Joey Regs Breaks It Down: Big Takeaways from the Draft Regulations

Q: Now that Regs are out, what’s next? Can we apply now?

A: I love the enthusiasm, but let’s take a beat.  The regs that dropped last week were DRAFT/PROPOSED Regs.  Yes, this is a major step in the right direction, but we are not ready for commerce yet. We are currently one week into a 60-day public comment period.  Once that 60-day period closes, the state will review all comments received (and I expect there to be plenty) and decide how (if at all) they will be amending these proposed regs.  If the changes are significant, there will be an additional 45-day public comment period following a republishing of proposed regs – before any application window can open.  If not, the State could bypass the additional public comment period and move straight through to opening the application window.

As far as a timeline for applying goes, I believe the best-case scenario would be towards the back end of Q1 2023, and the worst case scenario would be towards the back-end of Q2 2023.

Q: What’s it going to cost to apply for these licenses? 

A: While the State filing and license fees are only a small piece of the puzzle, many people have been concerned that the cost might be prohibitive. We have been predicting that it would be on the more reasonable side, and now we have the answers. Every application will carry with it a $1,000.00  non-refundable filing fee. Then, later in the process, fees specific to the license type that you’re applying for will be due. Those fees are as follows:

Nursery Licenses – $750.00 – $2,000.00, depending on class.

Cultivation Licenses – $1,000.00 + $150/500 sq ft of cultivation canopy to $100,000 + $2,000/500 sq ft of cultivation canopy, depending on class and tier.

Processor Licenses – $2,000.00 – $7,000.00, depending on activities requested to be performed

Distribution Licenses – $7,000.00.

Retail Dispensary Licenses – $7,000.00.

Microbusiness Licenses – $4,500.00.

Delivery Licenses – $4,500.00

Q: If I didn’t qualify or apply for the CAURD license, but I generally meet the requirements of a Social Equity applicant, will I have another opportunity?

A: YES.  The CAURD program was tailored to a very specific cross-section of social equity applicants.  Most people were not actually eligible to apply for these licenses.  When the full application window opens next year, the State will not only be accepting more broad social equity applications, but many of them will be given priority.  If your business is minority-owned, female-owned, owned by those who are from a community disproportionately impacted by the enforcement of cannabis prohibition, owned by a distressed farmer, or service-disabled veteran-owned, you may qualify.  As with the CAURD program, however, there are strict requirements, and if you fall short, your application could be disqualified.

Q: Do I need an actual store – can I just operate an e-commerce site? 

A: Yes.  It is an absolute requirement that you have a brick-and-mortar retail storefront.  Now, once you have that retail footprint, however, and regardless of the size of it, you will be allowed to operate a virtual platform for e-commerce sales – both online and via application.  There may be some additional paperwork to do, but it will certainly be allowed.

Q: As a retail dispensary owner, can I deliver or allow for on-site consumption?

A: Short answer, yes.  However, the mechanics are still up in the air.  The full on-site consumption license and delivery license regs have been held back from this latest drop.  I do expect to see them soon, and we will know a lot more when they’re released.  As of now, the proposed regs state simply that any retail dispensary owner will be allowed to employ delivery services and will be authorized to allow for on-site consumption in an adjacent space – they just don’t specify how.  Maybe you will have to apply for all three license types; maybe just the retail dispensary and then file future addendums to allow for delivery and on-site consumption.  Stay tuned.

Q: Can I deliver into a jurisdiction that has opted out of allowing retail cannabis businesses within it?

A:  Absolutely.  Municipalities that opted out of retail cannabis businesses opted out to just that – retail cannabis businesses – not delivery of cannabis goods delivered from a compliant location.  And as a matter of fact, there might be some great opportunities out there for future delivery businesses that look to capitalize on this exact regulation.

Q: Can I utilize vending machines in my store?

A: While the State has proven to be open-minded as it relates to certain gimmicky aspects of operations – like drive-thru windows, this one is a no-go.

Q: Can I have the same General Manager on multiple applications?

A: Not if you are trying to win multiple licenses.  The regs are clear that any “responsible person,” who is charged with overseeing a licensed premise may only oversee ONE premise at a time.  So, if you’re pursuing multiple licenses, I would consider sourcing some additional GM candidates to ensure that you have no issues here.

Q: Is there anything I specifically can’t sell in my dispensary?

A: Yes.  The State broadly allows for cannabis products, merchandise, paraphernalia, etc.  However, you cannot serve non-cannabis food, beverages, any products containing nicotine, or alcohol of any kind.  It is possible that these rules will be relaxed some when the social consumption regs drop, but that might be for that portion of the premise only.

Q: Will distributors extend credit to retailers like they do with alcohol?

A: Distributors will be allowed to extend 30-day credit terms to retailers, but they will not be required to.  I expect this process to work very similarly to the way it does with alcohol.

Q: I thought New York was against vertical integration.  Isn’t a Microbusiness License vertically integrated?

A: Yes, BUT the reason that the State allows it is because the cap on output is restrictive enough that there’s no great threat to parity in the marketplace by allowing it.  The two-tiered system was adopted from alcohol and applied to cannabis in New York specifically to prevent against the larger MSO’s coming to town and boxing out all the smaller, local mom-and-pop entrepreneurs.  Microbusiness licenses are akin to smaller, craft microbreweries, which would not, by way of their cap, allow them to disrupt the market.

Q: Will conditional cultivators be able to eventually transition to become full cultivators?

A: Yes, but they will be limited to either transitioning to a Tier 4 Outdoor License (between 25,000 and 50,000 sq.ft.)  OR a Tier 2 Combo License (between 5,000 – 12,500 sq.ft. of outdoor and between 2,500 – 6,500 sq.ft. of mixed light).  Conditional Cultivators looking to transition will be given some degree of priority from the OCM during their application process.  It’s likely an upgrade worth making for most people, as the conditional cultivation licenses limit you to only 20 lights, max.

Q:  A lot of people are talking about the “10-50-100 rule” as an exception to declaring that someone is a “True Party of Interest” on an application. Can you explain this?

A: The license applications are very clear about all applicants needing to disclose any and all “True Parties of Interest.”  The State needs this information so that they can ascertain an individual’s eligibility to be part of a license application – amongst other reasons.  Some parties may be exempt from this disclosure requirement though, if they are simply vendors, consultants, etc., and have no “control” of the day-to-day operations of the business and no ownership or ownership rights.  These individuals are deemed exempt from disclosure if their compensation rate is less than the greatest of: 1) 10% gross revenues; 2) 50% of net profits; 3) $100,000.00 in the given calendar year.

Before I sign off, I just wanted to offer a huge congratulations to the groups that we worked with and assisted on their CAURD applications.  I won’t single anyone out, but you know who you are and we couldn’t be happier for you.

I hope to see everyone at next week’s webinar.  We are going to explore all of the various ways to get into the New York cannabis market and discuss different strategies for setting up in New York.

Joey Regs Out