On Friday, October 28, 2022, the Office of Cannabis Management (OCM) released guidance for adult-use retail dispensaries. This guidance introduces new restrictions on licensees that, until now, have not been discussed by OCM—the most impactful of which is the “undue influence” restriction.
Under this new restriction, “[t]o prevent suppliers from exerting inappropriate control over retail dispensaries . . . [r]etail dispensaries, their true parties of interest, passive investors, and any management service providers cannot have any interest in any business anywhere that cultivates, processes, or distributes cannabis.” (Emphasis added.)
In the adopted Conditional Adult-Use Retail Dispensary (CAURD) regulations and previous guidance, it was made clear that under New York State’s two-tier system a true party of interest (TPI) could not have an interest in a New York State cultivation, processing, or distribution license. However, this new guidance appears to extend that prohibition nationwide, meaning that a TPI in a CAURD license cannot hold an interest in any cultivation, processing, or distribution license in the United States, as this could lead to having a license “cancelled, suspended, or revoked or other enforcement actions being taken.”
This has huge implications for CAURD applicants who were not made aware of this prohibition prior to paying the $2,000 nonrefundable application fee. Moreover, vertical integration is common in many other adult-use states, with a subset mandating vertical integration. People who have interests in states that mandate vertical integration are effectively barred from having an interest in a New York State adult-use retail license.
The guidance also gave more detail on the mandatory distances from schools and houses of worship. Under the New York State Cannabis Law, adult-use retail locations cannot be closer than 500 feet to a school and 200 feet to a house of worship. However, until this guidance, it was unclear how that would be measured. To comply, a measurement is taken from the nearest point of the grounds of the school to the center of the nearest entrance of the retail location. The guidance slightly alters the calculation for houses of worship, requiring a measurement from the center of the nearest entrance to the building used for the house of worship to the center of the nearest entrance of the retail establishment.
Interestingly, the guidance seems to indicate that a retail establishment could be closer than 500 feet to a school, as long as it’s on a different road. That may be due to necessity in places like New York City where having only a 500-foot radius would be too restrictive.
The OCM clarified that retail licensees may sell other products beyond cannabis products, which are limited to:
- Cannabinoid hemp products (with a cannabinoid hemp retail license)
- Cannabis paraphernalia
- Stationary, gifts, and other minor incidentals, which may depict cannabis or reference cannabis, without referencing a specific cannabis product or brand
- Branded merchandise and apparel containing the licensee’s brand
It’s worth noting that retail licensees cannot sell apparel or merchandise that reference specific cannabis product brands other than the licensee’s brand.
As was indicated in the CAURD regulations, the OCM has given further guidance on the prohibition on licensees giving away products or providing discounts. The guidance states that licensees “cannot advertise giveaways, discounts, price reductions, points-based reward systems, or customer loyalty programs including, but not limited to, by using the words ‘sale’, ‘free’, ‘price drop’, or ‘discount’ on a menu, in any communications to customers, or elsewhere.” This prohibition does not apply to medical dispensaries, who currently may offer discounts and loyalty programs.
Barclay Damon’s Cannabis Team will continue to closely monitor developments pertaining to New York State’s adult-use cannabis regulations and applications.
If you have any questions regarding the content of this alert, please contact Jason Klimek, Cannabis Team co-leader, at jklimek@barclaydamon.com, or another member of the firm’s Cannabis Team.