John Schroyer
New York’s long-awaited universal marijuana business license application window opened last week for all comers, following a new dump of rules and regulations the Friday before designed to answer a lot of stakeholder questions about the permitting process.
While the new release of intel was substantial – including, for instance, breakdowns on how many licenses regulators expect to award in coming months and a 45-page FAQ document – there’s still much that’s unknown about how the market expansion will play out, particularly in the wake of the past year’s chaos.
One of the most significant revelations is a randomized “queuing” process – essentially a lottery – that the Office of Cannabis Management will use after the window closes on Dec. 4, which injects a serious element of chance into the process.
“There’s still a lot we don’t know about the drawing process and the de-queuing process that’s making planning difficult,” said New York City cannabis attorney Lauren Rudick, who added that “chaotic is a fair assessment” of the industry landscape at the moment.
But attorney Jeffrey Hoffman, who has also been working with marijuana entrepreneurs to help them win licenses, said regulators at least offered a “really solid” guidance package to help entrepreneurs navigate the process.
The broad swath of info released just before the Oct. 4 licensing launch “gives a lot of really good information,” he said.
“In general, the process seems to be going pretty well” thus far, Hoffman said.
Still, Hoffman acknowledged plenty of issues remain, which is causing uncertainty for many stakeholders – and which makes more court battles a solid bet.
“However they slice or dice this, somebody was going to be unhappy,” Hoffman said. “As soon as the application window closes, there’s going to be a bunch of lawsuits, and we’ll have to see what comes when that happens.”
What’s Clear
OCM officials made clear during last month’s Cannabis Control Board meeting that a top priority is simply getting more retail shops open. They also suggested some kind of special prioritization for the 400-some conditional adult use retail dispensary (CAURD) licenses that were put on hold by court order.
The OCM also clarified in its new guidance that any retail applicants – including microbusinesses – that already have a location locked down will be fast-tracked after Nov. 3. That appears to be a procedural advantage that the CAURDs could have over competitors, Rudick said, since licenses in general aren’t required to have a store location ready.
After the full application window closes on Dec. 4, the OCM will commence the lottery to decide the order in which to review applications. Submissions will be separated into different pools, including qualified social equity applicants and probably CAURDs, within 2-4 weeks after the window closes.
That means actual licenses almost certainly won’t be awarded until 2024, said attorney Benjamin Rattner, who’s assisting clients in the application process.
The OCM said it intends to hand out:
- 500-1,000 retail licenses
- 220 microbusiness permits
- At least 155 processor permits
- 40 cultivation permits
- 30 distribution licenses
That’s in addition to the 279 existing adult use conditional cultivation licenses and 40 conditional processors that will be allowed to transition to full licensure.
Rattner called the low number of cultivator licenses being issued “striking,” though OCM has yet to say when it will award cultivator licenses for tiers 3, 4 and 5, all of which allow for larger canopy sizes than the tier 1 and 2 permits available currently.
“My guess is OCM is trying to avoid price compression and flooding the market,” Rattner said.
Other permits – such as for delivery, on-site consumption, and events – will be awarded in later licensing rounds, but when that will happen is still one of the great unknowns.
Overall, there’s an air of eager anticipation in New York now that the universal licensing has begun, Rattner said.
“People are excited. People are relieved that the licensing window is finally open. It’s too early to say much beyond that. Come back to me in 45 days, and I’ll tell you,” Rattner said.
What’s Not Clear
The OCM has not yet provided a timeline for actually awarding the licenses or when future licensing rounds will take place. That arguably makes the licenses that will be issued from the current round even more valuable, sources said.
Rudick said the upcoming randomization process also cancels out a lot of prep work done by many hopeful licensees.
“A stacked team with all of the talent in the world has just as much of a chance as a single-member LLC who hasn’t figured anything out yet,” she said, suggesting that well-capitalized businesses will “flood” the OCM with as many applications as they have the time and money to assemble.
Hoffman said there’s a lot of conflicting information even within the guidance documents issued by OCM, such as how retailers can prove they “control” their locations. In one document, it says proof of location control means either a lease or a deed of ownership, but in another, it states that a signed option to purchase will suffice.
“There’s different (information) in the application than there was in the mock-up (application),” Hoffman said.
There’s also still confusion and frustration related to qualification for social equity status, which would provide reduced license fees and other bonuses, Hoffman said. The OCM released “communities disproportionately impacted” maps that outline the qualifying geographic areas.
Many of the CAURDs, Hoffman said, hoped to find themselves to be from or located within a CDI area, but ultimately, some of his clients realized their current or former homes were literally across the street from where the boundary ended.
“There’s a lot of cracks to fall through,” Hoffman said of the overall process.
It’s also still unclear just how the CAURD licensees may be given special prioritization, a pledge that OCM officials made, but may not be able to follow through on.
“If I had to take a guess, I suspect that OCM will segregate the CAURD applications into its own pool, using that check box, but I don’t know,” Rattner said, referring to a box on the new applications that retailers can use to indicate they were part of the CAURD program.
Rattner said there are also questions related to how exactly OCM may resolve conflicts between retailers who submit proposed dispensary locations within 1,000 feet of each other (or 2,000 feet in any municipality with a population under 20,000). State rules prohibit multiple stores within that range.
The new FAQ, however, states clearly that whichever retail applicant is ranked first in the randomized queuing process will take priority over those who come after.
But there’s no way for retailers to know other applicants’ locations before applying, Rattner pointed out. That makes the entire process more of a gamble, since hopeful retailers are only allowed to submit three applications apiece. Those who lose out due to the proximity rules would likely have to bite the bullet and apply again in future licensing rounds.
Then there’s the question of how the OCM is going to monitor and weed out applications that may be not allowed – such as people submitting applications for both retail businesses and those in the upstream supply chain, Rudick said.
“There’s not a lot of clarity on how people are going to be treated in the queue. We know that you’re not supposed to apply for more licenses than you’re entitled to,” Rudick said. “Everyone is grappling with how to work within this structure without disqualifying yourself, (while still) increasing your odds.”
More Lawsuits?
Some of the new rules could also invite more litigation, sources warned, given how many businesses are eager to tap the enormous potential of the Empire State.
One new lawsuit could be an extension of the litigation that already stalled the CAURD openings, because the underlying argument focused on whether it was illegal for regulators to give the CAURD applicants special treatment, Hoffman said.
To save the CAURD program may still require action by the state legislature, Hoffman said.
“There’s nothing the OCM can do, definitively,” Hoffman said, referring to the August court order halting the CAURD licensing. “That’s why we’re kind of on eggshells. … I’m telling all the CAURDs to reapply, because their licenses could very well be found unconstitutional and stripped from them.”
There are also CAURD licensees that haven’t ruled out suing the state over their financial troubles this year due to the injunction preventing them from launching their companies, something that is arguably the fault of regulators.
“The financial losses are massive. It’s hanging over my head,” said Jennifer Tzar, a CAURD licensee who was poised to open a dispensary in Manhattan before a preliminary injunction was issued in August.
Tzar, who won her CAURD permit in April, estimated she’s spent $1 million already and is beholden to an investor for another $4.9 million. She hasn’t ruled out suing the state for restitution, depending on what happens with her shop.
“There’s quite a bit of money on the table,” Tzar said.
