By: Irina Dashevsky , Partner and Douglas R. Sargent, Partner
UPDATE: On February 22, 2022, New York Governor Kathy Hochul signed S08084A into law, creating new conditional cultivator and processor licenses for existing New York hemp farmers.
In a generally under-the-radar move that is sure to keep the cannabis industry on its toes, New York’s legislature passed S08084A, which will allow licensed hemp farmers in New York to apply to grow and process marijuana. This S08084A Bill now goes to the Governor for signature.
By now, most people in the United States know that hemp is federally legal and treated like most other commodities. Accordingly, a license to grow hemp is fairly easy to come by in New York—it requires the completion of a non-competitive application and a $500 fee. New York has approximately 63 hemp farmers. Conversely, cannabis remains an illegal drug under Schedule I of the U.S. Controlled Substances Act. State cannabis cultivation licenses are typically extremely competitive, expensive, and limited. New York only has 10 licensed cannabis cultivators as a result of its medical marijuana program. These 10 companies, most of which represent the biggest cannabis multi-state operators in the country, currently produce and control 100 percent of all legal cannabis in the state of New York.
There are several problems with having such a limited number of existing cannabis operators control all of the state’s supply. First, New York’s medical program was minuscule (with only about 150,000 registered patients), and as such the available supply of legal cannabis in the state is extremely limited. These existing operators will require substantial lead time to ramp up for the adult-use market. Second, having a handful of large companies control all of the cannabis supply in the state is counter to New York’s stated social equity objectives and hinders the state’s ability to roll out a robust adult-use market.
New York passed the Marihuana Regulation & Taxation Act (MRTA) in 2021, which, among other things, allowed adult-use cannabis consumption in the state and grandfathered the licensed medical operators into the adult-use program. However, the state has yet to turn the lights on for its adult-use program because once that happens, it will inevitably be a severely supply-constrained market. This will likely cause many consumers to turn to the legacy market for product. Additionally, new adult-use dispensary licensees, which typically can ramp up operations much faster than a cultivator, will struggle for product to fill their shelves. It could take years for such market issues to level out, which could cause many new social equity and small cannabis businesses to go under in the meantime.
Allowing existing hemp farmers to transition into cannabis cultivation is a potentially clever and elegant solution to these problems, but it remains to be seen whether it will be an effective one. Its efficacy will hinge on several factors, including: (1) the regulators’ ability to quickly promulgate regulations and manage a corresponding application and licensing process; (2) hemp farmers’ ability to quickly pivot and become successful marijuana cultivators while navigating the many complexities involved with being in the marijuana business; (3) the volume of usable and safe marijuana products these hemp farmers can bring to the adult-use market; and (4) adequately addressing product safety and security issues associated with outdoor cultivation. One thing is for sure, this novel move blurs the lines between a federally illegal and heavily regulated industry and one that is not, and gives a significant windfall to New York’s hemp farmers (if they can capitalize on it).
Turning to the details, the S08084A Bill creates two new license types: (1) the conditional adult-use cultivator license, and (2) the conditional adult-use processor license. Both are subject to the same authorizations, restrictions, and requirements applied to any adult-use licenses in New York. The following chart outlines the key requirements and aspects for each license.
Conditional Adult-Use Cultivator License
Conditional Adult-Use Processor License
Shall be issued by December 31, 2022 and only valid through June 30, 2024.
Must have valid industrial hemp grower license from the Dept. of Agriculture as of December 31, 2021.
Must have grown and harvested hemp for at least two of the past four years.
Applicant for the conditional cannabis license must be at least 51% owned by the hemp licensee.
Can’t change ownership structure for the duration of the conditional license.
Can cultivate up to 43,560 sq. ft. of flowering canopy outdoors or 25,000 sq. ft. of flowering canopy in a greenhouse.
May cultivate both outdoors and in a greenhouse with certain canopy size restrictions.
Temporary ability to minimally process and distribute cannabis products without processor license.
Must begin operations within six months of the date of issuance of the license.
Shall be issued by December 31, 2022 and only valid through June 30, 2024.
Must have valid hemp processor license.
Applicant for the conditional cannabis license must be at least 51% owned by the hemp licensee.
Can’t change ownership structure for the duration of the conditional license.
Authorizes the processing and manufacturing of cannabis products.
Extraction is allowed only if the licensee is authorized to extract under its existing hemp processor license.
Temporary ability to distribute cannabis products without holding an adult-use distributor license.
Must begin operations within six months of the date of issuance of the license.
Be sure to follow our blog for more information on these license applications, updates on S08084A, and all cannabis developments in New York. If you have any questions or would like to contact the authors, please email Irina Dashevsky ([email protected] [email protected]
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