New York Offers Priority in Dispensary Licensing to a Niche set of Social Equity Applicants

By: Irina Dashevsky, Partner and Jordan Wilson*

New York is taking a novel approach on its first set of adult-use dispensary licenses by putting the focus on social equity first. New York’s Cannabis Control Board (CCB) approved the final rules and regulations for the CAURD licensing program on July 14, 2022. The state’s first Conditional Adult-Use Retail Dispensary (CAURD) applications are expected to open on August 25, 2022 and the target demographic are successful business owners who were also disproportionately impacted by the cannabis prohibition laws before legalization took place.

According to the Office of Cannabis Management’s (OCM) website, it intends for CUARD licenses to propel businesses owned by “justice-involved individuals at the bedrock of New York’s adult-use cannabis market.” “Justice-involved” individuals are those who have been convicted of a ‘marihuana-related’ offense in the state of New York, or those who are the parent, spouse, child, legal guardian, or are a dependent of a person convicted of such an offense before March 31, 2021. Notably, the state has also opened this application to individuals who can provide evidence of their arrest, or of the arrest of their parent, spouse, child, or legal guardian, even if they were ultimately convicted of another offense, such as a non-drug offense, violation, or misdemeanor.[1]Accepted documentation includes a Certificate of Disposition, a docket entry from court records that indicates the existence of a conviction, or a record of judgement and conviction. OCM has posted a mock application.

CAURD applicants can choose to apply under one of two eligibility criterion: (1) as a qualifying business or (2) a qualifying nonprofit.

To be eligible as a qualifying business, applicants must provide documentation evidencing that at least thirty percent (30%) of the applicant entity is owned by one individual who:

1. Qualifies as Justice Involved;
2. Has at least ten percent (10%) ownership, for at least two years, in a business that had positive net profits during the individual’s ownership [2];
3. Has sole control over the applicant, which is defined by having the power to order or direct the operation, policies, management, and managers of the business; and
4. Has “significant presence” in New York State.

While a person with the foregoing qualifications is required to own at least 30% of the applicant, if that individual owns less than 51%, the applicant must have one or more additional Justice-Involved owners such that all of the Justice-Involved owners collectively own at least 51% of the applicant. These additional Justice-Involved owners do not need to have owned and controlled a qualifying business.

To be eligible under the qualifying nonprofit criteria, applicants must provide documentation evidencing that at least thirty (30%) of the applicant is owned by one qualifying nonprofit organization that has:

1. A history of creating vocational opportunities for justice involved individuals; and
2. A history of intentionally serving justice involved individuals; and
3. At least one “justice involved” board member, officer, governing committee member, or advising committee member; and
4. At least five full-time employees;
5. Operated a social enterprise that had net assets or profit for at least two years, defined as a business serving customers, operated by a nonprofit or fiscally sponsored by a nonprofit, which both fulfills the parent organization’s mission and generates revenue;
6. Sole control of the applicant; and
7. “Significant presence” in New York State.

The OCM also imposes a unique location requirement on prospective CUARD licensees. Pursuant to 116.7(c) (6) of the CUARD Rules, applicants are required to select a site from locations that have already been designated by the OCM.[3] Applicants are asked to select five regional preferences out of these pre-designated locations through a rank-choice system.[4] Selected applicants will not have discretion on site selection.

New York is clearly serious about helping social equity applicants succeed, and has gone to unprecedented lengths to ensure that some of the major barriers for entry, that have been typical in the application and startup process, are eliminated.

Greenspoon Marder LLP currently provides representation and regulatory advice to individuals and entities applying to New York’s retail-licensing program. Because the CUARD program is an early step in New York State’s multi-phase social equity licensing plan, applicants must stay organized with the help of a firm that specializes in cannabis law, such as Greenspoon Marder LLP. Furthermore, formal representation is helpful to applicants who wish to advance through New York’s highly competitive licensing process.

[1] https://cannabis.ny.gov/caurd-info

[2] Applicants may upload documentation such as two years of state, federal or city tax documents from when the business had a positive net profit and the justice-involved individual was at least a 10% owner.

[3] https://cannabis.ny.gov/system/files/documents/2022/07/part-116-caurd-regulations_0.pdf

[4] https://cannabis.ny.gov/system/files/documents/2022/07/caurd-mockup_1.pdf

*Not an attorney.