Tobacco Paraphernalia? Prove It.

Tobacco paraphernalia is in many cases indistinguishable from cannabis paraphernalia, especially when products are unconnected to specific consumers. If an item can be used in both lawful and unlawful ways, it seems illogical to classify it as drug paraphernalia, unless the item is connected to illegal activity. Yet the approach of the U.S. federal authorities is the opposite: Absent evidence of intended lawful use, they have no qualms about labeling something as drug paraphernalia.

The Controlled Substances Act defines “drug paraphernalia” as:

“any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance.” 21 U.S.C. § 863(d).

As readers may imagine, the “primarily intended or designed” part of that definition has been and remains the subject of many a legal scuffle. For many products, it is clear that they can be used with both tobacco and cannabis, but their primary intended use may be hard or impossible to establish. As we recently noted in Goods and Services and Canna Trademarks:

whether [a] lighter or ashtray or rolling paper is used with marijuana or hemp or tobacco is a question of fact that will be determined by the user of the products. Conditions encountered by law enforcement when they seize drugs can in some instances support the characterization of a product as paraphernalia, even in cases where there are legal uses for that same product. However, by definition, such products cannot be drug paraphernalia prior to use, just as guns and cars can only become instrumentalities of crime after someone uses them.

In practice, the feds are untroubled by the fact that eventual use of a specific product may be lawful or unlawful. On the contrary, if they discover any linkage to cannabis, they will have no problem treating a good as drug paraphernalia, possible use with tobacco or other lawful substances notwithstanding. They will do so even when the linkage is tenuous. For instance, in a 2008 ruling letter addressing the importability of certain grinders, U.S. Customs and Border Protection (CBP) noted that “an internet search reveals a vast number of advertisements relating to grinders similar to those imported by [the importer] for use with marijuana or cannabis.” However, there is no indication that CBP considered the number of advertisements relating to similar grinders for use with tobacco.

When faced with allegations that a product’s primary intended use is lawful, the feds will typically give them short shrift, unless they are accompanied by supporting evidence of such lawful use. In the ruling letter discussed above, CBP concluded that “the record does not show or establish that the merchandise is traditionally intended for use with tobacco products.”

There is something unsettling in CBP’s approach. On the one hand, the agency requires importers to demonstrate that their products are intended for lawful use, even when potential legal uses are obvious. Those grinders that were the subject of the ruling letter could be used to grind tobacco or tea, as the importer contended, and this is something that CBP did not deny. Yet CBP will go out of its way to find evidence that supports a finding that an item is drug paraphernalia.

CBP ruling letters document in great detail the sleuthing conducted by its officers across YouTube, Instagram and Facebook. They will not only look at an importer’s own social media, but also follow links found on the same. Just to give you an example of the kind of research findings that your tax dollars fund, check out this ruling letter concerning a desktop vaporizing device called the Saber:

[The importer] shared on their Instagram page a photo of a model using a Saber and a link to the model’s personal Instagram page. On the model’s personal Instagram page, she has posted a video review of the Saber and tagged [the importer]. During the review she vaporizes cannabis with the Saber and states that ‘it conserves a lot of weed,’ and ‘I’m so high.’ The model’s previous March 2, 2020 Instagram post on her personal page is an ‘Official Promo Video’ for the Saber. The video is of the model walking through an alley with the Saber and using it as a smoking device …

We understand that federal law enforcement agencies are tasked with enforcing the laws on the books, but the Controlled Substances Act gives them plenty to go after without having to go fishing online to determine whether an item constitutes drug paraphernalia or not. 21 U.S.C. § 863(d) identifies no less than 15 items that are by definition drug paraphernalia.

Moreover, the legalization of hemp by the 2018 Farm Bill adds a further layer of capriciousness to the application of drug paraphernalia laws to items that have both lawful and unlawful uses. Following the enactment of that law, some cannabis is lawful, period. Trying to ascertain if a product’s primary intended use is with hemp or marijuana is an even greater fool’s errand than trying to distinguish between tobacco and cannabis products.

As with so many other issues that plague our legal system, the real solution to this absurd state of affairs is in the hands of the U.S. Congress. It is high time that lawmakers took a massive pair of scissors to the CSA’s drug paraphernalia provisions, and relieve our overworked law enforcement officers from the long hours they must spend sifting through Insta posts. #smdh

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2024: Adult Use Marijuana in Florida

In 2024, we may finally see adult use marijuana in Florida. This week, Smart & Safe Florida, a non-profit political organization, filed its ballot initiative, “Adult Personal Use of Marijuana“, with the  Division of Elections to legalize adult use marijuana in Florida. Make it Legal Florida already unsuccessfully tried to get adult use on the ballot for this year. Notably, this current initiative is backed by Trulieve, the largest cannabis operator in the state. In any event, adult use marijuana in Florida by ballot initiative must first make it past the Florida Supreme Court.

The initiative process

Unlike many states, Florida initiative sponsors can submit petition signatures at any time. After 25% of required signatures have been collected and sponsors submit a ballot title and summary to the Secretary of State, the Secretary of State then submits the proposal to Florida Attorney General. The Florida AG then petitions the State Supreme Court for an advisory opinion on “the measure’s compliance with the single-subject rule, the appropriateness of the title and summary, and whether or not the measure ‘is facially valid under the United States Constitution.’” The single-subject rule means that the initiative can only address one subject, topic, or issue. And the Court’s review of the title and summary hinges on whether the initiative is “printed in clear and unambiguous language” pursuant to Florida law (the “Clarity Requirement”).

The “Make it Legal Florida” fail

The “Adult Use of Marijuana” ballot initiative sponsored by Make it Legal Florida would have allowed people 21 and up to “possess, use, purchase, display, and transport up to 2.5 ounces of marijuana and marijuana accessories for personal use for any reason.” On its review, the Supreme Court struck down the initiative based on the Clarity Requirement, alone; it found that the summary of the initiative was misleading to voters and inaccurate in that it would lead voters to believe that federal cannabis laws would no longer apply, among other issues. We’ve seen a lot of this type of thing around the country, unfortunately. See: Cannabis Ballot Measures Are a Sucker’s Game.

A second bite at the apple

Smart & Safe seems to have learned from Make it Legal Florida in that the main goal appears to just get the initiative language past the Supreme Court (and on to the ballot) by utilizing as little language as possible to form the Constitutional Amendment.

The initiative for adult use marijuana in Florida is only four pages long. Here is the summary:

Allows adults 21 years or older to possess, purchase, or use marijuana products and marijuana accessories for non-medical personal consumption by smoking, ingestion, or otherwise; allows Medical Marijuana Treatment Centers, and other state licensed entities, to acquire, cultivate, process, manufacture, sell, and distribute such products and accessories. Applies to Florida law; does not change, or immunize violations of, federal law. Establishes possession limits for personal use. Allows consistent legislation. Defines terms. Provides effective date.

The initiative makes clear that only Florida civil and criminal penalties would not apply if the law passes, and that the initiative does not change current federal laws. Further, Medical Marijuana Treatment Centers (MMTCs) (the only entities that can make and sell cannabis products) would also be the ones to make and dispense adult use products (unless the state decides to license other entities, too). That’s pretty much it.

What happens next

Smart & Safe first needs to net enough signatures to get the initiative to the Secretary of State. Of course, this initiative is receiving mixed reactions from the industry. It seems that Floridians badly want adult use cannabis in a regulated fashion. The only way to do that, though, may be through an initiative like this that has, overall, very little detail and that preserves the currently monopoly held by MMTCs. This type of program would barely open the door for industry expansion.

In the end, while Smart & Safe may end up passing muster with the Secretary of State and satisfying the Supreme Court on any challenge, voters may or may not get behind the future of adult use marijuana in Florida with such an abbreviated law. That’s especially with the Florida primary elections on the horizon. We will keep you posted.

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New York to Accept Retail Dispensary Apps August 25

It is finally here: New York’s Office of Cannabis Management (OCM) announced that it will begin accepting applications for the Conditional Adult-Use Retail Dispensary (CAURD) Licenses on August 25, 2022. Applications will be accepted through the OCM’s online portal and the application window will close on September 26, 2022. This is obviously a huge deal and the first step towards legal sales of adult-use cannabis in New York.

As a brief refresher, this is a conditional license that moves forward New York’s stated goal of prioritizing social equity applicants. Even if the non-conditional adult-use licenses follow shortly hereafter, it means a lot that the first sales of cannabis in New York will come from businesses owned by individuals who have suffered from New York’s needless and damaging war on cannabis. The two big ticket items for CAURD applicants:

  • Applicants must have a marijuana-related offense conviction that occurred prior to the MRTA being passed on March 31, 2021, or a parent, legal guardian, child, spouse or dependent with a pre-MRTA marijuana-related offense conviction in the State of New York; and
  • Applicants must have experience owning and operating a qualifying business.

We have all of the critical breakdowns of the CAURD license:

This is a big deal, and for anyone interested in applying for a CAURD license, we strongly recommend contacting an experienced cannabis attorney (including us!).

Stay tuned for future development on New York’s cannabis industry and an update after the Cannabis Control Board’s meeting on Monday, August 15, 2022. We will keep you posted.

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L.A. County Commercial Cannabis Tax Measure is Here

L.A. County commercial cannabis is finally coming in 2023. We covered the breaking news about L.A. County commercial cannabis regulations here. This is a huge deal, because L.A. County is the biggest county in the U.S. with over 9 million residents.

L.A. County plans to allow the following businesses in in its borders in 2023: 25 retail, 25 delivery, 10 cultivation (indoor or mixed light only), 10 distribution, and 10 testing licenses. Priority goes to equity applicants.

The exact licensing/permitting process has yet to be revealed. We can really only tell what the general “framework” for it is. Nonetheless, the local approval process should be in place by 2023. For now though, we’re getting a look at the proposed L.A. County Commercial Cannabis tax measure.

L.A. County Commercial Cannabis Tax

The County is putting a ballot measure before voters regarding how commercial cannabis businesses in the unincorporated parts of the County should be taxed. A copy of the measure and ordinance can be found here.

On November 8th of this year, County residents will make the call on whether to apply a general tax to cannabis businesses. That general tax will go to the County’s general fund, and will be earmarked for a variety of County needs and programs. One of them is the County’s cannabis equity program administered through the Office of Cannabis Management.

What’s in the measure

If the measure is approved by voters, L.A. County commercial cannabis businesses would be taxed at the following rates starting July 2023:

  • Retail: 4% of gross receipts
  • Manufacturing:  3% of gross receipts
  • Distribution: 3% of gross receipts
  • Testing: 1% of gross receipts
  • Cultivation: $7/sf of canopy (indoor artificial light)
    • $4/sf of canopy (mixed light)
    • $4/sf of canopy (outdoor)
    • $2/sf of canopy space (nursery)
  • Any other type of Cannabis Business:  4% of gross receipts

Adjustments to rates

The County proclaimed in its media release that “[t]hese are some of the lowest rates in the State, and they are designed to better promote the viability of the legal cannabis businesses.” I’m not so sure about that, given the recent changes to state law around cannabis tax reform. In any event, the measure also allows the county “to decrease or increase the tax rates up to the following maximum tax rates on cannabis businesses in the unincorporated areas of Los Angeles County after July 1, 2026:

  • Retail: 6% of gross receipts
  • Manufacturing:  4% of gross receipts
  • Distribution: 3% of gross receipts
  • Testing: 2% of gross receipts
  • Cultivation: $10/sf of canopy (indoor artificial light)
    • $7/sf of canopy (mixed light)
    • $4/sf of canopy (outdoor)
    • $2/sf of canopy space (nursery)
  • Any other type of Cannabis Business:  4% of gross receipts

The County notes that, regarding the max increases, the tax rates for cultivation will be adjusted annually to reflect inflation in 2027.

Who pays the tax

A nice perk of the County tax is that it only applies to cannabis businesses located within unincorporated areas of the County. And the tax also applies to illegal operators as a way to combat the illegal market. This assumes though that the County will be able to find and catch these operators in the first place.

We’ll be sure to keep you up to date on the County’s licensing/permitting regulations as they roll out and certainly on whether this tax measure passes in November.

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States to Feds: End Cannabis Prohibition Now

After a vote last week, the National Conference of State Legislators (NCSL) adopted a revised cannabis policy measure (the “Directive“) which supports federally descheduling cannabis, as well as cannabis banking reform. At this point, it’s abundantly clear that the states have moved beyond cannabis prohibition.

The NCSL is a non-partisan organization that represents all state legislators nationwide. A state legislator present at the summit, held in Denver, said that most of the discussion leading up to the vote centered on federal cannabis banking reform, but there was no debate on the language of cannabis legalization. The legislator said that there was minimal opposition, with an estimated five to seven states of the 44 in attendance that vocalized their opposition.

NCSL passed similar measures back in 2017 and 2018 calling for cannabis descheduling, though those measures were limited in scope, specifying that states should be free to establish their own cannabis legislation without federal intervention. This time, the NCSL made an explicit call for federal cannabis legalization. The Directive also states that “until cannabis is federally descheduled,” the federal government should focus on enforcing penalties for criminal enterprises in “illicit” cannabis production and distribution instead of citizens who comply with state cannabis legislation.

A new section of the Directive charges Congress with passing legislation centered on cannabis banking reform. The Directive states that cannabis businesses are forced to deal primarily in cash because they cannot access the country’s banking system, which makes them prime targets for theft, burglary, and armed robbery. This section “urges Congress to pass legislation allowing financial institutions to provide banking services to legitimate state authorized cannabis-related businesses.” This strong language demonstrates the state legislators’ focus on cannabis banking reform and access to financial services.

The Directive is significant for several reasons. Primarily, it shows that states favor an escalation of federal cannabis reform since adopting past measures. Instead of simply resolving that the federal government should not interfere with state cannabis legislation, the revised measure calls on Congress to deschedule cannabis and reform cannabis banking at the federal level. The Directive also demonstrates uniformity among state legislators in supporting federal cannabis reform, as the measure passed with an overwhelming majority and marginal voiced opposition.

The timing of the Directive is interesting, as it comes with roughly a dozen federal cannabis reform bills floating around Congress. Perhaps the bill with the greatest amount of traction is the Cannabis Administration and Opportunity Act (CAOA), sponsored by Senate Majority Leader Chuck Schumer (D-NY) and Senators Ron Wyden (D-OR) and Cory Booker (D-NJ). The bill was filed last month, and while there may not be enough support for the CAOA to clear the Senate’s 60-vote threshold in the immediate future, Schumer has continued holding bipartisan talks about cannabis reform. He most recently stated that he is committed to passing “something” on cannabis reform by the end of the year.

Finally, NCSL adopted the Directive with the SAFE Banking Act having floated around Congress for several years. The SAFE Banking Act is a bill aimed at remedying the cannabis industry’s exclusion from the banking system, but was recently left out of a larger package of manufacturing reforms as a concession to Republicans lawmakers to pass the bundle of reforms.

The latest NCSL adopted cannabis measure, which supports the federal descheduling of cannabis and cannabis banking reform, is a positive development. It indicates pressure to hasten reform and uniformity among state legislators. Whether Majority Leader Schumer gets his wish and passes “something” on cannabis reform this year remains to be seen.

To catch up on recent federal efforts to end cannabis prohibition, check out the following:

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Interstate Cannabis Agreements in California

I get asked a lot of questions about what California cannabis licensees can and cannot do under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). California is actually business friendly once operations get going with a license– despite its many issues with the cannabis industry. For example, vertical integration is allowed. There’s no license cap, and you can apply for a license year-round. We allow for cannabis delivery apps. And California permits consumption lounges in line with local law.

So what’s next? Well, at this point California is also going to try to allow for interstate cannabis agreements, similar to what Oregon did back in 2019 under its Senate Bill 582. In California, the proposal up for discussion is SB 1326.

Interstate cannabis agreements

According to AB 1326:

MAUCRSA specifies that its provisions shall not be construed to authorize or permit a licensee to transport or distribute, or cause to be transported or distributed, cannabis or cannabis products outside the state, unless authorized by federal law. This bill would make an exception to the above-described prohibition and would authorize the Governor to enter into an agreement with another state or states authorizing medicinal or adult-use commercial cannabis activity, or both, between entities licensed under the laws of the other state or states and entities operating with a state license pursuant to MAUCRSA, provided that the commercial cannabis activities are lawful and subject to licensure under the laws of the other state or states.
How interstate cannabis agreements would work

Interestingly, these interstate cannabis agreements would be between states. Not licensees. Licensees would still need to engage in contracts with each other for the actual import, export, and distribution of cannabis across state borders. The governor of California would be able to enter into these interstate agreements with governors from other states so long as:

  1. The commercial cannabis activities are lawful and subject to licensure under the laws of the contracting state.
  2. With respect to the interstate transportation of cannabis or cannabis products, the agreement prohibits both of the following: (a) The transportation of cannabis and cannabis products by any means other than those authorized under both the laws of the contracting state and the regulations of the [California Department of Cannabis Control]. (b) The transportation of cannabis and cannabis products through the jurisdiction of a state, district, commonwealth, territory, or possession of the United States that does not authorize that transportation.
Contracting state

The interstate agreement between the states would require that the contracting state agree that its cannabis licensees be bound by California’s requirements around public health and safety, track and trace, testing, inspection, packaging and labeling, and adulterated and misbranded cannabis. The contracting state must also impose “restrictions upon advertising, marketing, labeling, or sale within the contracting state that meet or exceed the restrictions” in California for the same. And all California taxes apply, too. See here for more on California’s recent cannabis tax reform.

Foreign licensees

A “foreign licensee” is a cannabis licensed and based in a state other than California. A foreign licensee cannot engage in commercial cannabis activity in California “without a state license, or engage in commercial cannabis activity within a local jurisdiction without a license, permit, or other authorization issued by the local jurisdiction.” So, foreign licensees will also be plagued by California’s local control issues if they seek to do business in one of our cities or counties that allows for commercial cannabis activity.

The catch

While it would be truly amazing to have interstate cannabis movement between licensees from San Diego up to Bellingham, Washington, there’s one massive catch here. The Feds. SB 1326 really won’t do anything unless and until one of the following four events occurs:

  1. Federal law changes to allow for the interstate transfer of cannabis or cannabis products between authorized commercial cannabis businesses, i.e., legalization. (There have been recent efforts at the federal level to allow interstate transfer, even without changes as to the federal prohibition of cannabis.)
  2. Federal law is enacted that specifically prohibits the expenditure of federal funds to prevent the interstate transfer of cannabis or cannabis products between authorized commercial cannabis businesses.
  3. The Department of Justice issues an opinion or memorandum allowing or tolerating the interstate transfer of cannabis or cannabis products between authorized commercial cannabis businesses.
  4. The Attorney General issues a written opinion through the process . . . that implementation of interstate cannabis agreements will not result in “significant legal risk” to the State of California based on review of federal judicial decisions and administrative actions.

Number four is very interesting. Basically, if the California Attorney General releases a legal opinion that interstate cannabis agreements will not put California at risk of lawsuits or arrests and prosecutions by the Feds, then these agreements will be effective. Not sure if the California A/G’s office will stick its neck out like that, but it may if the political climate is ripe.

The bill is currently in the Senate appropriations committee heading for a suspense file hearing. It’s chances of passing probably aren’t that great, but the fact that it’s even being considered is really a huge step forward for the maturation of the industry.

Be sure to stay tuned as we keep an eye on interstate cannabis agreements. In the meantime, check out the following related posts, especially if you are interested in the Constitutional viability of an export regime, and issues around federal consent if AB 1326 ultimately passes.

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Deceptive Matter and Canna Brands

Deceptive matter is yet another pitfall faced by canna brands as they take steps to protect their intellectual property. According to the U.S. Trademark Act (commonly known as the Lanham Act), such matter may not be registered as a trademark (15 U.S.C. § 1052(a)). While to some extent this is a commonsense rule that seeks to protect the public, in practice its application can be surprisingly expansive. Cannabis brands should avoid using trademarks that could in any way be considered deceptive matter.

When determining if a trademark consists of deceptive matter, USPTO applies a three-part test:

(1) Is the term misdescriptive of the character, quality, function, composition or use of the goods?

(2) If so, are prospective purchasers likely to believe that the misdescription actually describes the goods?

(3) If so, is the misdescription likely to affect a significant portion of the relevant consumers’ decision to purchase?

In some cases, it’s not hard to conclude that USPTO will likely consider a trademark to consist of deceptive matter. Taking a hypothetical example, imagine a vodka called CannaVodka, which does not in fact contain cannabis. The term “Canna”, as used in this imaginary trademark, is clearly misdescriptive of the composition of the vodka. Given the proliferation of canna drinks in the market, it is reasonable to expect that prospective purchases will believe the vodka contains cannabis. And by the same token, the presence of cannabis is likely to be a selling point for consumers.

As we said earlier, though, USPTO can sometimes reach surprising conclusions when it comes to the Lanham Act’s bar on registering deceptive matter as trademarks. This blogger generally takes any brand’s claim of environmental friendliness with a grain of salt, on par with health insurance companies’ assurance that I will “love” their service.

Evidently, though, USPTO is less jaded. Recently, the agency has required brands making such claims to amend their applications, to clarify that their goods are in fact ecofriendly. Otherwise, the agency contends, the mark may be deceptive, insofar as it may be used in connection with goods that are in fact terrible for the planet.

When choosing trademarks, brands need to consider whether they could in any way be considered deceptive matter. This analysis is made by focusing on how the brand relates to the character, quality, function, composition or use of the products. Brands seeking trademark protection overseas need to be extra careful, as other trademark offices might not offer the same procedural off-ramps that the USPTO typically does.

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New York CAURD Locations: The Update

We recently got on our soap box about the importance of hiring a New York cannabis attorney. The catalyst for that post was the question of whether applicants for New York’s Conditional Adult-Use Retail Dispensary (CAURD) license can select their own real estate. We have an answer: no.

A brief refresher of the drama. Section 116.7(b)(6) of the CAURD regulations made it a condition of licensure that the licensee “[accept] a dispensary location identified by the fund or office[.]” The Office of Cannabis Management (OCM) published supplemental licensing materials that contained conflicting guidance.

The OCM’s CAURD FAQ contained the following question and answer:

31. Can I choose where my CAURD licensed retail dispensary will be located?

Applicants who are selected will be assigned a retail dispensary location in one of the fourteen (14) geographic regions of NYS. When applying you will be asked to indicate which region(s) of the State you would prefer to be assigned a license in. You will be able to rank your top five (5) preferred regions. You will not be able to choose the specific street address or neighborhood for this dispensary. Provisional licensees will be able to share their preferences among the available locations in the region for which they have been selected.

If you would like to select your own site for a retail dispensary, the CAURD license may not be the right fit for you. Future adult-use retail dispensary licenses (and those for on-site consumption sites) will have more flexibility in allowing licensees to choose their own location.”

The OCM also published comments and responses to the CAURD regulations, which included this language regarding whether applicants could select their own real estate:

“The proposed regulations do not insist upon applicants to use New York Social Equity Cannabis Investment Fund locations and provide for the allowance of an applicant to provide their own location that complies with the proposed regulations.”

The conflicting position and potential change in course has had the New York cannabis industry up in arms. For good reason: whether applicants will be placed in retail dispensary locations is likely a determining factor for potential applicants.

And then, without any sort of public announcement, the OCM published revised comments and responses to the OCM’s website (also here), removing the contradictory language. The comment and response now reads:

“COMMENT: Commenters requested clarification from the Office on the nature of agreements which applicants would be required to enter into as described in section 116.7(c)(6) of the proposed rules. Commenters requested clarification on what support would be offered by the New York Social Equity Cannabis Investment Fund and the specifics of that support, such as disbursement schedule, repayment rate, acceptable expenses, and tax repercussions of accepting support. Commenters noted that “financing with favorable terms” is difficult for cannabis businesses to secure and expressed a desire to obtain support from the Fund for costs beyond build-out of the dispensary. Commenters stated it was unclear what level of control the state would have over their business as a result of accepting this support. Commenters were concerned that the terms of agreements with the Fund would be unfavorable and that licensees would be trapped in predatory arrangements. Commenters expressed a desire to apply for licensure without receiving location assistance from the Fund. Commenters suggested that, before approving any agreements between licensees and the fund, the Board consult with the Chief Equity Officer and Cannabis Advisory Board to ensure the terms and conditions of the agreements promote equity.

RESPONSE: The proposed rules only require licensees to enter into agreements which have been approved by the Board and been made available by the Office. The Office is working with the Fund to ensure that the location assignments are a benefit to all applicants to ensure their success. No changes have been made to the proposed regulations as a result of this comment.”

Of course, as reported by Cannabis Insider, the OCM has not yet confirmed that the conflicting language that is contained in the New York State Register (based on the original filing) is inaccurate. But pending that last bit of confirmation from the OCM, the CAURD location kerfuffle appears to have reached its resolution.

Bottom line: If you apply for a CAURD license and succeed, you’ll need to be prepared to accept a state-leased dispensary location. Reach out to one of our New York cannabis real estate attorneys if you think we can help.

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New York CAURD: License Application Scoring – Part 1

We’ve been writing about eligibility criteria for licensure for the New York Conditional Adult-Use Retail Dispensary (“CAURD”) (here and here). In addition to the Office of Cannabis Management’s (the “OCM”) handy FAQ, it also recently published a scoring criterion to score eligible applicants after they have met the minimum requirements for each type of eligible applicant: 1) the business criteria applicant and 2) the nonprofit criteria applicant.

Here’s the long and short of it: once an applicant has met the minimum requirements, applicants with complete and verified applications are eligible to be scored and selected for a provisional CAURD license.

Within each region and based upon each eligibility criteria, applicants will be ranked by scores as calculated in accordance with the Scoring Criteria outlined below. The top scoring applicants who rank that region as their first preference, up to the number of allocated or available licenses in that region, will be selected for a provisional license in that region. It appears that the only way an applicant can guarantee their preferred region for a provisional CAURD license is to score the highest.

The scoring criteria

Applicants will be scored differently, based upon whether they slot into business criteria or nonprofit criteria. Although the OCM has not put specific number metrics to each of the below factors, they noted that the following factors will be weighted more heavily in the application scoring process.

For business criteria applicants, the most heavily weighted factors for the scoring process include:

  1. If the marijuana-related conviction was on the justice-involved owner with sole control themselves or a parent, legal guardian, child, spouse, or dependent;
  2. If the relevant arrest occurred in an area that has been negatively impacted by over policing and mass incarceration, or has historically low median household incomes;
  3. If the qualifying business has similar characteristics to a cannabis dispensary, such as the sale of retail goods, inventory management, a physical store, and paid employees; and
  4. The strength of the applicant’s qualifying business experience, as judged by length of time in operation, size of the business, net revenue, and compliance with state and local laws, rules and regulations.

For nonprofit criteria applicants, the most heavily weighted factors for the scoring process include:

  1. The demonstrated history of working with justice involved individuals, including length of time working with this population, having justice involved individuals on the Board, the proportion of program expenses that serve this population, and the location of the social enterprise;
  2. If the qualifying nonprofit has demonstrated good governance principles, as shown by audited financials and the ratio of overhead and programming costs;
  3. If the social enterprise has similar characteristics to a retail cannabis dispensary, such as the sale of retail goods, inventory management, a physical store, and paid employees; and
  4. The strength of the applicant’s social enterprise experience, as judged by the length of time in operation and size of the business.

Importantly the nonprofit criteria applicants will be scored and selected separately from other applicants, ensuring that all applicants are given fair chance at selection.

Stay tuned for Part 2, where we discuss the selection process for qualified CAURD license applicants.

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