New York pot legalization push hits turbulence

For several years, New York Gov. Andrew Cuomo (D) and progressives in the Democrat-controlled state legislature have supported legalizing REC. 

Now, with New Jersey poised to begin sales to all adults, and the state facing a Covid-related budget shortfall, observers speculate that the Empire State will legalize adult use cannabis in 2021.  However, passage could be delayed by tensions over dueling bills, one of which promises significantly more money and benefits for “equity”: the minority communities which bear the brunt of prohibition. 

The more progressive Marijuana Regulation and Taxation Act (MRTA), would direct 50% of cannabis tax revenue to a cannabis equity fund. Proceeds from the fund could support programs such as schools, job training, drug treatment and services for offenders returning from prison. The bill would also create an incubator program to support equity cannabis entrepreneurs.

Versions of MRTA have been put forward for several years by State Senator Liz Krueger (D-Manhattan). The current iteration has support from Assembly Majority Leader Crystal Peoples-Stokes. (D-Buffalo)

Cuomo’s more centrist bill, the Cannabis Regulation and Taxation Act (CRTA), would allocate $10M for the social equity fund, with the amount climbing to $50M annually after several years. Based on estimated annual taxes of $300M, it would reserve far less money for equity than the competing bill. CRTA doesn’t specify how the remaining funds would be used.

To budget or not to budget

Cuomo, who introduced a similar bill last year, initially sought to pass CRTA as part of the state budget process, which wraps up April 1. Doing so could give wavering lawmakers political cover to support a potentially controversial measure they might not vote for as a standalone bill. 

If CRTA doesn’t pass with the budget, the legislature can pass it separately during the rest of the year’s session, which ends in June. Democrats have a veto proof majority in both chambers. 

Elliot Choi, New York-based counsel at cannabis law firm Vicente Sederberg, said he believes the most likely outcome is a version of the MRTA passing outside the budgetary process, which would allow more time to resolve sticking points.

Several more key differences between the bills have attracted attention:

• MRTA explicitly allows home grow for MED patients. CRTA does not, though Choi said it could be added with future regulations once the bill has passed. At times, industry groups in New York and elsewhere have opposed legal home growing, which has the potential to eat away at licensed companies’ revenue.
• The bills propose separate tax regimes, but both are likely to demand New Yorkers and the industry pay relatively high taxes compared to other legal states.
• Cuomo’s proposal does not allow delivery or consumption lounge licenses, two business types relatively accessible to mom and pop entrepreneurs, since they don’t necessarily demand expensive start-up costs.
• Progressives have criticized Cuomo’s bill for not doing enough to remove criminal penalties for cannabis offenses and in some cases adding new ones. (A similar issue delayed Gov. Phil Murphy of New Jersey from signing a bill to regulate REC in the state. A revised version could reach him as soon as this week.)

UPDATE 2/16/21: In a bid to legalize through the budget process, Cuomo announced three changes to his bill: allowing delivery, reductions in criminal penalties and allocating $100M for social equity.

One less business-friendly aspect of CRTA is its relatively hard-line against vertical integration, an approach favored by some larger companies since it allows them to operate throughout the supply chain. Inspired by New York liquor laws, CRTA would block the practice, with limited exceptions for companies licensed in the state’s existing MED program, which requires participants to be vertically integrated.

Several large multi-state operators hold New York MED licenses and would almost certainly be interested in a vertically integrated REC license, especially since so few would be available. 

Aside from time constraints on the bill, the Governor is under pressure for delayed reporting of Covid-related death data from nursing homes. That unrelated issue appears to have emboldened progressives to push for their objectives, Choi said. 

At a recent press conference, Assembly Majority Leader Stokes called Cuomo’s social equity and tax proposals “all wrong.” “If they’re not fixed, we’ll be here next year doing the same thing,” she said.