On Wednesday, March 31, 2021, Governor Andrew Cuomo signed a sweeping cannabis bill legalizing recreational marijuana for those aged twenty-one and over.  New York previously legalized medical marijuana and certain hemp products, but the new law takes the final step towards full legalization.  With the passage of this law, New York becomes the sixteenth state to decriminalize recreational marijuana.  The law is designed to achieve complementary goals of generating tax revenue and repairing the damage to communities that bore the brunt of marijuana crimes.

The new law accomplishes the following:

  • Legalizes possession of less than 3 ounces of marijuana, and possession of three mature and three immature cannabis plants, for those twenty-one years or older;
  • Expunges the criminal records of those convicted for activities that are no longer a crime under the new law;
  • Provides protection against discrimination for marijuana use in public housing, schools and colleges and the workplace;
  • Creates an avenue for individuals to apply for licenses for cultivation, processing, distribution, and retail dispensing of cannabis; and
  • Creates a Cannabis Control Board (“Board”) which has the power to refuse or issue any registration, license or permit related to cannabis.

Businesses and individuals will need to obtain a license to cultivate, process, distribute, deliver or dispense recreational marijuana.  The law requires a separate license for each facility at which cultivation, processing, distribution or retail dispensing is conducted.  The initial number of available licenses will be limited.  The Board will consider a number of factors when determining whether an applicant is granted an initial adult-use cannabis license, including, but not limited to:

(1) whether the applicant is a social and economic equity applicant;

(2) whether the applicant can comply with state regulations;

(3) whether the applicant possesses or has the right to use sufficient land, buildings and equipment;

(4) whether granting the license is in the public interest;

(5) the number of licenses already granted in the surrounding area; and

(6) the environmental impact of the license.

Once granted, the license will last for two years and may then be renewed.

In order to fulfill the goal of restorative justice, the Board will create a social and economic equity plan to promote diversity in commerce, ownership and employment, and opportunities for social and economic equity in the cannabis industry. The plan will seek to ensure inclusion of individuals disproportionately impacted by the enforcement of laws criminalizing marijuana sale and use, including minority-owned businesses, women-owned businesses, distressed farmers, and service-disabled veterans.  The law also set a goal of allocating half of all licenses to social equity applicants and devoting 40% of revenue to investing in communities affected negatively by the war on drugs.

Legislators anticipate that the law will generate substantial revenue for the State of New York, including $20 million through licensing fees alone in the first year, and up to $360 million annually.

New York has adopted a unique structure to address the taxation of cannabis — it will be based, in part, on THC content.  There will be flat 9% sales and use tax on cannabis whose proceeds will go to the State, and a 4% tax on retail sales whose proceeds will go to localities.  Additionally, the THC content will be taxed at a rate of 0.5 cents per milligram for flower, 0.8 cents per milligram for concentrated cannabis, and 3 cents per milligram for edibles.  This is the first THC content-based tax in the United States.

Cannabis industry stakeholders should bear in mind that it will take some time before legalized recreational marijuana hits the streets.  The Office of Cannabis Management must be created and staffed; the agency must then create rules and await public comment.  Then, the Board must issue licenses and licensees must establish their businesses.

New York has followed the lead of other states in the Northeast, like Massachusetts, in legalizing marijuana for both medical and recreational use.  However, marijuana remains illegal under federal law, and neighboring states, like Connecticut, have not yet legalized recreational marijuana.  This patchwork of inconsistent laws across the country creates a multitude of legal pitfalls for stakeholders.  We will keep a close watch on legal developments in the cannabis industry.