.’  Vertical integration is when you control everything, from the seed down to the sale.”  She said the exceptions to that are the existing registered organizations operating under the medical program and micro-licenses.

Bronx Journal Radio · Cannabis 101, Clip 22, Buccola 1m 3secs

One participant, Juan Nuñez, an organizer from the Northwest Bronx Clergy Coalition, asked, “How can we ensure that companies like Door Dash, Uber, etc. don’t take control of the delivery business?”

Parks responded, “Organize, organize, organize, because it is what we were able to do to protect our pockets…, our small pockets of opportunity, because the big guys are gonna be coming in.”

Bronx Journal Radio · Cannabis 101, Clip 23, Parks 2m 55secs

Senator Rivera reminded participants to check out the Bronx Small Business Development Center (SBDC) at Lehman College for assistance in facing any challenges that may come with the new Marihuana Regulation and Taxation Act (MRTA).

“This is an incredibly challenging moment but an incredibly exciting moment, because we have an opportunity in New York State to get it right” Rivera said.  “Other states have thought about it, but we’re the first ones that, through the whole legislative process… were able to fight and keep it as it needed to be, with social justice at the center of it.  Now we got to make it operational.”

One Response to Cannabis Business 101

  1. Michelle Torres June 5, 2022 at 4:57 pm

    Great coverage Adrian, an issue I’m sure many will be following!


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