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Start Spreading the News: Adult-Use Cannabis May Come to New York

Highlights

  • New York Gov. Andrew M. Cuomo announced a proposal on Jan. 6, 2021, to legalize and create a comprehensive system to oversee and regulate cannabis in New York state.
  • The plan includes a new Office of Cannabis Management, which would oversee a new adult-use program as well as New York’s existing medical and cannabinoid hemp programs.
  • The program also would create an “equitable structure” for adult use that encourages licensing opportunities and assistance to entrepreneurs in minority communities that have been disproportionately impacted by the war on drugs.
  • Cuomo estimates that once fully implemented, legalization would generate more than $300 million in new tax revenue.

New York Gov. Andrew M. Cuomo announced during his Jan. 6, 2021, State of the State Address a proposal to legalize and create a comprehensive system to oversee and regulate cannabis in New York state. The plan would establish a new Office of Cannabis Management, which would oversee a new adult-use program as well as New York’s existing medical and cannabinoid hemp programs. The proposal also would create an “equitable structure” for adult use that encourages licensing opportunities and assistance to entrepreneurs in minority communities that have been disproportionately impacted by the war on drugs. Gov. Cuomo estimates that once fully implemented, legalization would generate more than $300 million in new tax revenue.

Gov. Cuomo’s announcement is the latest development in New York state’s cautiously progressive approach to embracing the cannabis industry. In July 2018, Gov. Cuomo directed the New York State Department of Financial Services (NYSDFS) to issue guidance encouraging New York state-chartered banks and credit unions to provide banking services to regulated medical marijuana and industrial hemp business in New York. Despite the continuing illegality under federal law, Gov. Cuomo noted: “New York has made significant progress in creating a supportive economic development and regulatory landscape for these companies.” 1 In the NYSDFS guidance, issued that same day, New York’s financial regulator noted that it encourages New York state-chartered banks and credit unions “to consider establishing banking relationships with medical marijuana-related businesses that are operating in New York in full compliance with all applicable New York state laws and regulations, including the New York Compassionate Care Act, and the applicable regulations and requirements of the New York State Department of Health.” 2

In 2019, Gov. Cuomo went further and signed legislation reducing the penalties for unlawful possession of marijuana in New York state. That law also automatically expunged many low-level marijuana convictions across the state, but stopped short of fully decriminalizing marijuana statewide. 3

Gov. Cuomo’s proposal would bring New York in line with other heavily-populated states, including California and Illinois, that have fully legalized adult-use marijuana. Moreover, it would make New York competitive with other Northeast states, including Vermont, Massachusetts and most recently Manhattan’s next-door neighbor, New Jersey.

As of January 2021, adult-use marijuana is legal in the Garden State, which will pose serious interstate law enforcement and compliance issues for New York residents and their businesses. New Jersey, like other states that have legalized adult-use marijuana, has not only removed criminal penalties for adult-use marijuana, but also enacted comprehensive workplace protections for New Jersey workers. New Jersey employers are already working to review and revise their drug and alcohol policies to consider adult-use medical marijuana, including onboarding policies, possession in the workplace, working while impaired, and allowances for certified medical users, among other issues.

While New York has arguably lagged behind other leading states in its efforts to fully decriminalize adult-use cannabis, its delay will give it the benefits of hindsight as it has been able to observe and learn from the experiences of other jurisdictions. As Gov. Cuomo’s proposal starts to work its way through the State Legislature, domestic and out-of-state businesses that employ New York residents should monitor these developments to anticipate how legislative and eventual regulatory developments might impact their operations.

Marijuana remains illegal under federal law despite a relaxed enforcement posture by the U.S. Department of Justice and explicit guidance from the U.S. Department of the Treasury that facilitates banking marijuana businesses. This difference in federal and state legality is an issue that businesses and all Americans will be watching in the coming year as we anticipate new law enforcement and legislative approaches to dealing with what is becoming a widespread and widely accepted industry across the country.

For more information or questions about the cannabis proposal, contact the author or a member of Holland & Knight’s Financial Services Regulatory Team.

Travis P. Nelson is a partner in Holland & Knight’s Business Section and is based in the firm’s New York and Philadelphia offices. Mr. Nelson previously served as an enforcement attorney for the U.S. Department of the Treasury and regularly advises financial institutions, private equity investors and others on cannabis-related compliance issues.

Notes

3 See S. 6579A, 2019-2020 Legislative Session. See also, “Governor Cuomo Signs Legislation Decriminalizing Marijuana Use,” last visited: Jan. 7, 2021, originally published July 29, 2019.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

New York Gov. Cuomo announced plans to legalize and create a comprehensive system to oversee and regulate cannabis in his state.

Legalized Marijuana in New York: This Could Be the Year

With the state facing a budget crisis, a Democratic supermajority in Albany may pave the way for new taxes and the legalization of recreational pot.

  • Jan. 6, 2021

Gov. Andrew M. Cuomo renewed his vow on Wednesday to legalize the recreational use of marijuana in New York, proposing a new office to regulate the market and licensing opportunities for communities most affected by the disparate enforcement of drug laws.

“I think this should have been passed years ago,” Mr. Cuomo said during a video briefing. “This is a year where we do need the funding and a lot of New Yorkers are struggling. This year will give us the momentum to get it over the goal line.”

The pledge marks Mr. Cuomo’s third attempt at legalizing marijuana; similar efforts have unraveled each year since Democrats took control of the Legislature in 2019, mostly as a result of disagreements over how to distribute the lucrative tax dollars from marijuana sales and the licenses to sell the drug.

But the push to legalize marijuana is likely to have far greater momentum in 2021, given the profound fallout from the coronavirus pandemic.

Indeed, New York State leaders kicked off the new legislative session on Wednesday with a singular, once-in-a-generation challenge: how to rescue a state in a pandemic-driven crisis.

Tax revenues have dried up, leading to an estimated shortfall of nearly $63 billion over the next four years. The fiscal straits have given new wind to measures that could raise revenue, like increasing taxes on the rich, allowing mobile sports betting and legalizing marijuana.

This year will also see Democrats enjoy a supermajority in both chambers, after the party expanded its majority in the State Senate in November, giving legislators the option of aggressively pursuing left-wing measures without fear of a veto from Mr. Cuomo, a centrist Democrat.

Here is a look at some key themes for the legislative session, which runs through mid-June.

Did New Jersey force New York’s hand to legalize pot?

Democratic lawmakers in New York have prophesied the legalization of weed for the past two years. Each year, their high hopes have crashed against the messy realities of lawmaking in the state capital, Albany.

But legalization may gain momentum since more states have legalized weed, placing New York under added pressure to tap into the potentially billions of dollars in economic activity derived from cannabis sales.

In November, voters in neighboring New Jersey approved the legal use of recreational marijuana, heightening the prospects that it would become one of the largest marijuana markets in the country.

“People know it’s a matter of ‘when’ and not ‘if’ as it relates to marijuana legalization,” Senator Andrea Stewart-Cousins, the Democratic majority leader, said in an interview.

Robert Mujica, the governor’s budget director, said Mr. Cuomo’s legalization proposal could generate about $300 million a year in tax revenue, though much of that money would not materialize until rules and regulations were fully implemented years down the road.

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Part of the logjam had centered around what to do with the revenue from pot sales. Many progressive lawmakers support steering tax proceeds to low-income and minority communities disproportionately affected by the war on drugs. But during negotiations last year, Mr. Cuomo wanted the executive branch to have more control over the revenue.

“That is still the sticking point that we have not discussed or resolved,” said Liz Krueger, a Democrat from Upper Manhattan who sponsored a legalization bill in the Senate. “I think governors always want that.”

Will the pandemic break the governor’s pledge of no new taxes?

One thing that everyone can agree upon is that the state needs money. The triple whammy of lost jobs, lost taxes and big bills related to the coronavirus response have left budget holes that can be solved only one of four ways: raise, cut, borrow or beg.

Of those, the progressive branch of the Legislature has a clear preference: new taxes on the wealthy, an idea that has previously been met with strident opposition from Mr. Cuomo, who posits that such taxes would drive high-earners out of the state.

But the desperate times have seemingly softened his position, with the governor suggesting in December that new taxes could be in offing.

“We are trying to avoid any additional pain for so many New Yorkers that have obviously already borne the brunt of a lot of the pandemic,” Ms. Stewart-Cousins said. “That will take us looking at taxing millionaires and billionaires and it’s a matter of shared sacrifice and being part of the solution.”

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On Tuesday, a collection of groups seeking new taxes gathered outside the governor’s office in Manhattan, pushing six different tax bills that target high-earners and corporations. Several tax increases on the wealthy have previously passed the Assembly — nominally the more liberal of Albany’s two chambers — but may have new momentum in the Senate, too, where Ms. Stewart-Cousins has expressed general support for tax plans.

And with Democrats on the brink of reclaiming control of Congress, begging may not be quite as necessary; Mr. Cuomo was optimistic about the possibility of a cash infusion from Washington to help close the state budget gap.

Want to gamble? It could be a lot easier soon.

For gamblers, New York has often been in the shadow of New Jersey, where Atlantic City dominated the East Coast casino market for decades, and where, more recently, mobile wagering interfaces have allowed gamblers to place sports bets anywhere inside the state.

New York legalized sports betting in 2019, but only on the premises of state-licensed casinos. That deal prompted frustration from supporters of such betting, including State Senator Joseph Addabbo, the chairman of the Racing, Gaming and Wagering Committee, who sees the expansion of gaming as a big revenue winner.

“We’re that disabled car in the right lane watching the other cars fly past us,” Mr. Addabbo said on Wednesday. “New Jersey is taking our money.”

But that could change with new support from Mr. Cuomo, who announced on Wednesday that he planned to push for mobile betting in his State of the State address next week.

What other major changes might be considered?

New York became a national laughingstock when election officials last year took longer than almost any other state to count a deluge of absentee ballots prompted by the pandemic, delaying results in some key races for weeks.

This year, lawmakers could spearhead efforts to reform the Board of Elections and may take up legislation to speed up the counting process. Proposals have also been floated to improve voter registration. And come November, voters may get to vote on a constitutional amendment to expand absentee voting to all voters permanently, as opposed to just during a public health emergency.

Another hot-button issue surrounds the aftermath of the mass protests last summer following George Floyd’s killing in Minneapolis. They propelled the Legislature to approve a bevy of changes to police practices, including a ban on the use of chokeholds and the repeal of a decades-old law that kept police disciplinary records secret. (Even so, police departments are still finding ways to shield those records.)

But activists and liberal lawmakers are pushing for an even more far-reaching criminal justice agenda for 2021 that includes some past proposals, like restricting the length of time people in prison can be placed in solitary confinement and making certain people older than 54 eligible for parole regardless of their crime or sentence.

With the state facing a budget crisis, a Democratic supermajority in Albany may pave the way for new taxes and the legalization of recreational pot.