New York, New Market
Next stop in our digital road trip of emerging cannabis markets in the U.S., the Empire State! New York, much like Texas, has allowed for the legal purchase and consumption of medical marijuana for several years. But unlike their long-distance neighbor to the west, New York passed permissive recreational cannabis laws in 2021, thereby creating a new market for adult- use with tremendous potential. Let’s take a look at their existing and emerging cannabis policies to see what works and where there is room for improvement, starting with medical.
A little History
New York legalized (limited) medical marijuana in 2014 via the Compassionate Care Act, with implementation in 2016. The beleaguered program began as a small bandage on a gaping wound for patients as it covered only a handful of conditions, prohibited flower or anything smokable, required a patient registration fee, and restricted the number of licenses for operators and the number of dispensaries each licensee could operate. In addition to the regulatory issues with their medical system, the patient registration and medical card system was fraught with long wait time and glitches.
In 2017, the state attempted to alleviate patient access problems by increasing the number of licensed operators from five to ten, and adding additional qualifying conditions. Their efforts however fell dramatically short of patient, patient advocacy group and operator expectations.
In March of 2021, Governor Cuomo signed the Marihuana Regulation & Taxation Act (MRTA) in an effort to improve the troubled program. The MRTA, which covers both medical and adult-use regulations, promised to: establish a new governing body (OCM) for both medical and adult-use cannabis, eventually supersede the Compassionate Care Act, and offer a number of improvements to the existing law. But, nearly a year and a half later, due to errors and procedural delays, many of the proposed changes have yet to be implemented. With this in mind, let’s take a look at New York’s medical program.
A successful medical model should provide safe, equitable, affordable and accessible medicine that is available for every applicable condition, and to every person in need regardless of their location within a state. A big obstacle for many patients is cost, so we’ll start there.
Affordable? Not Particularly.
It’s difficult to say that medical cannabis is affordable anywhere in the U.S. considering insurance does not cover the medicine. But when states add taxes to medical cannabis, it renders an already expensive medication unaffordable. And unfortunately, New York taxes medical cannabis. The Empire state imposes a 7% excise tax on medical cannabis which is levied upon “the gross receipts from medical cannabis sold or furnished by a registered organization to a certified patient or designated caregiver.”
Considering this tax from a patient’s perspective, individual products can cost up to $350. Clearly this is on the high-end of product price points, but for an individual medical product with no insurance co-pay, that price is out of reach for most. Then you add tax.
Our point? Taxing an already expensive medicine punishes people for being sick. Medical cannabis should never be taxed. Reforming policies to remove the excise tax would help patients afford the medicine they need when they need it. Currently, several states including DE, MD, MA & NJ offer 0% medical cannabis tax models for New York to consider adopting.
Another component of the high cost of medical cannabis is the limited population of legal market participants and footprint of operations authorized under the state’s medical program. With only a few providers (10 authorized), medical product prices are out of reach for most patients’ needs and seldom fluctuate. While MRTA expands the number of dispensaries that each medical licensee can operate from four to eight, it is not nearly enough to drive down the cost of medicine or offer patients adequate or access.
To truly serve patient needs, New York should consider increasing the number of registered medical operators or greatly increase the cap on the number of dispensaries permitted per licensee. Not only would this improve access and reduce prices for patients, but it would also invite a larger population of patients to participate in the legal market, and increase revenues for state authorized-cannabis businesses, the State of New York, and participating local governments.
Accessible? Hardly.
Access for patients in NY is utterly inadequate. There are currently 38 active medical cannabis dispensaries from 10 medical operators, servicing the entire state of New York and its population of over 20 million people. For comparison, California, which also implemented medical use in 2016, has 1005 medical retail providers (storefront & non-storefront) throughout the state. The Golden State does have twice the population, but that’s 26 times more medical dispensaries than New York currently has!
While New York has not expanded the number of registered medical cannabis operators since 2017, the amendments included in the 2021 MRTA authorize registered medical licensees to operate up to eight medical dispensaries, thereby doubling their allotment. Additionally, a provision of the dispensary cap increase is that “…the first two additional sites must be in underserved or unserved geographic locations.”
Increasing the medical dispensary cap and ensuring that at least half of the new dispensaries are located in communities with the greatest need are positive steps toward sufficient access and health equity. But even if all the medical providers max out their dispensary allotment, you still only have 80 locations across the entire state to serve an extremely large volume of patients.
An insufficient number of medical retailers results in patients traveling long distances while enduring the very health symptoms they need cannabis to relieve. Further, high product prices mean some patients can only afford medicine for a few days vs. medicine for the month. Patients facing high prices and low access in the legal market will continue buying medicine locally from illegal providers. Less taxes more access.
Compounding New York’s limited dispensary problem is a patient registration and medical card distribution system that could use an overhaul. Plagued by long wait times, system glitches and malfunctioning medical cards, patients and providers in New York are flabbergasted. The end result? According to Brad Racino, the Editor and Publisher for Syracuse.com's New York Cannabis Insider, since January 2022, New York has lost over twelve-thousand registered patients. I’m going to give you one guess where those patients are accessing the products they need.
Safe? Yes.
New York’s medical cannabis providers historically operated with high product safety standards surrounding every aspect of the cultivation, processing, manufacturing and distribution of cannabis products. However, provisions in MRTA reinforce existing standards and require labeling transparency that will make the ingredients and associated potency levels of products clear to patients, thereby increasing safety. But, at the end of the day, if a patient can’t afford or access the high-quality products produced by legal operators, then the options that remain are anything but safe.
Since most of New York’s medical patients will likely be turning to the adult-use market, let’s do the same.
New York, New Law, New Opportunities
In addition to amending the medical cannabis program, the 2021 MRTA authorized adult-use cannabis for New York. The potential for industry participants, consumers, governments and communities in this emerging market is tremendous, so let’s take a look and the current system’s infrastructure.
New York Says No to Monopolies
The MRTA does not limit the number of licenses that can be issued by the state. It does, however, establish a licensing system that limits the number and type of licenses a single entity can hold. As a result, operators cannot be vertically integrated, meaning a single entity has to choose between license categories as opposed to maintaining the operation of all license categories under one umbrella. This model enables small businesses to compete with industry titans, and prevents titans from using their abundant resources to gobble licenses and edge-out competition. There are a few exceptions to the vertical integration prohibition for registered medical operators and microbusinesses. This licensing system should promote a fair and healthy legal market.
New York Says Yes to Social Equity and Social Justice
MRTA puts in place a number of provisions aimed at correcting (some of) the mistakes from the past.
Expungement of Criminal Records – “The MRTA will automatically expunge records for people with previous convictions for activities that are no longer criminalized. Individuals who qualify for expungement are not required to take any further action to have their records expunged.”
Bravo! Not only does this provision remove deeply lopsided and racist obstacles to employment, housing, voter registration, and much more from the lives of those impacted, but it automatically makes these corrections. Every state (and the federal government) should note this one, because forcing someone you have wronged to jump through hoops to correct those wrongs is well, just wrong.
Social Equity for Applicants and Communities – “The MRTA establishes a robust social and economic equity program to prioritize and provide resources to members of communities who have been disproportionally impacted by the policies of cannabis prohibition, to participate in the new industry through the implementation of a social and economic equity plan.”
New York’s ambitions social equity program aims to award 50% of the state’s licenses to equity applicants and plans to direct 40% of cannabis tax revenues to communities that have been disproportionately impacted by over-policing born out of the ill-conceived “war on drugs”. Equity applicants include minority-owned businesses, woman-owned businesses, service disabled veterans and distressed farmers.
So far, New York is keeping its promises. OCM just announced that on August 25th, the state will begin accepting Conditional Adult-Use Retail Dispensary (CAURD) applications for their Seeding Opportunity Initiative. This Initiative is a groundbreaking approach to empowering and prioritizing individuals who have been directly impacted by the unabashedly racist and overly punitive cannabis laws of the past. The issuance of the CAURD licenses under the Seeding Initiative will ensure that those who suffered from past laws will “make the first sales of adult-use cannabis in New York with products grown by New York farmers.” The attention to and follow through on Social and Economic Equity within the cannabis industry by the state of New York is thus far impressive, and worth noting for all law makers and regulators preparing for legalization.
Protections for Residents – States have a bad habit of passing permissive cannabis laws, then allowing employers, housing authorities, and other entities punish consumers and/or patients for using the very product the state said was legal. I’m looking at you California. Luckily for residents of the Empire State, the MRTA prohibits such discrimination. Under the MRTA “…employers are prohibited from discriminating against employees based on the employee’s use of cannabis outside of the workplace, outside of work hours, and without use of the employer’s equipment or property.” Furthermore, this amendment to the NY Labor Law strengthens protections offered to medical cannabis patients under the Compassionate Care Act, which classified medical cannabis consumers as “disabled” thereby shielding them from punitive workplace measures based on their use of plant-based medicine.
New York’s Cannabis Taxes? Too Potent for Our Taste
New York’s recreational cannabis policies were doing so well up until this point. But hey, no one is perfect and the state’s cannabis tax model is anything but. New York imposes three separate taxes upon recreational cannabis. First up, the potency tax. I cannot stress this enough, taxing the potency of cannabis is a terrible idea. It is a confusing, overly cumbersome, expensive and ultimately uncertain way to tax cannabis. The potency tax varies depending on the product: edibles are taxed at $0.03 per mg of THC, concentrates are taxed at $0.008 per mg of THC, and cannabis flower is taxed at $.005 per mg THC. Got it? Yeah, neither does anyone else.
Imposed at the distributor level, the potency tax will result in: over-taxing, operational burdens, higher costs to consumers, and disparities between stated and actual product potency levels. In addition to the overly punitive potency tax, New York will also impose a 9% state excise tax, and a 4% local excise tax upon consumers. In the words of Charles Barkley, that’s turrible.
Taxes should be streamlined, capped and outcomes consistently measured against policy goals. States want to ensure that the revenue generated from cannabis is significant enough to cover the cost of state and local program administration, while also generating revenue to support goals related to public health, safety and education. But tax policies must be balanced to reduce burdens on legal operators and facilitate healthy market growth. Absent such reforms the legal market will lose participation and revenue to illicit providers. States considering tax reforms should forego weight-based or potency-based taxes for an increased but capped excise tax, a capped local tax, and if applicable a state sales tax. If nothing else, do it for the accountants.
All things considered, New York is off to an excellent start with their adult-use cannabis program. Successfully, building, implementing and regulating a new industry is no small feat and New York is certainly up for the challenge. Their medical cannabis program still has a ways to go and we certainly hope they get there! Otherwise, patients may lose their patience with the program and join the rest of the state in what promises to be a thriving recreational market.
Square Root Group is organizing State and local strategies to improve policy outcomes for governments, cannabis businesses and patients. Contact us if you need help building or reforming policy!