This post was originally published on this site.
Join NY Cannabis Insider at our next industry networking event on Aug. 15 at Madame Mikette’s in NYC. Tickets will sell out.
This guest column is from Paula Collins, EA, Esq., a tax attorney dedicated to the cannabis industry and a co-founder of the NY Consortium of Cannabis Accountants. She can be contacted at paula@paulacollinslaw.com. The views and opinions expressed in this article are those of the author, and do not necessarily reflect the views or positions of NY Cannabis Insider.
Some people associate the number 834 with prosperity and abundance. Others link 834 with love.
In New York Cannabis, the number 834 is just another day since the MRTA was signed into law and we still don’t have a license application.
On July 11, 2023, exactly 832 days after the MRTA was signed into law, members of the New York State cannabis scene feasted their eyes on social media screens to devour the message: “They raided Empire.”
For many people, Empire Cannabis Clubs is “it” – the ultimate inspiration for cries of “They ought to shut those guys down!”
A fine point – who raided Empire? Was it OCM? Was it NYPD? Was it an enormously clever heist of large quantities of weed by potheads?
Whatever. Good luck to the “authorities,” whomever they may be. I didn’t walk by any of Empire’s locations the day after the raid, but I think they were operating, business as usual. Taxes will continue to be computed, collected, and forwarded by Empire Cannabis Clubs to the state by the millions.
Meanwhile, I answered a call from a new prospective client. He just opened. I’m sure he is not alone. I estimated 32,847 unlicensed cannabis businesses in the State of New York a few weeks ago. (Of those, 10,949 are retail shops.) I’m sure the number is larger now. It grows every day, even amidst talk of a so-called “crackdown.”
If I hear another person describe the raids by OCM police as a “crackdown,” I’ll crack up laughing. I don’t think we have even had 50 raids on shops since June. That number pales in comparison to the 10,949 shops throughout the state. Crackdown? Pfft. These are targeted raids from an OCM hit list. This time, they scored a big name, but yielded only mixed results. Better luck next time.
The “T” in the MRTA stands for “Taxation.” The state needs the money. Remember, we have an Office of Cannabis Management, along with its enforcement platoons, to support.
Here is a reminder of the detailed plan I have previously offered for a transition license.
Step one: Allow a 120-day window for unlicensed smoke shop owners to log in, acknowledge their legal name and the address of their shop. Before moving to the next screen, registrants will submit a $25,000 fee to earn the right to engage with state officials in a pathway towards licensure. With this step, any possibility of task force raids against that business will be stopped until the discernment process outlined in the steps below has had a chance to play out.
As the naysayers like to tell me, not all shop owners will jump into the regulated market. My experience is that most unlicensed shop owners will jump at the chance to get licensed. But hear me out – if just 25% of the estimated 10,949 unlicensed retail shops did this first step, their $25,000 fees would add up to $68,431,250 in funds – right away. (10,949 x $25,000 x 25%) Not bad. We can now afford to have an OCM this year.
Step two: After payment of the initial $25,000 application fee, the shop owner will have 90 days to submit the following:
- Certificate of authority to collect sales tax
- Certificate of registration on the cannabis tax site
- Certificate of registration on a newly-created social equity tax site, which will result in an additional 4% tax on top of the 13% cannabis tax. This 4% will be in effect until the business owner is able to convert to a New York State Adult-Use Dispensary license
- Workman’s comp policy
- Proof of registration with a payroll provider
- Letter of intent for services from accounting or tax professional (necessary to ensure accuracy and ethical reporting of taxes)
- Letter of intent for services from legal professional or nonprofit legal services provider (necessary to ensure accuracy and ethical reporting of all activity going forward)
- Evidence of two years of filed personal tax returns
- Evidence of two years of filed business tax returns (or less if the business has not been in operation for two years)
- A labor peace agreement
- A letter of intent from the landlord in support of the license application
- A Standard Operating Procedure (SOP) for cash management
- An SOP for chain of custody and/or testing of THC products
- An SOP for security of inventory
- An SOP for human resources (recruiting, hiring, training, firing, pay scale, benefits, opportunity for advancement)
- A plan for phasing out out-of-state products over the next 90 days
- LOIs from New York farmers and distributors to carry their products
This is a lot of work. Some of our initial shop owners will get discouraged and pack it in. Regulated cannabis is not for whimps.
Step three: The State of New York will then issue a two-year transitional/provisional license to operate a retail dispensary to those business owners who have completed steps one and two.
Step four: The transitional licensee has 90 days after the issue date to present themselves before the community board or municipality. An adjournment of that date is permitted only for reasons of prolonged illness or regional emergency. Any defects discovered by the community board or municipality must be cured or resolved within 90 days after that. If the community board or municipality entirely rejects the location of the shop, the business owner may apply to the Office of Cannabis Management for a variance which will supersede the local zoning restriction. Alternatively, the transitional licensee can apply for a 120-day continuance to find another location and gain approval from a community board or municipality. If you are worried that we are running out of time to get this program done within 365 days from the program inception, then put a hard cap on it, which will encourage early adopters. Otherwise, be prepared for a few stragglers to extend this process for 18 months.
Step five: The transitional licensee will pay an additional $25,000 every quarter for a total of eight quarters over two years. That’s a total of $200,000 for the license.
Step six: After two years of continued compliance with steps one through five, the transitional license will convert to a regular New York State Adult-Use Retail Dispensary license. Again – no easy task. One of the most difficult things about moving from unlicensed to licensed is adjusting one’s expectations for cash flow and learning that a certain amount of a shop’s income goes to taxes.
Here are some things that we, as a state, will accomplish with the transitional license program:
Markets for the farmers: Better act soon here, guys. The farmers really can’t hold on for too much longer without shops in which to sell their goods.
Retail options for the medical patients: You try going through each day with PTSD or excruciating pain, and having to choose between the higher prices in the licensed shops versus the more conveniently located unlicensed shops.
Keeping over 120,000 New Yorkers employed: Each shop has at least three employees. Some shops have 40 employees. Conservatively, the state’s estimated 32,847 unlicensed cannabis businesses employ over 120,000 men and women who support families and pump money back into the economy.
Enforcement: Market the program as a “pay now or pay later” program. For those business owners who do not register to participate in this transitional/provisional license program, a few keyboard taps by a civil service worker in a cubicle in Albany will signal a message to a guy who comes out to the shop to lock it up. This is 2023 – not 1983. We don’t need hordes of armed enforcement agents with their bullet proof vests sent out to conduct regulatory tax inspections.
Instant revenues from the licensing fees: If 25% of the estimated 10,949 unlicensed retail shops pay their first year’s quarterly payments, we will have $273,725,000. Isn’t that so much better than spending $5 million to send in the troops?
Ongoing tax revenues: With an almost-instant infusion of approximately 2,737 transitionally licensed shops, ringing up $20,000 in sales each day, and assessed 13% in cannabis taxes, will infuse $213,486,000 into the state’s tax coffers EACH AND EVERY MONTH. And remember, above I proposed adding a 4% surcharge to their tax regime for the period that they are not fully licensed to add an additional $65,688,000, for a grand total of $279,174,000 in additional tax revenues – earned just by offering a temporary license to just 25% of the existing pot shops.
Can we afford to NOT offer a transitional license? If you scoff at this proposal, I want you to be the one to tell communities that the state is broke and they have to cut back on programs.
I’ll sign off with my usual mantra:
Enforcement does not work.
The Government lost the War on Drugs.