While New York has become more marijuana-friendly in recent years, New Jersey’s voter-approved legalization creates incentives for the New York State Legislature to reconsider its stance.

By Lori B. Green, Brandon Coyle, Catherine A. Savio, Nixon Peabody LLP

The time is “ripe” for marijuana legalization in New York, said Governor Andrew Cuomo during an interview two days after the election.

On November 3, 2020, New Jersey voters approved a constitutional amendment to legalize “a controlled form of marijuana called ‘cannabis.’” The amendment will take effect on January 1, 2021, but New Jersey law makers must still pass a bill governing the rules and regulations of the industry, which will be overseen by a Cannabis Regulatory Commission. The creation and implementation of a regulatory scheme will be no small feat given the highly regulated nature of the industry. In addition to the tax revenue, New Jersey will also benefit from the jobs that will be created as a result of the expansion of the cannabis space—new businesses will require the assistance of industry focus and experienced attorneys, accountants, and other advisors.

Meanwhile, New Jersey’s neighbor to the north, New York, has become more marijuana-friendly over the past few years, but it has not yet embraced legalization. New York’s law decriminalizing possession of small amounts of marijuana went into effect on August 28, 2019, and just last month the New York State Department of Health created a Cannabinoid Hemp Program to license cannabinoid hemp processors and retailers and set quality control standards for cannabinoid hemp products. However, Governor Cuomo, who has argued in favor of legalization for some time, has been unsuccessful in convincing the New York State Legislature to adopt legislation to legalize adult recreational use of marijuana in New York. Governor Cuomo has included marijuana legalization in his annual budget proposals for the last two years, but negotiations in the legislature have stalled, with legislators unable to agree on how cannabis tax revenue would be allocated.

We expect that a potential side effect of the overwhelming approval of marijuana legalization by New Jersey voters, taken together with the significant revenue losses New York is experiencing as a result of the COVID-19 pandemic and the social justice reform movement in New York, will be to put pressure on New York legislators to adopt legislation legalizing adult use marijuana in New York. Absent doing so, New York likely will lose tax revenue to New Jersey, including as a result of New York residents purchasing marijuana in New Jersey and businesses establishing themselves in New Jersey as part of the marijuana supply chain.

Given the shared border and high rate of exchange of both people and goods between the two states, New York legalization would allow the state to avoid putting itself and its residents at a competitive disadvantage with New Jersey. If New York were to act quickly, it may also cooperate with New Jersey to put together a regulatory structure that would benefit both states and allow New York to avoid having to incur the costs associated with policing a potential influx of currently illegal cannabis through the bridges and tunnels of New York. Such cooperation would not be without precedent—the two states have successfully coordinated on legislative initiatives in the past including criminal justice reform, eliminating religious exemptions for vaccines, employment and economy restoration initiatives, the legalization of e-bikes and scooters, and all things related to the COVID-19 pandemic. In September of last year, Governor Cuomo and Governor Phil Murphy of New Jersey, along with governors from Pennsylvania and Connecticut and representatives from Massachusetts, Rhode Island, and Colorado, attended a regional cannabis regulation and vaping summit to discuss and agree to basic principles for legal cannabis programs that they planned to pursue. New York and New Jersey officials already understand that interstate cooperation is an important piece of the puzzle to the best policy results for their constituents when it comes to marijuana legalization.

Even if New York moves quickly and joins New Jersey, establishing a regulatory structure for legalization will likely take some time. However, those interested in starting a New York-based business in the industry or expanding an existing business into the new field may consider taking certain steps now to prepare in anticipation. Here are some actions to consider taking:

• Refreshing your business plan. A growing legal market opens doors for expansion that may not have been considered before. Businesses should explore financing options and opportunities for cross-market collaboration (e.g., wellness and self-care products). As more states trend toward legalization, smaller businesses may be best served by collaborating with others to effectively compete in the future.
• Establishing your brand. Make sure that your business name and brand will not give rise to potential claims of trademark infringement and consider hiring a professional to perform a search for you and advise you on whether your brand can be protected. A company name or a brand that indicates ties to the cannabis industry may get the attention of customers, but may create confusion with existing brands in the space and result in costly litigation. A rebrand today could save a business in the long run.
• Forming your team. In addition to considerations that need to be made when creating a company in any field (human resources, marketing, accounting, etc.), starting a successful business within this highly regulated sector requires attention to industry-specific issues. Consider engaging a cannabis law attorney with knowledge of the industry and its complex regulatory and legal framework.

Several pieces must fall into place before legalization in New York becomes reality. With that being said, any business that sees New York as a budding opportunity in the legal cannabis space should be proactive in taking these steps to avoid bottlenecks if and when the time comes.

About the Authors

Lori Green, a partner with Nixon Peabody LLP, co-leads the law firm’s Cannabis practice. She has more than 30 years of domestic and international experience in a wide range of M&A and other business law matters. Lori can be reached at [email protected].

Brandon Coyle is an associate in Nixon Peabody’s Corporate Transactions group. He focuses his practice on business transactions and general corporate work. Brandon can be reached at [email protected].

Catherine Savio is an associate in Nixon Peabody’s Complex Commercial Disputes practice group. She represents a wide range of clients in federal and state courts, arbitrations, mediations, and administrative hearings. Catherine can be reached at [email protected].