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AS THE SMOKES CLEARS. (Part. 1)

HOW WILL NEW YORK REGULATE WEED? PROPOSED LEGISLATION HOLDS CLUES.

 

As the New Year begins, recreational adult-use marijuana is legal in ten states and the District of Columbia.  Several of these states have adopted marijuana regulatory schemes mimicking its alcohol beverage control law and have appointed alcohol beverage regulatory agencies to oversee marijuana licensing and enforcement.  In part one of this two-part series, we explore from the “front lines”, the origin of this relationship and whether New York will follow in the footsteps of its sister states.  In part two, we explore whether alcohol and marijuana can be “married” by being infused together to create a single product.  Approaching our six-year wedding anniversary, we are an alcohol beverage attorney (Arielle Albert) and a cannabis attorney (Neil Willner) who deal with these issues on a daily basis- in both our professional lives and at the dinner table!

Why are State Alcohol Agencies Regulating Marijuana too?

Most of the state agencies that regulate alcohol were created immediately following the demise of prohibition in 1933. The 21st Amendment granted states the independence to regulate the sale, manufacture and transportation of alcohol within their jurisdictional limits.  Understanding the importance of “getting it right,” states like New York enacted stringent laws and regulations to prevent the nationwide drunkenness (or perception thereof) that served as a basis for prohibition, and the rampant corruption during the 13 years in which the manufacture, sale and transportation of alcohol was illegal.  Recognizing prohibition’s failures, the states realized that the country drank alcohol despite the federal ban on booze. When drafting alcohol regulations, the states understood that it was better to strictly regulate alcohol to promote orderly distribution and safe consumption.  The additional tax revenue was also welcomed by cash-strapped states in the midst of the Great Depression.

With this history in mind, many adult-use marijuana states see clear parallels between marijuana prohibition, alcohol prohibition, and the causes which led to its demise.

There are many questions on how New York will regulate adult-use marijuana, particularly since legislation is on the horizon. Will New York regulate marijuana with the same principles by which it regulates alcohol? Will there be tied house laws restricting vertical integration to prevent consumer deception and corruption? Will public convenience and advantage be a factor when determining whether a license should be issued? Will retail franchises be allowed?

 

Will New York Regulate Marijuana like it Regulates Alcohol?

 Quite possibly. The current proposed adult-use legislation is called “The Marihuana Regulation and Taxation Act.”  Under the draft legislation, the New York State Liquor Authority (“NYSLA”) would be tasked with overseeing the production and distribution of marijuana and would create the Bureau of Marihuana Policy to carry out licensing and enforcement.

 Community Board Requirements

 The proposed adult-use legislation requires applicants for all marijuana licenses to notify the town, city, or village in which the premises is located 30 days before filing their applications.  This is similar to New York’s Alcohol Beverage Control Law (the “ABCL”), which also requires a 30-day Standardized Notice to Community Boards but with one key difference – under the ABCL, only on-premise retailers need community board approval.

This begs the question; Does the New York legislature view the manufacture, distribution and off-premise sale of marijuana differently from alcohol?  If so, why?  Alcohol beverage retailers understand the need for balance between the community and businesses. Those licensees sell alcohol to consumers at various hours with methods of operations that may be disruptive at times to the neighborhood.  One may assume that the requirement for all marijuana licensees, including producers, processers and non-retail distributors, is an oversight that may be realized only upon implementation of the law.  Others may wonder if the legislature views marijuana as having a greater impact than alcohol on the local community.

 Tied House Restrictions

Like the ABCL, the proposed adult-use legislation contains tied house restrictions, which prevent the vertical integration of license types.  For example, a marijuana retail licensee cannot hold any other marijuana license; a marijuana microbusiness licensee cannot hold any other marijuana license; and a marijuana nursery licensee can only hold a marijuana producer or marijuana processor license, but no other marijuana license.  Similarities between alcohol beverage tied house laws, which strictly prohibit vertical integration between the three tiers, and the proposed tied house regulations for marijuana, indicate the legislature’s attempt to create an “even playing field” within the industry.  The restrictions prevent a small number of well-capitalized industry participants from dominating the market, limit unfair inducements between tiers and ensure that retailers maintain a vested interest in the communities that they serve.

One notable difference in this arena, under the proposed adult-use legislation, a retail licensee cannot hold more than three retail licenses.  This differs from New York’s restriction on alcohol package store licensees to one license per person.  The NYSLA strictly enforces this law which effectively prohibits franchise stores from operating within the state.  Does this mean that franchise marijuana stores are in New York’s future?

 Similar but not Similar Enough

Even with the similarity in regulatory framework, under the proposed adult-use legislation, a business may not sell marijuana and alcohol products at the same premise. One might wonder why a licensee of one commodity could not sell the other, if both alcohol and marijuana can be regulated for safe consumption, by the same agency.  Some might argue that New York retailers are best suited to sell marijuana, based on their understanding of the law and ability to operate in this regulated space.  Alcoholic beverage package stores are separated from other business so that only adults enter and shop in them.  They regularly check purchasers for proof of age and most are equipped with special devices that verify that driver’s licenses are genuine. In any event, New York alcohol retailers are fighting for their piece of the pie.

 

Cheers to the Future

Some of these questions may be answered if and when the adult-use legislation passes while other questions will surely arise.  Until then, those with a vested interest in marrying the two industries will be working hard to maintain a happy and healthy relationship.

 

[1] Arielle Albert is an attorney representing members of all three tiers of the Beverage Alcohol Industry and partner of the firm of Danow, McMullan & Panoff, P.C. 275 Madison Ave, NY, NY. 10022.  (212.370.3744). Website: dmppc.com; email: aalbert@dmppc.com. Arielle Albert is a partner of the firm of Danow, McMullan & Panoff, P.C. and is admitted in New York. This article is not intended to give specific legal advice. Before taking any action, the reader should consult with an attorney familiar with the relevant facts and circumstances.

 

Neil Willner is an attorney representing medical professionals, growers, processors, insurers, distributors and vendors within the legalized cannabis and industrial hemp industry. He is an associate at Wilson, Elser, Moskowitz, Edelman & Dicker LLP; 1133 Westchester Ave., White Plains, New York 10604. (914.323.7000). Website: wilsonelser.com; email:neil.willner@wilsonelser.com.  Neil is admitted in New York.

 

 

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