Municipal opt-outs, OCM missteps and cannabis delivery rules

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Jeffrey Hoffman is a New York City-based attorney who hosts “Ask Me Anything about Cannabis Legalization in New York” each week on LinkedIn. Hoffman and NY Cannabis Insider have partnered to bring those sessions into print in a Q&A format.

Hoffman’s practice focuses on cannabis industry clients, including licensees in the adult-use market, practitioners in the medical cannabis space, and cannabis adjacent product and service providers. He has a particular interest in social and economic equity cannabis license applicants, and he also informs and assists those convicted of cannabis offenses in getting such convictions expunged from their record. He can be reached at info@420jurist.com.

The following AMA from April 5 has been edited for length and clarity. Hoffman’s next AMA is on April 12 at 4:20 p.m.

What’s your opinion about Long Island opting out? How does this affect CAURD? How does it affect New York’s adult-use cannabis industry, generally?

The overwhelming majority of Nassau County has opted out. I think there’s a couple of places – a few blue dots – in the Nassau County map. There’s a few more places in Long Island; one of my current licensee clients is going to open on Long Island, we’re still waiting for some municipal approval, but he’s got a space with his landlord, and I think OCM is going to be happy with it – so fingers crossed. He’ll probably be opening there in the next couple of months, maybe the summer. We’ll see how it goes.

I think the board needs to get much more aggressive with municipalities about this stuff. The opt-out thing was in the law: if you opted out by Dec. 31, 2021, you can always come back in, but you can never get out again. I think there needs to be a lot of pressure on the municipalities on Long Island.

Frankly, I think OCM just needs to get more draconian about this. I think they need to say, ‘here are the limits on how you can regulate the stores that we’ve licensed,’ and state law preempts local law, so I’m certain they have the power to do it. I think they really need to clamp down. You can’t force the ones that opted out to opt in – that is the law. But I think you need to clamp down about a lot more of these restrictions.

I know in a lot of places, there’s restrictions on distance from retail, from residential and other types of things. And I think OCM really needs to look very carefully at what’s going on out on Long Island.

You’re still in your regulatory review period, where you can absolutely weigh in via regulation on this – maybe the distance requirement, the maximum distance requirement that a municipality should be allowed to move you from a residential zone should be 500 feet, or 750 feet, maybe 1,000 feet is too much.

I think they’ve got to get much more draconian. I mean, they’re draconian on the marketing and advertising rules; let’s get draconian on these municipalities that don’t seem to like cannabis. I think there needs to be measures taken against those municipalities to force them in.

When do you think we’ll have 100 dispensaries?

I assume you mean like open and selling products, not 100 licensees, because we’re over 100 dispensary licensees – now we’re at 165. I would guess we will have 100 open either very, very late this year or in the first quarter of next year. That would be my guess, we’ll see. I think we’re up to seven or eight or nine now open in the state, but I’m not exactly sure.

I was up in Schenectady on Friday or Saturday at the opening of the one up there. Obviously, we’ve got several in the city. We’ve got one in Queens, and we got another one in Queens coming. I think Ithaca, we got the ones in the capital region. The enjoined regions are now open, so those are going to start coming. Of the 99 that they just named on Monday, I think a bunch of those are really going to sprint to try to get open. So I think it could happen late this year, but either very late this year or Q1 of next year.

What can small cannabis businesses do to keep the big corporations from steamrolling them?

There will certainly be people that will say they’re going to steamroll you no matter what. I don’t think that’s the case.

I do think there are problems with some of the rules that OCM is trying to promulgate, like the idea of limiting the number of licenses any one entity can be in. I know there’s a lot of complaints about this two-tier system – perhaps limiting investment, and I think it certainly will limit investment. But the idea there is basically no one that’s vertically integrated anywhere in the world can be in New York at all, because if you’re vertically integrated, you’re doing supply and retail, and if you’re doing one you can’t do the other in New York. Being vertically integrated elsewhere completely locks you out of New York.

Business owners need to run a really, really, really tight ship. I can’t tell you how many small business owners I know that take the profits out of their company and buy boats. What are the two happiest days in a boat owners’ life? The day they bought the boat and the day they sold the boat. I try to tell this to my clients that go and buy boats: it’s going to be tough to be profitable early on, you’re going to have 280E, you’re going to have like, 50 to 60% effective tax rate – so it’s going to be tough to be profitable.

But whatever profit you have, or whatever monies you spend, don’t put your family on your medical policy, don’t employ all your family members for no-show jobs. Don’t buy boats with whatever profits you’ve got. Be a really smart, tight-to-the-vest, business owner.

It seems like the OCM is dropping the ball, what’s your take?

I think there’s some things that they’re doing well, and some things that they’re doing poorly and some things that they’re doing very poorly. I’ve said this to Axel Bernabe and said this to [OCM]. They admit their shortcomings in some places, but in some places, I think they are doing well. I wish there had been a general counsel at OCM. Or that they had empowered somebody else at OCM back when they didn’t have a general counsel in the fall. There’s really smart people over there in the legal departments. They finally hired a general counsel at the January CCB meeting. But it really, really hurt not having a general counsel in the fall, when the Variscite lawsuit first hit. I mean, really, who can call the attorney general’s office and say, ‘Hey, we have a big case coming down, we need you to send your team over here so that we can brief them.’ It’s really only the general counsel at OCM that could have made that call. And unfortunately, there was no one to make that call, so the call didn’t get made.

The Attorney General’s people that were sent to make that first hearing for the Variscite case really were not prepared – not at all. If you read the judge’s opinion – and I would encourage everyone to go read it – he got as close as a judge will to saying, ‘Do you people even know what case you’re arguing today?’ It would have really helped to have had a general counsel at that point.

Good stuff is happening with the Variscite case right now. They got four of the five regions out of the [injunction], so that’s not dropping the ball at all. I thought that was tremendous. I think they could have made that argument much earlier.

In some ways, they absolutely are dropping the ball. It’s natural for a regulator – a regulatory body – that is just getting started and has half the staff they need. They got about 175 staff people at OCM, my guess is right now they need about 300. And they should be 500 by the end of the year. If we got any folks that are in the legislature or that work for a legislator here in New York, and I know you’re here because I’ve seen you at these shows before, you guys have got to think about this. You’ve got to fund OCM more, you’ve got to.

How is the Cannabis Control Board authorized to open a special licensing process?

They absolutely can do that; 100%. The more germane question is whether this application period is open for everyone at the same time. It can be very interesting to see what happens here. In the case of ROs suing New York, we’ve got a state court case – the Variscite case is in federal court. This case that’s in state court is going to be very, very interesting to see how this all plays out.

Again, I think most cannabis attorneys were already kind of talking about this quietly behind the scenes, wondering who’s going to be the law firm that files this lawsuit, we have our answer about that. It’s going to be very interesting to see what happens here. It’s very hard to take away a license that’s already been granted, and I think that’s why OCM is now racing to give out the rest of these licenses. We’re going to have another CCB meeting – it looks like on May 11 – where it looks like they’re going to at least release their proposed changes to the regulations.

Is OCM still requiring folks to work for a dispensary to deliver their products?

Well, sort of. To do delivery, a dispensary is going to be able to have 25 full-time equivalents and those will have to be employees of the dispensary. And then if the dispensary needs more delivery capacity, they will be able to partner with the delivery licensees – who, I said above, need to be able to have some amount of their own product and then do overflow for the other dispensaries. But if you need more than the 25 FTE that are employees of the dispensary, you will partner with a delivery licensee and they will be able to give you additional delivery folks, that’s how that’s gonna work.

Who decided the awarding of contracts to Dutchie and Weedmaps?

I know Dutchie got an award; did Weedmaps? My understanding is Weedmaps model is not allowed because they’re a third-party platform. So the way Dutchie got it awarded is they responded to an RFP, which is the way by law, the state has to do things like this. So that’s how the design/build partners got chosen, and the people that are now building out the CAURD dispensaries. DASNY did an RFP, firms responded and DASNY picked whomever they thought was the best response. Since you brought Dutchie, I assume you’re referring to the point-of-sale deal. Dutchie responded to an RFP, and they won.

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