Long Island Cannabis Conversations: Part III

In our last installment of Long Island Cannabis Conversations, we discussed the legal principles and challenges involved in the Shinnecock Nation’s cannabis start-up in Southampton, and how embracing cannabis as a medicinal and recreational resource doesn’t always happen overnight.

For this installment of the series, we’ll zoom out our lens to look at the state of recreational cannabis rollout across Long Island as well as in New York City and State, with an eye toward breaking down the laws, business realities, and educational opportunities in our area.

Slowly but surely, cannabis programs and courses have been popping up in New York colleges and universities, including institutions such as Farmingdale State College, Queens College, Medgar Evers College, Niagara Community College, Cornell University, Nassau Community College, and Hofstra University. These offerings range from online courses and cultivation certificate programs to business and legal classes. As a result, students and early-career professionals around the state are getting clued into what is likely to be one of the largest tangible industries, if not the largest, in New York State in coming years.

At the same time, Long Island communities have almost entirely opted out of New York State’s recreational cannabis program, meaning that local access for both adult-use (a.k.a. recreational, or retail) and medicinal users may soon rely on delivery or pick-ups from other areas, and that tax revenues will also end up outside of Nassau County municipalities.

To help make sense of the current landscape as well as the road ahead, Anton Media Group recently checked in with Andrew Cooper, Esq., LLM, Chair of the Cannabis & Psychedelics Practice Group at the law firm Falcon Rappaport & Berkman LLP, a board member of the JUSTÜS Foundation, and an Adjunct Professor of Law at the Maurice A. Deane School of Law at Hofstra University. Cooper holds both a Bachelor of Business Administration and a Juris Doctor degree from Hofstra, where he served as Business Administrator of the Hofstra Law Review (and where, his LinkedIn reveals, he also played rugby), alongside a Master of Laws from New York University.

Cooper is currently teaching a course at Hofstra Law entitled “The Law and Business of Marijuana.”

The aerial view from Long Island

“Here’s why I’m not overly critical of the Office of Cannabis Management (OCM): when I compare New York State’s legal cannabis program to other states, I think New York is making a way bigger effort to truly have a market emerge in a socially equitable yet fiscally responsible fashion.”

“Let’s compare that, for example, to New Jersey, which has tasked its registered medical operators with kicking off adult-use sales. The state said, ‘Here, we’ll let you guys build the recreational market: seven of them operating in the state, with thirteen locations, and as long as you can show us that you can still service your medical market, then we’ll let you do it. But if you don’t, we’ll fine you thousands of dollars a day.’”

“We found out that the same day they opened, on April 21, 2022, they were already violating the state’s rules. They were selling adult-use products during hours that were supposed to be for medical use, and they were taking the fines of $10,000 daily. Then, in early April of this year, state regulators determined two companies continued to prioritize adult-use consumers over medical patients, resulting in more infractions and additional fines.”

“Average wait time for adult use? Under five minutes. Average wait time for medical? That was 17 to 30 minutes. Again, they were fined, and they don’t care.”

“Also in New Jersey, their law permitted opt-outs of every license type, which meant licensees are having a hard time finding spaces.”

“New Jersey’s adult-use program provides that you can apply for a conditional license,  and then find the space to operate your dispensary, or apply directly for an annual license if you already have property. Most people opt for a conditional license, because they don’t need site control, then find a site and then convert to annual. They have hundreds of licenses in New Jersey that are conditional, and a handful that have converted to annual.”

“Until you obtain an annual license, you can’t even start your construction. At best, by Q4, we’re only going to have a handful of operational retail locations in New Jersey. And even though people say, ‘Look at the sales,’ those sales are on the backs of out-of-state, multi-state operators.”

“In New York, yes, we don’t have a lot of open locations, but here’s what we do have: as many open retail locations as they have annual licenses held by social equity applicants.”

“So, let’s compare apples to apples: if you look at their recent, newly minted licensees, we’re pretty close. I’ll take New York’s roll-out over that.”

Facing today’s cannabis sub-market

“There have been hiccups, yes. New York didn’t account for this ‘sub-market’ we inadvertently facilitated, and we created a demon.”

“When the Marihuana Regulation and Taxation Act (MRTA) was passed, there was language that says that you can’t sell, and people took that to mean, ‘Well, we can give away.’

Whether they were brick and mortar, or kiosks, or carts, or in a park, they were building on a concept of gifting: ‘We can sell you a CD, and give you the cannabis.’”

“A year ago, just about now, there were perhaps 12 or 15 stores out there in the open who were using the concept of gifting to distribute cannabis. That turned into setting up cannabis clubs, where you pay a membership fee for access and get the cannabis. Suddenly we have 30-plus sellers in what has been described as a ‘grey market.’ Then people decided they’d start selling out of bodegas and smoke shops. When some people saw nothing happening to those sellers in the way of enforcement, they thought, ‘Well, maybe we’ll open up a brick-and-mortar store.’”

“The proliferation of that market came from truly nowhere, because the majority of people in that ‘grey market’ are not historically cannabis sellers, and are simply opportunistic, and said to themselves, ‘Maybe it’s okay.’”

“Now we have tourists thinking all these stores are legal and regulated, around 1700 unlicensed stores in the state, predominantly in NYC.”

“The biggest challenge we have toward having a truly fiscally responsible, robust, socially equitable market is to try to minimize the unregulated component by either reducing that market or giving those operators a path to becoming regulated, and licensed.”

Financing and real estate meet red tape

“The second big challenge we’re now having in New York has been around funding for Conditional Adult Use Retail Dispensary (CAURD) social equity licensees, some of whom opted out of the state’s [so far only partly endowed] social equity fund, either because they didn’t want to wait or due to uncertainty as to whether there would be funds available. Without the fund, and with the significant limitations around the True Party in Interest rules, it has facilitated the proliferation of predatory arrangements.”

“The other part is this, and it’s more challenging: landlords who may want to participate in cannabis may be prevented from doing so because of their mortgage documents. The traditional mortgage documents say that any property use related to illegal activity is a condition of default, so landlords would need to get permission from their lender to establish some comfort level. Generally speaking, lenders haven’t been willing to do that.”

“It’s even a challenge to get it approved by a lender who has a cannabis banking program. Notably, more banks and credit unions are willing to bank plant-touching cannabis companies, such as Valley Bank and DIME, as well as Suffolk Credit Union, who just got into the cannabis space, and rolled out a program, and that’s going to solve a big part of the problem locally.”

“Valley doesn’t seem too interested in getting involved with smaller operators, and remember, banks are generally federally, state, or county chartered. The banks that do work with cannabis work exclusively on the depository side, not lending.”

“The third problem we’ve found is that, in large municipalities that are all-in for the program, like New York City, operators are having trouble finding locations. This is a result of the various restrictions imposed including the rule that retailers must be at least 250 feet from houses of worship, 500 feet from schools and community facilities, but also 1000 feet from other cannabis retailers. Personally, I’m not sure whether a retail cannabis business will be more likely to succeed of fail because they’re 1000 feet from the next guy; I think they’re going to succeed because they’re cultivating a brand around things that are important to their target market.”

“The problem gets worse when you get into more rural areas like Long Island. On Long Island, only four towns didn’t opt out; one of those towns is Southampton, which is the same town as the Shinnecock Nation. Since sovereign nations don’t have the same tax structure as the regulated market, it may be difficult to compete with their prices. That leaves three towns, Babylon, Brookhaven, and Riverhead, and the available space gets really small when you’re talking about 40 CAURD licenses on the island. Ultimately, there will be far more Long Island licensees once the regular licensure process opens up since there is no cap on the number that can be issued.”

“If one town or city opts back in, and there are rumors, it does create more room, and the numbers would probably work a lot better than they do currently.”

“Meanwhile, CAURD licensees who opted out of the social equity fund are having to compete for locations with people who chose to participate in the fund, whose locations are being negotiated by a broker for the Dormitory Authority of the State of New York (DASNY).”

“What we have now is a race to secure sites.”

“On Long Island, the rule is there needs to be a 2000 square-foot radius between sites, not 1000, since it’s based on population density. As a result, there are fewer prime sites. That’s the most recent challenge, that we’ve been having in the past few weeks.”

“I’m still 100 percent behind New York. For me, I start with the intent of the regulations. I think these things that happened were regrettably unforeseeable, so the question is what happens next.”

On teaching cannabis, law, or anything else

“The key to learning is having fun learning.”

“That applies to everything. People don’t understand, and I used to tell kids when I coached youth sports — soccer, lacrosse, hockey — that the only way you’re really going to be successful is if you’re enjoying yourself. As you realize you’re getting better you want to do it more often, which generally results in your getting more proficient which continues the cycle.”

“I try to teach in a non-traditional way. I digress a lot, and use a lot of anecdotal evidence, because I believe that people are better able to process information if they get immediate feedback.”

“By providing people with factually and scientifically accurate information is what will ultimately get people to start thinking about whether this law makes sense for us? Remember, towns can develop their own regulations relating to how, when and where they will allow cannabis to be sold. If it sold in a way that towns are comfortable with, and these towns receive a portion of the taxes received from the sale, why not? But if towns are worried about it, I believe that fostering a dialogue is the best way for people to become educated about the plant and, ultimately, to get comfortable with the concept of adult-use cannabis retail in their community.”

“It really comes down to educating communities on Long Island, and other places in the state, about the value and incentives of opting back in: remember, that’s not just real tax dollars, but also community give-backs that applicants are asked to commit to in their applications, how they’re going to create jobs, or support schools, to become an important part of the community.”

“Places like Long Beach, with a huge budget deficit, will hopefully realize that while they can’t fix the deficit by raising taxes, because people won’t stand for it, they do have a solution: cannabis.”