We Have A Solution

Thank you to all who posted information about recent enforcement activity surrounding the smoke shops and convenience stores in New York.

In the past 6-8 weeks we have heard regulators and elected officials distinguish between business owners who are so-called "legacy" operators (note -- they used to be maligned as drug dealers; now the state wants to be cozy with them) and brick-and-mortar shops (they are now spoken of with scorn, and labeled "illicit" operators).

If you want a strict reading of MRTA, the brick-and-mortar shops that operate under a club membership or gifting protocol are legal and the so-called legacy operators are illegal. If you want an interpretation from most industry professionals, all exchanges of marijuana for some form of consideration are currently illegal in New York, except for transactions that occur in the medical dispensaries. And if you ask the average citizen and most non-cannabis attorneys, "It's all legal now, isn't it?"

It isn't all legal now. But it IS confusing now.

This is your weekly reminder from me that we have a solution. This is a slight re-work of an article I wrote earlier in December. I beg your indulgence as I once again sketch through the framework that could solve the problem of the unlicensed shops.

I propose that we license all business owners who are actively participating in the sale of THC and derivative products.

Allow a nominal period (say, 60 days) during which existing legacy business and brick-and-mortar shop owners show evidence that they have 1) a means of testing the products they sell; 2) a Certificate of Authority to Collect Sales Tax (or for growers, evidence of registration to pay cannabis cultivator taxes); 3) a means of keeping product and on- premises cash secure through cameras and lock boxes; 4) Standard Operating Procedures for verifying age of consumers; 5) a Labor Peace Agreement; 6) evidence of workman’s comp insurance and payroll tax reporting and payment; 7) for dispensaries and delivery operators, a relationship for obtaining product from a licensed New York State cultivator demonstrated by a Letter of Intent; 8) clear title and insurance for delivery vehicles; 9) an affidavit of commitment to minimum price points (to address complaints that one Brooklyn shop offered free weed for 90 days, which resulted in a turf war among neighborhood dealers).

As I have suggested previously, this nominal 60 day period will end with a hard close, and with no extensions. After that date, landlords take responsibility for leases to unlicensed shops, and business owners face immediate lock out by County Sheriff’s Marshalls. After the 60 day nominal period has concluded, plant-touching activity by unlicensed vendors, delivery, storefront, cultivation, manufacturing, or processing will be subject to charges under NY Cannabis Law.

For those who step forward during the 60 day nominal period, and after proof of compliance with each of Item 1-9 above has been shown by business owners with a business that existed before the commencement of the 60-day nominal period, offer a Transitional License for one activity, such as for retail dispensary, cultivation, or manufacturing/processing. An individual can only obtain one Transitional License. A business affiliate or related partner can obtain a Transitional License in another plant-touching activity.?This is different from the regular licenses proposed by New York regulators, in which a dispensary license permits delivery activity and eventually an adjoining space for on-sight consumption. So, there is a penalty that goes with the Transitional License, which is designed to quell the outcries from those who are upset that these businesses skipped the line.

No Transitional License will be issued for a business that commenced operations after the first date of the application period for the Transitional License. No new location for an existing enterprise will receive a license if the new location was secured after the first date of the application period for the Transitional License.?

Within six months (180 days), and after demonstrating compliance with each of Items 1-9 above, and on condition of no incident or infraction with any other regulation or law (such as unlicensed sale of cigarettes, unlicensed sale of alcohol, sale to minors, incidents of violence on premises, default on payments to farmers or producers, arrearage on sales tax, arrearage on payment of payroll tax), issue a Conditional License, good for as long as one year.?

No Transitional License will be valid after 180 days of its issue. A business that fails to qualify for a Conditional License will be forced to vacate its premises and cease operations. County Sheriff’s Marshalls will be empowered to lock premises, or in the case of shops in New York City, NYPD could have such power.

During the one year Conditional License business owners who formerly held the Transitional License must pass scrutiny with municipalities and Community Boards. If a business owner fails to gain approval from the municipality or Community Board, business owners may have 90 days to cure the deficiencies and reapply, or to find a new location, also subject to municipality or community board approval. The reason for this is to cure any defects in distance from schools, churches, parks, and other similar businesses. It's also to give Community Boards a voice, which is a big sticking point in the camp that opposes the unlicensed smoke shops.

Upon approval by the municipality or Community Board, business owners who had operated under a Conditional License may receive a New York State Cannabis License good for two years, renewable upon evidence of continued compliance with all taxes including personal and business taxes and payment of two years of fees. The restriction to remain under one license would remain for the first two years, and then it would be lifted for all renewals thereafter.

The over-arching path forward that I propose is not a permanent free-for-all. Time is of the essence. Deadlines are not subject to negotiation or extension. In no case can an individual or business operate under a Transitional or Conditional License offered in this pathway after July 1, 2024.?

This is not a perfect plan. Someone will cry foul. But this is a path forward. Here’s why we need it:

Our nascent NY Cannabis market is in the equivalent of neonatal ICU. We are at a fork in the road. We risk losing an entire industry before it has actually been fully implemented.?

The NY farmers, manufacturers, and processors will be the first to drop out of the cannabis industry if we cannot offer them a marketplace for their goods. This plan for a Transitional and Conditional license for the legacy and unlicensed businesses does just that. If we cannot offer some means for the cultivators, manufacturers, and processors to have a means of recouping their investment in this year’s crop, and do it very soon, we will have fewer producers of state-grown product for next year.?

Our commitment under MRTA to prioritize social and economic equity is hot air if we continue enforcement actions when we have gone almost two years without an open license application for the vast majority of market hopefuls.?

(Note: The common pushback that I hear to my proposal for this path forward is something along the lines of “But we are REAL legacy! Weed is our culture!”?

To the legacy operators I say this: many of the shop owners also had grandmothers who processed marijuana in their basements and kitchens. And don't get me started about the racist slander on the streets regarding the Yemen shop owners. They are NYers, too. Weed is not restricted to the culture of people of Carribean, African, or Latin-x origins.?

But I digress.)

For those who shout, “Those shops should be closed!”, I say this: we can't end the war on drugs if we engage in a war on unlicensed smoke shops. Our policy of no new marijuana arrests will be hypocritical if we march the largely black, brown, and immigrant employees out of the smoke shops and parks in handcuffs.?

And if you simply seize the product and lock up the stores, what do you say to the thousands of employees who will suddenly find themselves unemployed? At a minimum, we are talking about 30,000 shop clerks who would be unemployed if the smoke shops closed.

What do you say to the already-beleaguered landlords whose tenants will walk away from their leases? (There don't seem to be very many other kinds of businesses paying broker’s fees, putting down deposits and paying rent.)?

And what do you say when the impact of city budget deficits hits in July, 2023, and we passed the chance to reign in literally tens of thousands of dollars in sales tax from each and every smoke shop you see around the state. (Example: a teeny, tiny 300 square foot shop I am aware of, on a not-so-busy street at a location in New York City that I will not disclose, is reaping net profits of $60,000-$70,000 a month, every single month. And they check IDs for the kiddos. Adults are buying this weed, and lots of it. We should be getting the sales tax revenues, which would be 4% to the city and 9% to the state, or $2,400-$2,800 each month to the city, and $5,400-$6,300 to the state. Multiply that times a conservative figure of 2,000 shops throughout the state, and you have annual sales tax revenues of $57,600,000-$67,200,000 to the city and $129,600,000-$151,200,000 to the state.)

Please don’t tell me next year that the city or state government is broke if we squander this opportunity.??

For every shop owner maligned as a greedy opportunist, I can show you a savvy entrepreneur who thought they were demonstrating focus, drive, and the ability to cope with the rigors of cannabis business ownership. If you don't believe me, pound the pavement, saddle up to the countertops, and strike up a conversation with a business owner. These are not thugs. These are business owners with employees, leases, and regular everyday concerns.

Another reason to offer the Transitional-to-Conditional Adult Use Retail Dispensary license is to address the state’s role in getting us to the place where we have a rip-roaring unlicensed market that is destined to squash the up-and-coming licensed market. Here’s how the state played a hand in cultivating this problem: the state’s Cannabis Conversations normalized the question of “Where can I get weed in New York?” Even non cannabis attorneys could be heard to remark, “Isn’t it legal now in New York?”? This mixed signal of legal-to-smoke-but-not-legal-to-buy-or-sell resulted in heightened consumer demand in the then-existing smoke shops. NYers being NYers, shop owners met consumer demand with product availability and trusted the state’s messaging which was along the lines of, “NY seeks to embrace the grey market.” Thus, the smoke shops and solo vendors in the parks blossomed.?

I will borrow an argument that the classic legacy drug dealers have used for decades: they exist because the market demand supports them. The shops and solo vendors would not be there, nor would they continue to open new locations at alarming rates if there weren't the steady stream of customers to buy from them. The profit margins in these shops could make any student of business sit up and take notice.?

We have it within our power to save the farmers, manufacturers, and processors; we can hold out a time-limited pathway to legitimate business ownership; we can avoid the horrifying trauma of enforcement raids; we can leave black, brown, and immigrant employees in their jobs; we can keep landlords supplied with paying tenants; and we can offer municipalities and community boards a chance to weigh in on what's going on in their neighborhoods.?Its a "win" on so many fronts.

New York Cannabis Control Board Chair Tremaine Wright said it best, in an interview: “This is just the start, we will continue to work to build an industry that is open to anyone who wants to participate."

What say you, New York?