Cannabis Legalization: New York Strives for an Equitable Industry
In the coming weeks, CCG will explore different aspects of New York's Adult-use legalization in our Taproot Cannabis Newsletter delivered to your inbox. You can sign up for the newsletter here.
New York’s legalization of recreational cannabis is a major win for social justice and social equity, establishing strong provisions to help improve lives of minorities, women, disabled veterans, and distressed farmers, through market mechanisms and outreach programs. These are surely major improvements.
New York Senate Majority Leader Andrea Stewart-Cousins has said that the “social justice initiative will provide equity to positively transform disenfranchised communities of color for the better,” and that she believes “this bill can serve as a blue print for future states seeking inclusive cannabis legalization.”
An immediate effect is that when Gov. Cuomo signed the bill into law, penalties for public possession of up to three ounces of cannabis or 24 grams of marijuana concentrates were wiped out. This is in addition to other sweeping changes which we will go over in a Tap Root focusing specifically on law enforcement and the carceral elements of social equity. The police now cannot lock someone up on these charges, a trend which has historically hit minorities the hardest and disproportionately.
Regarding the licensing scheme and market mechanisms, what exactly is the social equity structure, how does it work?
MRTA seeks to assure that more than 50% of all licensees are social equity licensees. It clarifies that the Cannabis Control Board (a.k.a. the CCB, which oversees regulations) will make sure that no license type dominates the NY marketplace or any category of licensing, to actively promote and potentially license social and economic equity applicants.
One central decision maker is the Chief Equity Officer (henceforth Officer), whom the CCB will nominate to assist the development and implementation of social and economic equity plans within the industry. The Officer will establish public education programs to aid disadvantaged communities with the licensing process, informing them of the support and resources available from the Office of Cannabis Management (OCM). There is also the Executive Director of the OCM (henceforth Director), who will also consult the CCB alongside the Officer, taking public input and using it to develop equity plans.
Social equity applicable businesses and applicants are those where the business is at least 51% owned a person within the specified social equity classification: minority, women, disabled veteran, or distressed farmer. Said individual must exercise control of the business, which is authorized for business NYS, also a small business. As defined in Section 131 of the Economic Development Law, this is a business with less than 100 employees. What is unclear is whether said small businesses needs to have been previously certified by the Federal Small Business Administration before application.
When granting licenses, the CCB will consider additional criteria, namely if the applicant:
Is a member of a community disproportionately impacted by the War on Drugs
Income lower than 80% of median income of county
Convicted of a cannabis related offense OR had a parent, guardian, child, spouse, or dependent convicted
Authorities will either cancel fees or significantly reduce them for equity applicants. Fees will be taken from Registered Organizations (RO) towards this end.
“Distressed farmers” are NYS residents and/or business enterprises qualifying as USDA-defined “small farms,” which have a gross cash income of less than $250,000, and have been disproportionately impacted by low commodity prices and face losing farmland due to development or suburban sprawl (and meets any other CCB regulations), OR those who operate small farms and are also members of a group that has been historically underrepresented in farm ownership and meets any other qualifications required by the CCB.
Social equity provisions apply to regular licensees, microbusinesses, and RO’s, who must hire staff according to said equity guidelines, or risk compromising a license application or renewal. They must submit documentation of racial, ethnic, and gender diversity of the applicant’s employees and owners prior to a license being renewed.
However, this “social responsibility framework agreement” has not been worked out yet and will be deliberated along with other undeveloped aspects of the larger recreational cannabis program.
MRTA creates several programs for equity applicants and licensees, including a business incubator for social equity licensees. There will be significant investment for and in said communities, significant tax revenue from recreational sales will go towards investment. Tax revenues go into the Cannabis Revenue Fund, which firstly will cover costs of the OCM, CCB, and anything related “related to the administration of incubators and other assistance to qualified social and economic equity applicants including the administration, capitalization, and provision of low and zero interest loans to such applicants.” Of the remaining funds after this spending, 40% of will go towards a community reinvestment fund, 40% supports the state’s public schools and 20% funds drug treatment facilities and public education programs.
RO’s will play a specific role here as well. The Officer will coordinate with registered organizations and register more, to provide services to unserved and underserved areas of the state. These additional RO “shall be reflective of the demographics of the state, be representative of communities disproportionately impacted by cannabis prohibition, and be culturally, linguistically, and medically competent to serve unserved and underserved areas of the state.”
Let’s Compare to New Jersey’s Plan
Just next door, New Jersey, which also recently legalized marijuana and is currently setting up its own program, also faced similar questions in its legislative process. One main difference between their program and NY’s is that NJ does not consider distressed farmers part of the equity grouping, while NY does.
NJ’s program has a Social Equity Excise Fee, which goes into the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Fund, which is a fund composed of all fees and penalties, tax revenues on retail sales, and a significant portion of revenues medical revenues. Of the money in the fund not from the Social Equity Excise Fee, 70% goes to investments in the form of grants, loans, reimbursements of expenses, and other financial assistance in “impact zones,” (as determined by state statistics), as well as direct financial assistance for these communities.
The Cannabis Regulatory Commission (CRC) is made up of experts with a makeup that has a clear commitment to social equity measures. It will make yearly recommendations on equity appropriations based on revenue from Excise Fee. It will also, make recommendations on how much of the Social Equity Excise Fee revenue to administer to startup grants, low-interest loans, application fee assistance, and job training programs through the Office of Minority, Disabled Veterans and Women Cannabis Business Development.
The Office of Minority, Disabled Veterans and Women Cannabis Business Development acts under the supervision of a director appointed by Governor Phil Murphy (D) and has the job of increasing participation in the medical cannabis and personal use cannabis industries by people from socially and economically disadvantaged communities, covering the same general responsibilities as those of NY’s Chief Equity Officer.
Most importantly, in contrast with New York, these social equity measures will be considered effective if more than 30 percent of all licenses issued by the CRC are issued to minority, women’s, and disabled veterans’ businesses. The effectiveness is further assessed on the question of whether their program results in “not less than 15 percent” of licenses being given to minority businesses, and the same percentage being issued to either women’s or disabled veterans’ businesses.
New York’s requirement that 50% of the market be social equity applicants, in addition to giving distressed farmers the same classification and therefore extending the program’s reach to even the most rural corners of the state, means the Empire State’s program paints with a slightly broader brush than our Westward neighbor, and makes it one of the most robust social equity systems in the country.