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In the three years since then-Governor Andrew Cuomo signed into law the statute that legalized adult-use marijuana in New York, the statewide industry has been a basket case of ups and downs, hope and disappointment.
This past year may have been among the most tumultuous for the statewide legal weed market. Stakeholders spent much of it hand-wringing about regulations, difficulty in the licensing process and lawsuits that led to court orders preventing stores from opening. Meanwhile, we saw high-profile exits from the Cannabis Control Board and Office of Cannabis Management, and questions as to how effective their oversight has been.
On the other hand, regulators in the past year finalized and ratified a full slate of regulations for New York’s legal cannabis market, launched the state’s first general licensing application process and approved the state’s first general licenses – including to the first microbusiness applicants.
We’ve seen a lot of progress since last year, alongside many new and continuing problems with New York’s legal cannabis rollout. Let’s take a look at what happened in the state’s third post-legalization year.
Kicking off year three
In early April of last year, the OCM followed the two-year anniversary of the MRTA’s passage with an inauspicious start to year three, when Chief Equity Officer Damian Fagon failed to meet a deadline to produce a social and economic equity plan.
The MRTA mandated that the report be completed and presented by Jan. 1, 2023. When that deadline was missed, an OCM spokesperson told NY Cannabis Insider that the agency expected to release the report “in the first quarter of 2023.”
Fagon presented the equity plan to the CCB about a month later, but board members weren’t impressed. The document – more than 70 pages – didn’t make policy prescriptions, but rather outlined the need for social equity in New York’s cannabis industry, and highlighted existing resources for social equity cannabis entrepreneurs.
Then-CCB member Reuben McDaniel – who, at the time, was also CEO of DASNY – told Fagon he was “disappointed” in the long-awaited plan and expected a roadmap with specific deadlines and proposals for funding.
But McDaniel became embroiled in his own controversies. In May, the Cannabis Association of New York took aim at him because of his position as both a member of the CCB and president of DASNY. The group sent a letter describing McDaniel’s dual role as a “conflict of interest” to stakeholders ranging from CCB members to Gov. Kathy Hochul.
CANY members wrote in the letter that it’s problematic “for the Executive Director of DASNY to hold a seat on the Cannabis Control Board given the direct business involvement of DASNY with the CAURD program.”
At the same time, CAURD licensees and their attorneys expressed concern that these business owners were having to compete against DASNY for real estate. Attorneys for CAURD licensees described an emerging dynamic in which small business owners were being pitted against DASNY – a huge government institution that issued more than $10.6 billion in bonds in the 2021 fiscal year.
Amid escalating criticism, McDaniel resigned from the CCB in June without mentioning his reason for leaving.
Meanwhile, worries about predatory financing deals – which have long been a concern among cannabis stakeholders – became an increasing issue. In an adult-use market which at the time only included small businesses, predatory investment offers seemed to be increasingly common, with licensees receiving exploitative offers, such as a $1 million investment in exchange for 49% equity in the company.
Many politicians – both supporters and opponents of legal cannabis – have spoken out about New York’s rollout, but few have been so inconsistent in their opinions as New York City Mayor Eric Adams. Last April, NY Cannabis Insider compiled a timeline of Adams’ shift from embracing to cracking down on illicit weed shops.
Zoning and showcases
As an increasing number of prospective retailers sought out real estate for their stores, zoning became an ever-present problem. Under the MRTA, cities and towns in New York had until Dec. 31, 2021, to opt out of allowing adult-use cannabis dispensaries within their borders.
But dispensary owners told NY Cannabis Insider that some cities and towns may allow weed businesses on paper, but are creating zoning standards that make it nearly impossible for dispensaries to open within their borders.
Zoning issues have gone largely unresolved. Earlier this year licensed operators threatened lawsuits against the town of Brookhaven because of its highly restrictive zoning laws pertaining to weed stores.
And those anti-cannabis attitudes aren’t restricted to Long Island or small towns upstate. When Osbert Orduña, CEO of The Cannabis Place, addressed members of a Queens community board in June, board Chair Vincent Arcuri Jr. began heckling him less than 20 minutes into his presentation. Things went further downhill when members of the audience began commenting.
In a bright spot for licensed growers in New York, the OCM and CCB introduced the concept of Cannabis Growers Showcase events, which would allow cultivators and processors to partner with CAURD licensees, and sell products in a non-dispensary setting.
State legislators also helped out growers when they extended a rule allowing conditional cannabis growers and processors to distribute their products, avoiding a potential logjam in the state’s marijuana supply chain. The legislation gave AUCC and AUCP licensees permission to continue distributing to dispensaries until June 1, 2024. The law also extended AUCC’s ability to do limited processing until the same date.
However, some small cannabis farmers began worrying in June that they’d soon have to start competing for shelf space with the large multistate companies on New York’s medical market that transition to adult-use. Growers had been under the impression that small farmers’ businesses would have a significant head-start ahead of these medical operators.
$200 million and Chicago Atlantic
In June, Gov. Hochul’s office announced that the $200 million fund meant to provide resources for CAURD operators was fully banked after asset management firm Chicago Atlantic invested $150 million. Details of the fund, its managers and progress in raising private capital had raised eyebrows among cannabis industry stakeholders in New York over the prior year.
But with the social equity fund fully financed, DASNY announced plans on completing buildouts and redesigns for storefronts for CAURD licensees as part of a loan program.
However, by late 2023, CAURD licensees were taking issue with allegedly predatory practices involving Chicago Atlantic, including the company’s speaking to licensees without the presence of counsel and engaging in high-pressure tactics.
As regulators said little about Chicago Atlantic’s allegedly problematic behavior, they also seemed to take a pretty lenient approach to applying financing rules to the asset management firm, when it comes to regulations limiting the number of businesses in which a financier can be a “true party of interest.”
In June, NY Cannabis Insider published a list of questions DASNY has declined to answer about its role in New York’s cannabis industry. Unanswered questions included queries about the number of cannabis-focused staffers DASNY employs, a rough estimate of the agency’s cannabis-related budget, and other matters where taxpayers generally expect transparency.
Elsewhere, the New York City Economic Development Corporation launched a loan fund – to which it will contribute $8 million – for licensed cannabis businesses in the city. The Cannabis NYC Loan Fund, they said, will provide flexible capital at below-market rates to NYC-based early-stage cannabis businesses that are owned by social and economic equity applicants.
Injunctions, expansions and emergency regulations
Lawsuits and court injunctions have been a more-or-less constant factor in New York’s legal cannabis rollout, but many licensees and regulators were relieved in late May, when the state settled a lawsuit with Michigan-based plaintiff Variscite NY One, Inc., which sued the state in 2022 after OCM denied the company a Conditional Adult-Use Retail Dispensary license.
The settlement allowed regulators to begin issuing CAURD licenses to applicants in the Finger Lakes region – which the Variscite case had prevented. However, the deal also promised a license to plaintiffs, and some observers worried that the action could encourage more lawsuits.
Less than two months after the Variscite settlement, the CCB approved a huge expansion of the CAURD program. The program initially had a maximum 150 available licenses (with an additional 25 allocated for nonprofits), but that number grew to 463 after the expansion.
Regulators and some operators presented the move as advantageous to entrepreneurs seeking retail licenses, but it became a key factor in a lawsuit filed the following month, which would bring the entire statewide retail rollout to a screeching halt.
In August, a New York State Supreme Court judge temporarily barred state regulators from issuing conditional cannabis retail licenses and said the state may not approve any licensed dispensaries that aren’t currently operational to open. Judge Kevin Bryant issued the injunction as part of a civil suit filed by service-disabled veterans who intended to apply for dispensary licenses.
CAURD licensees and applicants fretted that the injunction could lead them to bankruptcy. Many of them were already paying rent on spaces, had spent money building out their stores and had to maintain payroll for employees they had hired.
Bryant, who expressed concern and sympathy for the financial plight these business owners faced, later upheld the injunction, which would keep most new CAURDs from opening for nearly four months.
Regulators settled the suit in early December. The settlement included a requirement for the CCB to provide retail licenses to the four service-disabled veterans who filed the suit. It also lifted the CAURD injunction, and required the OCM to:
- Establish a taskforce for businesses owned by service-disabled veterans, and commit at least one OCM full-time employee to specialize in business development for those veterans.
- Create an educational campaign for service-disabled veterans who are interested in getting into the adult-use or medical markets.
- Develop a program to expand cannabis research into factors related to veterans’ health.
- Provide monthly updates to the plaintiffs on the progress of these efforts until they have been officially launched.
In an exclusive interview with NY Cannabis Insider following the settlement, plaintiff Carmine Fiore noted that regulators’ decision to expand the CAURD program – for which he and other disabled veterans did not qualify – was a major reason that he and co-plaintiffs sued.
About a month after the Fiore settlement, New York regulators became defendants in a new lawsuit by a familiar plaintiff: Variscite. Several weed industry attorneys told NY Cannabis Insider that they were nervous, but less alarmed about this lawsuit than previous court cases. To date, no injunction has been filed in that case.
A move by regulators to close loopholes surrounding hemp-derived THC products led to yet another lawsuit that resulted in a court injunction – although this one turned out to be a pyrrhic victory for plaintiffs.
Four hemp companies sued state officials after the CCB passed emergency regulations that capped the THC content allowable in legal cannabinoid hemp products to a 15-1 ratio of CBD to THC, and a limit of 1 mg of THC per serving. The judge in that case issued an injunction preventing regulators from enforcing the emergency regulations, but days later the CCB adopted the rules as permanent regulations.
Last month, several of the same hemp companies sued New York regulators in federal court, challenging the state’s cannabinoid hemp regulations. The judge in that case dismissed the lawsuit – on procedural grounds – but plaintiffs have since refiled it.
Mental health, mentorship and a marathon Senate hearing
In July, NY Cannabis Insider profiled Marv Morales, owner of Mount Morris-based licensed cultivation company Morales Natural Farms. Morales served as an example of the headwinds growers were experiencing at the time.
Morales is one of 280 hemp growers that the OCM and CCB licensed to grow the state’s inaugural legal marijuana crop. A mixture of regulatory hurdles, limits on grow operations and delayed announcements from government officials left Morales and partners wondering if independent farmers like him will be able to survive.
Many New York cannabis licensees, especially in late 2023, reported sharp declines in their mental health. So, NY Cannabis Insider did a survey to find out how widespread business-related mental health concerns were in the statewide industry, and the results weren’t very encouraging.
When asked to rate their mental health on a scale from 1 to 10 (1 being poor, 10 being excellent), about 43% of 69 respondents to the survey ranked their mental health in 2022 between 1 and 5. When the same respondents were asked to rank their mental health in 2023 on a scale of 1 to 10, that percentage grew to 61%.
Additionally, legacy operators who enrolled in the state’s Cannabis Compliance Training & Mentorship Program began questioning its efficacy last summer. A few months after the first cohort completed the 10-week curriculum, some graduates said that the lack of clarity around whether completing the program would make them any more likely to get a license put its value into question.
Meanwhile, weed industry stakeholders told NY Cannabis Insider that the cascading problems with the state’s rollout had created space – and in many cases necessity – for illegal activity that could largely undermine state efforts to create a regulated industry, as the cannabis community’s faith in the OCM shrank.
In September, the head of New York’s Cannabis Advisory Board said the group needs a staff and budget to function properly, and noted the board hasn’t been as involved with the state’s legal weed rollout as the cannabis law prescribes.
After the U.S. Department of Health and Human Services in September recommended that cannabis be moved from the Drug Enforcement Agency’s Schedule I to Schedule III, NY Cannabis Insider spoke to a few New York lawyers about how the move would affect the Empire State’s legal market.
In late-October, state senators held a marathon hearing focused on problems with New York’s legal cannabis rollout. The bipartisan hearing included Senators Jeremy Cooney, Liz Krueger, Michelle Hinchey, James Skoufis, George Borrello, Pamela Helming, Nathalia Fernandez, and five others. It came amid cascading problems in the state’s legal cannabis industry – which had left hundreds of farmers with two harvests’ worth of cannabis but few retail outlets to which they could sell their products, and hundreds of retail licensees unable to open their doors due to a court injunction stemming from a predictable lawsuit.
After the hearing, members of the state Senate Subcommittee on Cannabis told NY Cannabis Insider that they were taking a fresh look at enforcement, New York’s cannabis social equity investment fund and other key issues affecting the rollout of the state’s legal weed market.
About three months after the hearing, NY Cannabis Insider reached out to all 14 senators who participated to ask about their plans to address problems in the industry. Five senators sent us answers – some answered questions individually while others provided a single statement – and another three signed onto a Feb. 2 letter to CCB Chair Tremaine Wright, which notes their concerns with the current general license application process.
Applications, medical cannabis and potency tax
Cannabis regulators launched the state’s first general application period on Oct. 4, a major milestone in New York’s legal weed industry.
But the general application process – launched while the Fiore case injunction was still active – created a new dilemma for CAURD applicants. Due to the injunction – and concerns, at the time, that the judge in that case may find the CAURD program unconstitutional, nullifying its licenses – many CAURD businesses who already applied for, and in many cases received, retail licenses weighed whether to reapply for general licenses, embarking on yet another application process.
With so much focus on adult-use cannabis, some issues in the medical cannabis market seemed to fall to the wayside. NY Cannabis Insider reported that cannabis telemedicine company Leafwell, in partnership with medical cannabis company Curaleaf – and possibly other medical operators in New York – have been emailing medical cannabis patients who have subscribed to mailing lists with offers of lower-cost telehealth certifications. The partnership between the two companies appears to violate medical cannabis regulations.
A situation in Brooklyn provided an allegory on New York’s lessening focus on its medical cannabis market. Medical patients who frequented the Sunnyside medical cannabis dispensary in Brooklyn’s Williamsburg neighborhood had to find a new shop when the store quietly closed. At the same time, adult-use retailer The Travel Agency opened a new store on Flatbush Avenue.
Controversy surrounding New York’s potency-based cannabis tax reared its head, when Gov. Hochul proposed the state repeal its THC potency-based tax structure for legal cannabis. Some stakeholders have long said such a move would simplify tax collection and burdens on small marijuana businesses. However, critics say NY’s replacement for cannabis potency tax is “unrealistic” and “destructive.”
The last few months
As complaints about the OCM’s selection process for general licenses piled up in early 2024, legacy operators, minority women and industry consultants called the agency’s licensing scheme “alarming” and said it had – again – shifted the goalposts at the last minute.
Advertising restrictions, about which licensees have complained since the CCB introduced them, also emerged as problematic to business owners – most of all for retailers. The rules prevent dispensaries from buying billboard ads, and stop all companies from using marketing techniques that could be attractive to children.
As an increasing number of dispensaries began opening across the state, store owners told NY Cannabis Insider that they’re prohibited from doing basic advertising, and potential customers don’t even know they exist.
In late-February, the OCM announced that legal cannabis operators of all license types have about two months to stand up seed-to-sale tracking systems, even as regulators hadn’t provided much clarity or instruction, some licensees told NY Cannabis Insider.
In the small Westchester County town of Pound Ridge, a “vocal minority” of residents began demanding municipal officials rethink allowing cannabis retail within its borders – over two years after the deadline to opt out.
But as an increasing number of retailers opened their doors in recent months, some cannabis operators became cautiously optimistic – with an emphasis on “cautiously” – about the statewide market. The situation hasn’t become drastically better, multiple growers and processors told NY Cannabis Insider. But the future does look a lot brighter than before.
In a move against illicit cannabis shops that have proliferated across New York State, Gov. Hochul called on online map and social media companies to stop listing them. This came as multiple legal dispensary owners complained that it’s often easier to find an unlicensed shop via online searches than it is to find legal stores.
In March, NY Cannabis Insider published an investigation by reporter Wes Parnell into a product recall for Jenny’s, a processing company owned and operated by Jenny Argie. His investigation found evidence that the OCM was using enforcement powers to retaliate against those who speak out about its part in the flawed rollout of the new marketplace.
“Audio recordings, emails and social media posts, along with more than a dozen interviews with business owners and others, evidence why these operators are scared to talk – they’re afraid to lose or be denied a license, or experience ‘selective enforcement,’” Parnell found.
Parnell followed up that investigation with a story about Argie filing a lawsuit against the OCM, alleging regulators acted in “retaliatory, arbitrary and capricious” ways when they issued a stop-work order at her Hudson Valley processing facility. Argie said her company will go out of business by the end of March if the stop-work order and quarantine on her products are not lifted, according to documents shared with NY Cannabis Insider.
Following NY Cannabis Insider’s investigation, the OCM placed Fagon on leave, “to ensure a transparent, thorough investigation into the allegations made,” OCM Executive Director Chris Alexander said.