New York Cannabis Control Board Issues First CAURD Licenses and Votes to Publish Proposed Regulation Package

The New York Cannabis Control Board (the “Board”) held a public meeting on November 21, 2022, during which it approved a number of conditional license applications and voted to publish new and revised regulations for public comment. These approvals represent important steps forward in New York’s rollout of its adult-use legalization plans. In approving both the license applications and proposed regulations, the Board highlighted New York’s commitment to social and economic equity as principles underlying its regulatory scheme.

The state aims to begin adult-use cannabis sales by the end of this year. To this end, the Board has accepted applications for three different components of the supply chain: growing, processing, and cultivating. During last week’s meeting, the Board approved of measures granting eight applications for conditional cultivator licenses, and eight for conditional processor licenses. The application period for the third sector of the supply chain, Conditional Adult-Use Retail Distributors (“CAURD”), closed in September, and the Board received more than 900 applications. The Board voted to issue the first of New York’s CAURD licenses, to 29 business applicants and eight nonprofits, subject to the applicants’ submission of final application materials. Once these entities receive final licensure, they will be permitted to sell cannabis products grown and processed in New York State. The Board will continue to review applications and issue licenses on a rolling basis, to qualifying businesses owned by justice-involved individuals.

The Board also voted to publish revised regulations for product packaging and laboratory testing, and to publish a comprehensive package of proposed regulations. The Proposed Adult-Use Cannabis Regulation Package addresses, among other items, the application process and ownership and licensing requirements; protections for cannabis businesses from discrimination by municipalities; environment and sustainability regulations, including requirements for sustainable packaging and energy use tracking and water use conservation measures by growers and processors; and social and economic equity. The Board noted during this meeting that enforcement for cannabis-related offenses has affected minorities in New York even more disproportionally than in other states, and New York is now prioritizing these affected groups in its licensing and funding. The state will also prioritize other licensing applicants, including disabled veterans, minorities, women, and distressed farmers. New York’s cannabis laws create a “two-tier” market, which discourages vertical integration by prohibiting common ownership of retailers and suppliers and imposing certain disclosure requirements. The Board approved publication of this set of regulations for a 60-day public comment period.

The Board noted that this meeting included several milestones – particularly the approval of the first set of CAURD licenses and publication of the proposed regulation package. The Board’s focus moving forward will be to get current licensees up and running and continue to review and approve new applications.

An Update on New York’s Conditional Adult-Use Licensing Process

New York State legalized adult-use cannabis in March 2021 through passage of the Marihuana Regulation and Taxation Act (the “Act”), and the state is currently processing its first applications for retail dispensaries. The Act established the New York Office of Cannabis Management (the “OCM”), which is responsible for promulgating regulations under the Act as well as issuing licenses to participants in both adult-use and medical cannabis markets. Through the OCM, New York began issuing licenses for cannabis cultivation in April, and for processing – converting plants grown in the state to usable products such as edibles and vape oils – in August. Approximately 240 conditional cultivation licenses have been granted, and 15 conditional processor licenses.

New York’s legalization scheme includes a focus on social equity, whereby it is currently accepting applications only for “conditional” licenses, available primarily to businesses and nonprofits owned by or serving individuals affected by marijuana convictions. The state is currently reviewing applications for Conditional Adult-Use Retail Dispensary (“CAURD”) licenses – the application period was open from August 25 to September 25, and the state received approximately 900 applications, for 175 available licenses.
The state has two categories for CAURD licenses, which both have slightly different criteria. Up to 150 of these licenses will be issued to qualifying businesses, and 25 to nonprofits. To be eligible for a CAURD license, an applicant must be a business with at least 30% ownership interest held by a person who:

• First, is “justice-involved” – was either convicted of a marijuana-related offense in New York State before March 31, 2021, or who has a family member with such a conviction;
• Second, has owned at least 10% of a business which earned a net profit for at least two years; and
• Third, has a significant presence in New York – either lives in, or owns land or property in, the state.

Any type of business organization may apply for a CAURD license. Licensees may operate one retail dispensary, and are eligible to receive loans from the New York Social Equity Cannabis Investment Fund to pay for construction, renovations, and equipment associated with the dispensary location.

The second category of CAURD licenses is available to qualifying nonprofits, which must have a history of serving or employing currently or formerly incarcerated individuals, at least one justice-involved member, officer, or advising committee member, and a history of at least two years of net profits. One key distinction between the two types of licenses is that nonprofits are not eligible for financial support from the Fund, and must provide their own retail storefront, over which the OCM has approval authority.

While the OCM is currently reviewing applications and granting conditional licenses for cultivation, processing, and retail sales, it has not yet promulgated regulations governing general adult-use licenses – available to applicants not eligible for conditional licenses – but has stated it will do so in the coming weeks and months.

Minnesota Legislation Ushers In Sales of THC-Infused Beverages

Even absent a federal regulatory framework, the demand and market for cannabis-infused beverages continue to grow nationwide. As states legalize marijuana for medical and adult use, some have enacted specific provisions for the sale of food and beverages containing THC. Minnesota recently passed one such law, which became effective in early July. In Minnesota, medical marijuana is permitted for the treatment of certain medical conditions, but adult use legislation has not yet been passed. The state’s new law legalized the sale of food and drinks containing up to 5 mg of THC per serving, and 50 mg total per package – so long as the THC is derived from certified hemp plants. Under federal law, hemp plants – as opposed to marijuana plants – can contain no more than .3% THC by weight. These content limits apply to all strains of THC, including Delta 8, which is currently not federally regulated.

Minnesota’s new law prohibits THC-containing products from being sold to anyone under 21 or marketed to children. The products must be sold in tamper-proof packaging, and packages must contain a QR code that provides consumers with an ingredient list and testing information. The law is also different from other states’ legalization regimes in one major respect: while other states only permit sales of these products by licensed distributors, Minnesota places no restrictions on who can sell edibles or beverages containing THC. This also means that sellers are not subject to a lengthy application process. Businesses in Minnesota have wasted no time in benefitting from this legislation. Demand for THC-infused gummies has been high since their legalization, and beverage companies and breweries have already entered this new market. Minneapolis Cider Company introduced a non-alcoholic sparkling beverage called Trail Magic, which contains 3 mg of THC per serving, bringing the product to launch within a month of the law’s passage. Indeed Brewing, also in Minneapolis, introduced Two Good, a seltzer containing 5 mg of THC and 2 mg of CBD, in early August. While Minneapolis Cider Company sells Trail Magic for visitors to consume in its taproom, Indeed currently only offers Two Good for to-go sales. Both companies are selling their THC beverages as an alternative to alcoholic beer or cider, and both beverages have been popular with consumers since their introduction.

Market participants in Minnesota are still navigating the contours and nuances of the new law, as are those in many other states. But as states continue to legalize various forms of THC sales, it is likely that beverages like Trail Magic and Two Good will become more ubiquitous.

Bipartisan Subcommittee Promotes Inclusion of Hemp Regulations in 2023 Farm Bill

On July 28, the House of Representatives’ Subcommittee on Biotechnology, Horticulture, and Research held a hearing to discuss ways in which the upcoming 2023 Farm Bill could improve the regulatory landscape for hemp and CBD producers.  Congress passes a Farm Bill every five years – the 2014 Farm Bill lifted federal restrictions on the cultivation and production of hemp, and the 2018 Farm Bill authorized commercial production of hemp, subject to oversight by the U.S. Department of Agriculture.  However, as discussed at length during the July 28 hearing, the Food and Drug Administration (FDA) has not approved CBD as a food or beverage additive or as a dietary supplement – though it has approved one CBD-derived prescription drug for treating seizures.  Despite a surge in hemp cultivation and production following the 2018 Farm Bill and a large market for CBD-based products, demand for hemp has not kept pace with production, as many companies are reluctant to enter the CBD market without clear regulatory guidance from the FDA.

Participants in the July 28 hearing discussed ways to address this regulatory uncertainty and other barriers to entry into the hemp and CBD marketplace.  Both the House and Senate have introduced bills to permit the sale and marketing of CBD as a food additive and dietary supplement.  Another bill introduced in February, the Hemp Advancement Act, was a key focus of the hearing.  This bill includes among its key provisions increasing the THC threshold for hemp from .3% to 1%; eliminating the federal requirement that hemp sold in the U.S. be tested for potency by labs registered with the FDA, which do not exist in all states; and eliminating a ten-year waiting period for people with drug-related felony convictions seeking hemp production licenses.  Other proposed inclusions in the 2023 Farm Bill discussed at the hearing are measures to lower fees for hemp sampling/testing and removing background check requirements for production licenses.  Rural areas – where many hemp producers seek to operate – often lack facilities that process fingerprints, posing another barrier to market entry.

The Subcommittee hearing was led by a bipartisan collection of representatives, mainly from hemp-producing states, who share the goals of achieving greater regulatory certainty and market stability for the growing hemp industry.  The proposals discussed could support rural agricultural economies and facilitate greater equity within the industry, and many lawmakers and market participants see the 2023 Farm Bill as a necessary next step in the development of the fast-growing hemp industry.

Boston Beer Company Joins the Growing Cannabis Beverage Market

As interest in cannabis beverages continues to increase, Boston Beer Company (the maker of Sam Adams) recently announced plans to introduce a line of non-alcoholic, THC-infused teas, joining a number of other beverage companies in this growing market. The new product line, called TeaPot, will not be available in the United States – yet. Boston Beer is beginning its launch of TeaPot in Canada, in July, and plans to expand into the US and globally as the regulatory landscape develops. Boston Beer’s entrance into the cannabis beverage space is tailored strategically, through its creation of a subsidiary to operate in partnership with entities based in Canada that will provide the cannabis for TeaPot and manufacture and distribute the product. This approach leads to a more nimble operation than would Boston Beer’s attempting to control the entire supply chain. Continue reading “Boston Beer Company Joins the Growing Cannabis Beverage Market”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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