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

As the Empire State moves toward legalization, Governor Cuomo has released amendments to his plan to legalize adult-use cannabis in the State of New York. The amendments permit home delivery of cannabis, reduce criminal penalties for unlawful sales, and clarify the distribution of funds intended to repair damage caused by the war on drugs.

The changes, made public on Monday, February 22, 2021, were issued in response to criticism voiced by cannabis law reformers who argued that Cuomo’s initial legalization proposal did not do enough to address social equity. The amendments have not, however, ameliorated all concerns raised by reformers, including that Cuomo’s proposal is less comprehensive than the legalization bill introduced in the state’s legislature, provides the governor too much discretion in administering funds, and remains unduly punitive. The Senate bill—known as the Marijuana Regulation and Taxation Act, was reintroduced by Sen. Liz Krueger, D-Manhattan, in January, and is currently co-sponsored by 22 senators, constituting one-third of the Senate.

The distribution of power between the executive and legislative branches of the state’s government in the governor’s proposal—titled the Cannabis Regulation and Taxation Act—tips decidedly in his favor. The proposal provides Cuomo with decidedly more control over regulation of the new industry than the legislative bill. Cuomo’s proposal allows the governor to handpick every member on the Cannabis Control Board who will be tasked with regulating the cannabis industry. The bill introduced in the state’s legislature, on the other hand, would grant the governor three of the five appointments, all made with the “advice and consent” of the Senate, with the remaining two positions filled by leaders in the Senate and Assembly.

Cuomo’s plan would dedicate tax revenues from cannabis sales to a social equity fund intended to support various community reinvestment programs, including mental health treatment, adult education and job placement, financial literacy, child care and after-school programs, and nutrition services. The fund would be administered by the New York State Urban Development Corporation, and distributed to nonprofits and local municipalities by various state agencies.

The schedule included in the governor’s initial budget provides the social equity fund with $10 million in its first fiscal year, with $10 million increases each subsequent year until the 2026– 2027 fiscal year, at which point the fund would receive yearly contributions of $50 million. These figures constitute a fraction of the estimated $350 million in tax revenue that administration officials predict will be generated by legalization.

The amendments also create a delivery license that can be issued to small businesses looking to participate in the new industry without incurring potentially significant startup costs associated with a full-scale cultivation or retail operation. The amendments do not provide any clarity as to how home delivery will be regulated given the fact that the proposal allows localities to pass ordinances banning licensed cannabis activity.

The amendments reduce certain penalties for unlawful sales of cannabis; however, sales to underage people remain classified as a Class A misdemeanor, which is punishable by up to one year of jail time. The amendments allow those accused of sales to underage people to invoke an affirmative defense to the charge if the customer used a fake ID in connection with the purchase.

While the amendments do serve as a step closer toward legalization, they also highlight a significant number of issues that may need to be addressed before businesses or consumers will be able enjoy the benefit of legalized adult-use cannabis. Those looking to enter the industry will benefit from keeping track of progress made toward resolving issues that may delay legalization. Areas of interest include:

• The division of power between the governor and the state legislature concerning all regulatory activities in general, and specifically the composition of the Cannabis Control Board. The level of discretion granted to the governor in connection with administering funds generated from the predicted significant tax revenues on cannabis sales may also be a point of contention.
• Regulatory and enforcement complications stemming from local ordinances potentially banning licensed cannabis activity that is legal and permissible throughout the remainder of the state. Individuals traveling between localities and licensed delivery drivers alike require clarity in order to ensure full compliance with the law.
• The extent, and the scope, of social and criminal justice reform. While some activists have critiqued the proposal for not doing enough to address social equity, others seek to narrow the social equity’s fund mandate to address only issues caused by criminalization of cannabis, not programs geared toward substance use disorder for other drugs. In addition, a balance needs to be struck between decriminalizing and legalizing adult-use cannabis, and criminal penalties assessed for use of cannabis in an unauthorized manner.

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About The Author(s

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].

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