Dave: All right. Welcome back everybody to “Between Two Weeds.” Today’s special we’ve got Daniel Weis, one of the partners in Nola Weis LLP, doing business as Vice Legal. He’s going to be talking with me today about New York’s recreational cannabis licensing, what’s going on there, what the newest events are happening. So welcome, Daniel. Thanks for having me.
Daniel: No, thank you. Thank you, Dave.
Dave: All right. So we’re going to start with, for those of you who’ve been living on the moon for the past six months, just this current state of New York’s licensing. So the recreational laws did pass, but we want to understand a little bit more about what that kind of comprises of and what it looks like. So if you want to discuss a little bit about, you know, the agency involved that oversees the licensing, the application process, etc.
Daniel: Absolutely. So New York finally has their recreational bill. Was it SB… No, actually State Bill 854. And Cuomo decided to sign that into law when his 10th accuser actually filed for sexual harassment, and he had no choice at that point. But the actual licensing bill has been on his desk for the last three years, and thank God, you know, they finally signed it into law. As far as what the bill actually says is that the state is going to establish a department known as the Office of Cannabis Management. And right now currently they’re putting the executives, board members in place to go ahead and lay out the entire process for applications and really licensing for the entire state.
Dave: Really quick with Cuomo, I did hear some of the news about his allegations. Is anything going on with that that might have him removed from office that could be detrimental to this law?
Daniel: I mean, he signed it into law. The only thing that could… If there was some sort of referendum where the voters of New York State, you know, got enough people to sign a petition to call back the actual law, that is a potential.
Dave: Okay, but it’s looking pretty solid as far as…
Daniel: Highly unlikely. I mean, New York State is extremely thirsty for cannabis, and the medical program is not that great at satisfying the actual need of the population.
Dave: Sure. Have they released any timelines on potentially when applications might be available, when people can start, you know, getting things together, etc.?
Daniel: So, like, as far as timeline, they don’t really have a timeline. I mean, the timeline for actually signing this into law was six months, and that was three years ago. And so, I mean, if you want to try and wrap your head around that, I mean, my best guess would be if there was a fire under their ass, six months. But if they do what New York does, it’s probably going to be closer to a year. Maybe a year and a half even.
Dave: Potentially after especially New York City’s experience with COVID and the state probably [inaudible 00:03:39] state, in general, looking for, you know, additional tax revenue, maybe that’ll help spur it maybe a little faster, and we don’t have to wait for three years like we did last time.
Daniel: Oh, absolutely. I think a big part of the push of getting this legislation through was generating more tax revenue.
Daniel: The state, you know, their budget is far from balanced, and they’re looking at, kind of, this industry as, sort of, a vehicle to kind of make up the short end of budget.Dave: Sure. You had mentioned the medical program, you know, maybe that’
s insufficient and it just hasn’t been too great. How was the recreational going to be different or, you know, deviate from the medical program? Are they going to continue with the medical or get rid of it?
Daniel: Well, I mean, the medical program, it’s… And they mentioned it in the bill. They, kind of, revisit what the medical program entails, but what it actually is is it’s really 10 operators licensed by the state, and 9 of those 10 operators are publicly traded companies, and they all hate each other. And, you know, it’s vastly different from the California market that we’re used to, which is, you know, we grew out of a, sort of, collective mindset.
And when I sat down with Cuomo’s chief of staff who was actually helping draft this legislation two years ago, you know, they were looking at doing something very similar to the medical program except just taxing the shit out of it. And, I mean, we’re spoiled being out here in California, and I was just like, “It’s not going to create a healthy industry.” I mean, they were looking at China do 500 licenses in the entire state and, you know, I mentioned to them that, you know, we have 3,000 licenses in the city of LA alone. And how can we take a population that’s four times that of the city of LA and do one quarter the amount of licensing? And none of it made sense. I think the latest draft that just got signed into law was so far removed from what the initial draft regs were. It looks a lot like California.
Dave: That’s great.
Tom: Yeah. So hopefully, you know, it looks like they’re taking steps to…and they’ve done their research on, you know, the recreational markets that have been, sort of, developing in the other states-Colorado, Washington, Oregon, California. Like, what works? What doesn’t? And it seems like they paid attention because honestly, the new legislation that New York just signed into law looks very similar to California with the exception that instead of a three-tier, sort of, industry, it’s a two-tier industry. And they did that mainly for tax purposes.
Dave: Okay. Well, I think that’s good to know for everyone that’s interested in New York because being, you know, kind of the home of the stock market, etc. in the medical, having 9 out of 10 being publicly traded, the big boys are going to sue up all the licenses again.
Daniel: Oh, yeah. I mean, that’s always going to be the case, right?
Dave: Sure. As long as there’s a little meat left over for some of the small people, I think everyone will be pleased, especially hearing that it would seem the law mimics more of California’s, which those that are here in the West Coast, you know, have an understanding of how that works. So a familiar territory.
Daniel: Yeah, absolutely. I mean, they have pretty much everything that California has with the exception of an event organizer license. So they have all the retail licensing. They have dispensaries. They have on-site consumption lounges as an option.
Dave: Oh, wow. Okay.
Daniel: Their delivery. And then on the manufacturing level, they have processing, and then they also have what’s similar to a California Type-N license, which is… They call it, like, a cooperative distribution license. So a company can basically set up a licensed facility and have equipment that other licensed operators don’t have, and they can essentially white-label or allow them to process under their license.
Dave: Okay, it’s like a shared use kind of thing.
Daniel: Shared use, exactly. Very similar to the Type-N in Cali. They actually call it a microbusiness license. Exactly like California, it’s essentially a craft license like you have a brewery or a winery where you…
Dave: Like a square-footage maximum.
Daniel: …cultivate, you process, you can deliver, you can actually have a tasting room or, you know, smoking or whatever, you know?
Dave: Oh, that’s really cool.
Daniel: Yeah, very similar to a winery or a brewery.
Daniel: And they’re offering that just to kind of, I think, protect the smaller mom and pop shops that are just going to be… You know, they love growing weed and they love the industry. They’re not looking to necessarily go public and, you know, go that whole route.
Dave: That’s definitely the trend, too. I mean, I think a lot of consumers, they like that more localized, kind of, craft product rather than massive, I guess, so to speak, Budweiser. Mass-produced stuff. So that’s good to know.
Daniel: Well, the advantage of that license type is it’s fully integrated. So you’re not getting taxed at every level, and you’re able to actually, like, bring your product to market at a much lower price.
Dave: So let’s talk about the taxes. Do you know any information about the different tax rates on the different uses?
Daniel: Yeah, I mean, I can break that all down. New York did it different than California, and they decided to tax it based on THC percentage. So depending on like if it’s a concentrate or a flower or…
Dave: That’s similar to the alcohol industry.
Daniel: Very similar to alcohol. So you have some honey oil, and, you know, people are using that concentrate. If it’s coming in and testing at like a 40% THC percentage, they’re paying taxes on every single amount of THC.
Dave: It’s the quantity of THC.
Dave: So I’m going to [crosstalk 00:10:40]
Daniel: [crosstalk 00:10:40].
Daniel: …create tiers then because, for instance, now, like, with wine, there’s a reason why most wines are 13.9% ABV because when they hit the 14%, it puts you in the next tax bracket of alcohol. So that’s cool. That’s interesting because that’s… I think taxes here in California have been one of the more difficult areas to really hone in on for the governments to get synergy going. As you know, the different cities have been changing their tax rates to be competitive with each other and it’s all over the place. There’s not a standardized system from the top level of state. Well, there is but the cities can still tax on their own and that’s where the difficulty lies.
Daniel: Yeah. And another thing, I mean, they’re bringing THC and CBD both under the same umbrella. And, I mean, I’ve always thought of, you know, the hemp industry and the cannabis industry as, you know, sister industries because, like, some people are…you know, they’re doing CBD ointments or CBD products. Some people are doing THC products, and most companies, like, what they realize is they need to be in both size of that market. But New York’s considering it holistically.
Dave: One type.
Daniel: Yeah. And so that was smart because, I mean, really it’s the same plant, you know, and just different strains, different genders, and that’s really the only difference between the products that are coming out of those.
Dave: Sure, again, that’s the struggle I think that the West Coast and California has been having with CBD is that cannabinoids, you know, from hemp to cannabis plant, they exist…same compound structure and how do you tell the difference. And just, I think, it’s kind of creating more of a mess than it is good.
Daniel: Yeah, yeah. I mean, the thing is, I mean, California was one of the pioneers. It was, you know, the first medical industry. And, you know, it’s been established for three decades. And, you know, stuff is slow to change. I mean, the alcohol industry probably took 60 years to get to where it’s at right now.
Dave: Standardized systems so to speak.
Daniel: Right, right. So, I mean, we’ve still got another 30 years to figure everything out, but I mean it seems like New York’s been proactive in that regard. I’m just interested to see how many licenses that they actually…
Dave: Authorize in total.
Daniel: Right, right, in total. Yeah, because, you know, I told them… You know, they said 500 two years ago, and I told them it’s less than 1,000.
Dave: Yeah, it’s too much.
Daniel: They’re setting themselves up for failure.
Dave: Do you know if it would be, like, maybe, let’s say, 500 or 1,000 in that first round and there’s a second round or that was total for everything?
Daniel: I mean, I’m sure they’re going to revise, you know, whatever their initial… Similar to Illinois. Illinois came with 75 retail out of the gate, and then immediately they doubled that number.
Dave: Speaking of Illinois and California, in restricted amounts of licenses, I noticed that…it looks like New York may have some social equity aspects to the new law. There’s differing opinions when you have a limited amount of licenses and it seems like social equity hits the priority, they often, such as in Illinois, end up winning every single license, leaving no room for those that are not social equity. What are your thoughts on that?
Daniel: So, like, I’m just kind of going to lay out what social equity is for anybody who doesn’t know what that is. Social equity essentially is… It’s a program which is affording, sort of, reparations to communities that were disparately impacted by the war on drugs. So people who, say, have a marijuana possession offence back in the ’80s, ’90s, even as early as 2 years ago where it was illegal then. And the community was impacted. Now they’re given priority in the licensing process.
And that’s huge. A lot of people don’t even realize what it is. They don’t realize what benefit that can come of that, but New York’s bill, I would say, 50% of the licenses that are issues are going to be…
Dave: Social equity.
Daniel: …to social equity, tier one, tier two. I don’t know how they’re going to be ranking those applicants, but generally, if you have a marijuana possession offence or you are from a community that was severely impacted by the war on drugs, they break it down by a number of marijuana-related arrests…
Dave: So you have more arrests.
Daniel: …within specific districts of New York. So I don’t want to…
Daniel: Yeah, exactly. But, I mean, if you’re in Queens or East Harlem…
Dave: Probably more there.
Daniel: …you probably have a better chance of getting a license than somebody who’s from East Hampton.
Dave: Sure. Well, when it comes to… Like, LA, I know they did a certain amount dedicated to social equity, a certain amount dedicated to [inaudible 00:16:01] which was nice. Everybody knew there’d be some left over. Whereas, Illinois did not do that. It was swallowed up by social equity so far as we know. So that’s good to know that, if they do put a cap, it’s called 50%. If there’s room for those that may or not qualify as well, I think that really levels the playing field.
Daniel: Yeah, and it just becomes a numbers game at that point. And your chances of getting a license just are astronomically higher if you are a social equity applicant.
Dave: So we know that that’s going to be part of the process. What else is part of the application process? I mean, is there real estate aspects that we should know about? Other minority aspects?
Daniel: Absolutely. Yeah, so they haven’t laid out the application process but, I mean, judging from the way the legislation looks and the bill, it’s probably going to be very similar to what we’ve seen before in California and Illinois where… Obviously, you have to have a piece of real estate, either you’re leasing it or you own the property. And usually, if you use a general buffer zone sort of scenario, hopefully, it’s over 1,000 feet from a K-8 school or a public library, at least 600 feet from a park or… I don’t think they’re going to go full. Some states have a buffer zone requirement for churches, but, I mean, if that were the case, I mean, the entire city of New York would be probably exed out of zoning. So I doubt that that’s going to be in there.
But, yeah, you need real estate first and foremost. Obviously, you have to have a company or an individual that you’re going to be applying for the license under. So you can apply as an individual, but the thing about it is, if you have a company established, an LLC or corporation, it’s going to allow that to continue because, if that individual passes away or something happens, then the license is going to be subject to recall.
So, yeah, you have to have a company. You have to have all of that corporate operating room bylaws, all of that plate in place, and they’re going to do a background check on you. Usually, it’s a life scan that’s subject to FBI and DOJ. And beyond that, I mean, seller’s permits, EIN. And they just want to know that you have everything in place to run a business and that they can tax you on it. That’s what it comes down to.
And so running through all of that, sometimes getting a property, just that in and of itself can be a nine-month process. And the corporate and the business stuff, you can knock that out in a couple weeks. But the actual application is going to require standard operating procedures for the actual business which includes security plans, everything down to how your employees are clocking in, handling the actual material, what’s happening to the hazardous waste that’s produced if there is any. If it’s a cultivation operation, you’re going to have to probably be dealing with the… What’s it called? The water…
Dave: Oh, yes, water quality act stuff, CEQA, etc.
Daniel: Exactly, exactly, and making sure that, you know, you’re not growing stuff and you’re not putting pesticides that’s seeping down in the soil. But, yeah, that’s just another part of the process. And because it’s a top-down licensing jurisdiction… Top-down, what I mean is you get license at the state level and then you go ahead and take that license approval to whatever locality that you’re going to be…
Dave: Okay, so it’s in the reverse of California then.
Daniel: Yeah, California, you get your local authorization and license first and then the state will just sign off on it…
Dave: [crosstalk 00:20:29].
Daniel: …to make sure that all of your shit’s there. But New York is the exact opposite. You get a license at the state level and then you go find a city to put your license in. They may require you to do those things in tandem, but again it’s the state authority that really calls the shots. The local authority is just going to give you some sort of like letter that permits you to actually operate in that location. And so there’s probably going to be a CUP process as part of your build-out. When you get your license approved, then you build out your operation. And then, you know, that can take anywhere from nine months to a year. And then you get operational. So for somebody who’s looking to get licensed in the next two years, they need to start now.
Dave: You had mentioned some of the difficulties of obtaining a real estate. I think we know in California it’s because the zoning restrictions and buffer zones can be so heavy. Finding the right property is difficult. What are some of the zoning, I guess, codes that people should be looking out for? Is it all industrial or do they allow retail zone, etc.?
Daniel: Yeah. That’s really going to come down to the specific jurisdiction that you’re in. So Albany is going to have different requirements. They can curtail the state sort of requirements. So, if the state requires you to be 1,000 feet from a K-8 school, Albany can say, “Oh, wait, we want it to be 800 feet from a K-8 school.” So, like, they can tailor that down. So it’s just really going to depend on what state or county that you’re going to be establishing your cannabis business in.
Dave: Sure. Okay. So I guess in summation, what’s the big picture or takeaway? What should people really be focusing on right now?
Daniel: So, like, right now, it’s legal to possess cannabis if you’re 21 or older but now they haven’t laid out the entire application process. But that being said, right now, like, everyone’s waiting for that. Everyone’s waiting for them to establish the Office of Cannabis Management to have them write regulations for all of these use types and that’s what they’re waiting for in order to go ahead and start the process of finding a property and start talking to the local jurisdictions that they’re trying to get licensed in.
Dave: I think the advice maybe is just to pay attention to the developing aspects of the law from the OCM being created, etc. That’s really what people should be… Just watching the news so to speak or trying to be…
Daniel: I mean, I think they should start right now if they’re not looking at properties and they’re not trying to figure out what cities are going to be okay with cannabis, because some cities can opt out but they’re not going to be able to take any of that tax revenue. If you’re in generally a city that has a fairly diverse urban population, White Plains, Albany, Rochester, Syracuse, Buffalo, you know that they’re going to be licensing for cannabis. So you need to start [inaudible 00:23:53] now because it’s only going to save you money. Because once they release those departmental regulations, everybody’s just going to be, “Okay, now we have our plan that the state is saying this is what we’re doing,” but now you’re staring at the competition right across the table and now you’re going to be double, triple the rent or…
Dave: Sure, you’re way too long.
Daniel: …even purchasing. If you’re trying to buy a property that’s compliant in Albany, it might be $1 million today, it will be $2 million in 3 months.
Dave: So you were talking about the opt-in, opt-out with the local jurisdictions. Is that going to be a part of the development with OCM or when would we know what cities are in and what cities are out?
Daniel: Some of them have already opted out.
Dave: Oh, they have? Okay, so some of that information exists already.
Daniel: Yeah, yeah. So just looking at your city or your county, if it’s unincorporated and finding out what the stance is on cannabis, if it looks like most of them are looking for that tax revenue, then you can basically bet that you can start looking for property now.
Dave: So over the next six months, you’d say that’s probably what people should be focused on is the real estate, what local jurisdictions might be opting in and be ideal for whatever, you know, their needs are.
Daniel: Yeah, I mean, real estate matters if you have retail use or you’re a distributor and you want a hub in a certain area, if you’re a cultivator or you’re a manufacturer, it really doesn’t matter where you’re producing. You can be in the middle of nowhere and you can…
Dave: Your market’s basically the whole state, right?
Daniel: Yeah, yeah. You can have that shut out to the whole state in four hours. It’s not a huge state, but it’s a very popular state. And so that’s the opportunity.
Dave: Well, thank you so much, Danny. We appreciate you on Between Two Weeds today. So everybody in New York, keep an eye out. It looks like it’s 6 months, 12 months sometime soon. So we’ll know more shortly. Stay tuned. Thank you very much.
Daniel: Thanks, David.