Cuomo’s Cannabis Plan: An Insider’s Assessment

Today, as part of a broader hearing on health-related budget issues, New York’s legislature is expected to begin its formal consideration of Governor Andrew Cuomo’s cannabis proposal. While the governor continues to push for the cannabis bill’s passage with the rest of the state budget by the end of March, Assembly Speaker Carl Heastie has said he believes the legislature will need more time.

Regardless of the exact timeline, New York State Senator Diane Savino will likely be a key voice on the final legislation. The 14-year statehouse veteran was an architect of the state’s medical cannabis law, and she tells Cannabis Wire that she had been in regular touch with Cuomo’s administration before he rolled out the adult-use legislation on January 16.

When Savino got her first look at the massive new legislative proposal that would legalize cannabis for adult use in her state, a roughly 190-page bill, she started plowing through it with a pen and a batch of sticky notes. It was a tedious process.

The more she looked, the more she found to like.

Savino, who represents southern Brooklyn and parts of Staten Island, largely praised the governor’s effort. Certain details need to be clarified and others will likely be points of contention, she said. Whether counties should be able to “opt out” of providing a place for cannabis businesses, if the state’s expected revenue is realistic, and if its projected 20% tax on the wholesale price of cannabis is too high are among the facets of the bill lawmakers are expected to hammer out in the coming weeks.

Few have weighed in publicly on the proposal, but Savino shared with Cannabis Wire her thoughts on where the state Senate is likely to push for changes.

The conversation has been edited for length and clarity.

Cannabis Wire: A lot of power—including over regulations and how to divide tax revenues for what have been called “equity programs”—is left up to a new Office of Cannabis Management. Do you think that office is too powerful?

Background: Cuomo’s proposal creates a powerful new executive branch agency called the Office of Cannabis Management. One of the biggest goals of advocacy groups—and, recently in a change of tune, the governor himself—was to create so-called equity programs, which are supposed to help deliver dollars to those most harmed by the War on Drugs, which devastated mostly African American and Latino communities, and ensure those communities have a leg-up in setting up cannabis-related businesses. There is no broad agreement about the best way to do this—should states give cannabis tax dollars directly to these communities for job programs or education? Or preference to minority-owned businesses in certain communities? Or both?

Cuomo’s bill leaves out a lot of the answers to these questions and says the new Office of Cannabis Management should decide. Savino describes how the state Senate and legislature should exercise some level of oversight over the powerful new office.

Savino: First, I don’t think any of us really know the amount of money it would take to create an equity fund. So I think that’s probably why they left a little bit of ambiguity there.

Also, the Office of Cannabis Management would be under what is currently the state Liquor Authority, under the Alcoholic and Beverage Control Law. But the person who would run it is an executive director. I believe that the Senate particularly is probably going to want to have some input on who that appointment is. Senate confirmation should be a requirement of the job. It’s a tremendous amount of power and responsibility that is going to accrue to this individual. So I think it’s important that the legislature have some say as to who that person is, the way we do over agencies and boards.

Granted, the governor has the right to pick his appointment. But then under every other circumstance, the Senate has the responsibility and the obligation to vet those people to make sure that they are able to live up to the standards of the position.

I’m sure my colleagues will agree with me.

Cannabis Wire: Are there any big changes you think need to be made to the bill?

Background: The tax rate for cannabis sales will be a big issue in New York as lawmakers balance trying to get enough revenue against making the product so expensive that people go to the black market and avoid the legal shops. While probably no tax scheme can completely eliminate a black market, high taxes in California and Oregon have been blamed, at least in part, for cannabis users going outside the legal system to buy product.

Another big issue: how much freedom local governments have when it comes to “opting out” of the state law. While local governments can’t do anything about changes to the state criminal code, they are usually given a say in whether cannabis growers or shops are allowed to open within their boundaries.

Savino: Overall, I would say I am pleased in the direction we’re going in it. Can they make some improvements? Probably. I’m a little concerned about the issue of county opt-out. New York state has some counties with thirty thousand people and others with two million. So you have to be careful about how we go down that road. Should towns, villages—should they have the right to opt out? Perhaps. I just think the county-wide issue is a problem. So I think that’s a point of negotiation.

I also think the tax structure is a continuing point of negotiation. I’m a little worried that the tax might be too high but I’m still analyzing that—we don’t want to drive people back to the black market because of over-taxing it.

Cannabis Wire: Should counties be able to opt out at all?

Savino: I prefer nobody opt out. But I’m not naive. I do know that there are going to be counties, towns, localities that don’t want the retail industry in their backyard. We have the town of North Hempstead on Long Island. They’re preemptively saying ‘no’ on marijuana.

I think we need to be careful and to say to counties, ‘if you want to opt out for the purpose of dispensaries or cultivation centers, two things: One, you can opt out for that purpose but you can’t tell people who live there that they can’t travel to a county where it’s permissible to purchase and bring it home. And two, if you don’t want the marijuana industry in your county you don’t get the benefit of the revenue. You can’t have it both ways.’

That’s my preference.

Cannabis Wire: Do you know how they came up with $300 million in revenue and whether that’s realistic?

We don’t know how many people will participate. There’s really no way to predict right now. I think that’s a little generous in my opinion because you can’t look at Colorado and say, ‘well that’s the model, we’re going to make as much money as Colorado had’ the first two years. Colorado benefited not just from the introduction of adult use and the long standing medical program, but they were the only one in the area and they were one of the first. You had a lot of tourism. Even though tourism is one of our biggest industries, I don’t think we’re going to see that kind of a boom from out of state people coming to New York even if they’re coming from New Jersey or from Connecticut because they are already doing it somewhere else. So is 300 the right number? I don’t know. I also know we’re not going to have the full program up and running in one year so that $300 million could be a cumulative effect of a couple of years. Those are questions I have for the for the Division of Budget when they come before us. How did they arrive at that number? I don’t know.

Cannabis Wire: Have you gotten any feedback from prosecutors about the part of the bill that refers to sealing cannabis-related convictions? Should expungement be part of this?

Background: Those who served jail or prison time for past crimes related to cannabis continue to be plagued by issues relating to those convictions—in getting a job or finding housing especially. Advocacy groups have long said that legalization should come with a way for those convictions and past charges to either be sealed—not available to the public or law enforcement unless a judge orders otherwise—or expunged, meaning deleted from the court system completely.

Savino: I strongly recommended that the District Attorney’s Association weigh in on this, because part of this bill is also reforming the penal code of the state of New York. Anywhere where marijuana is a felony possession for personal use is being reduced to a misdemeanor if you’re using it outside the legal program. So there’s a bunch of changes to the penal code. They need to weigh in on that.

They also need to weigh in on the issue of record-sealing versus record expungement and how we do that. There’s differences of opinion among some of our top law enforcement experts here .…[Some] believe that expungement requires a constitutional amendment. Others believe it can be done legislatively. I am neither a lawyer nor an expert on this. So they need to figure that out. The difference being sealed records can be unsealed by a court order, so expunged records is the preferable road.

But I don’t know if we can do that legislatively.

Cannabis Wire: Do you like what the bill does for existing medical cannabis businesses?

I like where it’s going. What I would like to see is an expansion of the number of dispensaries that they can operate under a medical marijuana license. Right now, the statute still says four. At most that would for our ten [existing companies operating] mean four dispensaries each, that’s still forty dispensaries for the state.

Another question I have — under an adult-use retail license, can you only have location or can you have or more than one location under one license? That’s still a gray area.

Cannabis Wire: What’s the most important takeaway from the governor’s proposal? What did you think of the bill overall?

Background: Registered Organization’s—or ROs—are large cannabis companies given licenses by New York State to cultivate and sell medical cannabis after the state legalized it in 2014. The companies are “vertically integrated,” meaning they control the product from seed to sale. That also means they’re big companies with lots of money that can afford to own all aspects of their business. These companies have spent millions to set up shop in New York and many have done so with the hope they would be given a leg-up when the state legalized for adult-use. However, there’s tension there for New York’s leaders: If these large companies have every competitive advantage, what about small businesses, particularly those with minority owners who want to take advantage of the new industry?

Savino: It’s a very long, complicated bill because it takes into consideration the creation of an adult-use market and the expansion and maintenance of the medical market. But the most important part is it allows for the creation of an adult-use program with the inclusion of the current Registered Organizations who are doing medical, allowing them to participate in the [adult-use] market as early as the signing of the bill while we build out a larger market and system for the rest of the state.

I think that’s a very important piece because there was some concern that only new people would be able to do adult-use and the existing ROs would be prevented from the adult-use market. That’s not the case.

At the same time, there’s a recognition that the existing ROs—while they may be able to get into the adult-use market earlier, their model of a vertically integrated system is not the preferred model for the broader adult-use market. We see in that an attempt to address the issue of barriers to entry for smaller players in this industry.

There’s a real concern that if you retain vertical integration you essentially create the “Big Marijuana” that everyone claims to be so concerned about. So on the adult side you can’t be all things — you can be a grower, a processor and a distributor but if you do, you can’t do retail. And if you’re in the retail business you can only be in the retail business.

You can have up to three separate licenses. And there’s built into this system that some of the revenue that’s going to come from the auction or the sale of the initial licenses will go to create a fund for people who don’t have access to capital, because as you know you can’t walk into a bank and borrow money to do this.

So I think there is an effort to try and create entry points that will increase diversity and reduce the influence of the big corporate players, create a fairer model, and at the same time recognize the contribution that the existing ROs have made to a state that laid the framework, the foundation for the medical program, and that they shouldn’t be penalized for taking a tremendous risk on New York state.

I think the most important takeaway is that there’s a recognition that there is room in New York for the existing medical program and strengthening it, and the development of an adult use program that will allow for entry into this market. That everyone can have an opportunity.

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Cannabis is rich territory for serious journalism. Legalization raises urgent questions about regulation and law, technology and taxation, science and business, criminal justice and individual liberties. It stands at the intersection of a booming billion-dollar industry and promising advances in medicine, all while remaining federally illegal.

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