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January 16th, 2019



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:; email: 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:;  Neil is admitted in New York.




January 8th, 2019

Justice Kavanagh has joined the United States Supreme Court and is expected to join in decisions explaining just how far the Granholm decision will reach.

In  Granholm v. Heald, 544 U.S. 460 (2005), the Supreme Court ruled that Michigan and New York laws permitting direct shipment of wine from in-state wineries, but forbidding the same from out-of-state wineries, violated the Commerce Clause. At the same time, Justice Kennedy, writing on behalf of the Court noted, “We have previously recognized that the three-tier system itself is unquestionably legitimate.  State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.”

Section Two of the Twenty-first Amendment to the United States Constitution provides, “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”  However,   The Commerce Clause gives Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States.” U.S. Const., art. I, § 8, cl. 3. The United States Supreme Court has “interpreted the Commerce Clause to invalidate local laws that impose commercial barriers or discriminate against an article of commerce by reason of its origin or destination out of state.” C & A Carbone, Inc., v. Town of Clarkstown, N.Y., 511 U.S. 383, 390 (1994). Relatedly, the Commerce Clause “encompasses an implicit or ‘dormant’ limitation on the authority of the States to enact legislation affecting interstate commerce.” Healy v. The Beer Institute, Inc., 491 U.S. 324, 326 n.1 (1989).

Granholm deals with the tension between the Twenty-first Amendment and the dormant Commerce Clause of the United States Constitution.

As noted, Granholm struck down laws that allowed in-state wineries to ship to consumers but denied that privilege to out of state wineries.   Since Granholm was decided, retailers have argued that laws allowing in state retailers to deliver to consumers but ban out or state retailers from doing so violate the Commerce Clause.

Recently, the U.S. Supreme Court has agree to review Tennessee Wine & Spirits vs. Byrd Clayton in which the District Court ruled that Tennessee’s residency requirements for retail licenses violated the Commerce Clause. Although the State of Tennessee did not appeal District Court’s decision striking down the law, Tennessee Wine and Spirits Retailers Association did.  The Association argued that Granholm distinguishes between laws that regulate the manner in which alcoholic beverages are sold within a state from those that discriminate between products made within and without the state. In its brief the Association argued:

This Court later emphasized in Granholm, however, that “state policies” that define the structure of a three-tier distribution system “are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.”  544 U.S. at 489.  Granholm thus distinguished between discrimination against out-of-state products, which the dormant Commerce Clause prohibits, and a State’s decisions about “how to structure the liquor distribution system” within its borders, over which “[t]he Twenty-first Amendment grants the States virtually complete control.”  Id. at 488.  Indeed, all nine Justices agreed that States have virtually plenary authority over structuring a three-tier liquor distribution system, at least as long as they provide equal treatment to liquor produced in and out of state.  See id.; see also id. at 518 (Thomas, J. dissenting).

Whether a state has the right to require a brick and mortar location within its borders as a condition of delivering alcoholic beverages to consumers was also raised in Lebamoff Enterprises, Et. Al. v. Snyder, Et. Al. in which Judge Arthur J. Tarnow of the United States District Court ruled that a Michigan statute discriminated against out of state retailers and violated the Commerce Clause because it allowed package stores within the state to use third party delivery services but forbade out of state retailers from doing the same.

The fate of many wholesalers and retailers may be decided by the Supreme Court in the near future.


April 18th, 2018

Depending on how you count, New York residents appear to face the highest tax burden in the nation.  Between state and local taxes, approximately 12.7% of a New Yorker’s income goes to taxes. President Trump signed a tax reform bill on December 22, 2017.  For income earned prior to December 31, 2017, all state and local income and property taxes were deductible as an itemized deduction on one’s federal income tax return. Under the new tax law, deductions for state and local income and real property taxes are limited to $10,000.00 each year.  According to IRS data, heretofore New York residents took the highest average deductions for state and local taxes with an average deduction of just over $21,000.00.  Consequently, the new law will reduce the average deductions taken by a New York taxpayer who itemizes deductions by $11,000.00.

In an attempt to offset this anticipated loss, Governor Cuomo has included a series of proposals in his latest budget proposal. Whether these proposals will pass the legislature and whether they will be accepted by the Internal Revenue Service, remains to be seen. However, the proposals are interesting.

First the Governor proposes a new voluntary Employer Compensation Expense Tax (“ECET”). The Governor reasons, that even though the new tax law eliminates from itemized deductions a large portion of the state income taxes, employer-side payroll taxes remain deductible. The proposed legislation will phase in a plan over three years beginning on January 1, 2019.  When fully functional, the plan will allow employers to voluntarily enter into a system in which the employer pays 5% of all annual payroll expenses in excess of $40,000 per employee. The New York income tax will remain in place. The employees of an employer that pays into the ECET system would receive a corresponding tax credit on her wages. From a New York State point of view, the proposal is revenue neutral.  The employer pays the tax and the employee gets the credit.

The summary of the proposed tax reform states, “When fully phased in, the new system could generate up to roughly $4 billion in federal tax savings for New Yorkers per year. The Department of Taxation and Finance estimates that a taxpayer (married filing jointly) making $150,000 in wage income would see a federal income tax reduction of roughly $1,200 as a result of the ECET.”

However, what is not explained in the proposal is what benefit there is for an employer to opt into such a system or how the system helps with the employee’s federal income taxes.  An employer that opts into the plan has a new expense and a corresponding deduction. The employee does not receive a credit against her federal income taxes, only her state taxes, so her state taxes go down, but her income remains the same as does her federal tax burden.  It appears that unspoken in the plan is that the employer will reduce the employee’s overall compensation by 5%. The employee will then have a lower federal income tax because she has lower income. The credit against her state and local taxes will reduce state taxes paid by the employee.  Assuming all of this is worth the time and attention of the employer and employee, there is still a question as to whether the IRS will consider the employer’s voluntary payment “ordinary and necessary.” The Internal Revenue Code requires an expense to be “ordinary and necessary” for it to be deductible for federal tax purposes.  The IRS could find that a voluntary payment of this kind of this kind is not ordinary and necessary. In addition, the IRS could determine that such a system results in a benefit to the employee. Only time will tell.

The Governor also proposes two new state operated Charitable Contribution Funds that will accept donations for the purposes of improving health care and education in New York. The hope is that taxpayers who itemize deductions would be permitted to claim these charitable contributions as deductions on their federal and state tax returns. New York State would then give any taxpayer making a donation a state tax credit equal to 85 percent of the donation amount thereby converting a tax into a charitable donation. The legislation would also allow school districts and local municipalities to create charitable funds for education, health care and other charitable purposes. Donations to the fund would be offset by a credit against local property taxes. Here, the idea is to convert non-deductible state and local taxes into deductible charitable donations.  This too may run into opposition from the IRS. In order to be considered a charitable deduction under the Internal Revenue Code, a gift must be made out of “disinterested generosity.”  A gift given to a charity that results in an almost corresponding real estate tax credit can hardly be said to be given out of disinterested generosity. The IRS may well take the position that only the 15% that does not result in a credit is deductible from the donor’s income taxes.  Again, only time will tell.


April 18th, 2018

Under both Federal and State Law, consignment sales of beverage alcohol are illegal. Section 205 of the Alcoholic Beverage Control Law of the United States make it unlawful for a manufacturer, importer or wholesaler of distilled spirits, wine or malt beverages, to sell, offer for sale, or contract to sell to any wholesaler or retailer engaged in the sale of distilled spirits, wine, or malt beverages, or for any such wholesaler or retailer to purchase, offer to purchase, or contract to purchase, any such products on consignment or under conditional sale or with the privilege of return or on any basis otherwise than a bona fide sale.  The subsection does not apply to transactions involving solely the bona fide return of merchandise for ordinary and usual commercial reasons arising after the merchandise has been sold.

Ordinary and usual commercial reasons for the return of beverage alcohol include returns because of defective products, shipping errors, a change in the law preventing the product from being sold, termination of the buyer’s business or license.  It is also permissible for a wholesaler to return to the supplier any of the supplier’s products when the supplier and wholesaler’s relationship is terminated.

Generally speaking, consignments sales are also banned under New York law.  The basic exceptions are outlined in Bulletin No. 251 (July 19, 1965).  Where a manufacturer or Wholesaler made an error in a sale or in a delivery to a retailer, the error may be corrected without notice or application to the Authority within fourteen days of delivery and within the same calendar month. It is worth noting that the return requires a genuine error. A retailer may not return goods she ordered either because she later discovered that she could have received a better discount had she ordered a larger quantity or because she discovered she could use more of the goods and there was a quantity discount available for the additional amount. In addition, a manufacturer or wholesaler may exchange liquor or wine in the same quantity, brand, type, size or container and proof for liquor or wine, which is to be returned by the retailer, without notice to the Authority, provided it makes similar exchanges for all retailers who request them. Pursuant to Advisory 2016-8, the Authority permits a seasonal retail licensee to return unsold beer and cider to the manufacturer or wholesaler.

When a retail licensee goes out of business, surrenders its license or has its licensed revoked, it is permitted to obtain a liquidator’s permit. With such a permit, the licensee is permitted to sell its remaining inventory to the supplier or wholesaler from which it was purchased or to another retail licensee.

Except as permitted by Bulletin No. 251 and Advisory 2016-8, as a general rules a manufacturer or wholesaler may not accept the return of goods without either a court order or permission from the Liquor Authority.


February 12th, 2018

Effective January 1, 2018, almost all non-government employees in New York State are eligible for paid family leave. The leave is paid for through employee payroll contributions and are provided by the employer’s existing disability benefits insurance policy.

Employees with a regular workweek of 20 or more hours per week are eligible after 26 weeks of employment. Those employees with a regular work schedule of less than 20 hours are eligible after 175 days worked. Neither citizenship, nor immigration status have an impact on a worker’s eligibility for paid family leave.

A parent is eligible for paid family leave to bond with a newborn child during the first twelve months following birth, adoption or a foster care arrangement. Spouses with different employers can both take paid family leave at the same time. However, if both spouses work for the same employer, the employer can deny leave to one of them if they ask for the leave, to bond with the child, at the same time.

An employee can also obtain paid family leave to care for an eligible family member with a serious health condition. Family members include a spouse, domestic partner, child, parent, in-law, grandparent or grandchild.

Employers with one or more employees are required to obtain paid family leave insurance. This insurance is generally added to the employer’s existing disability policy.  Current employee handbooks should be updated to describe these new employee rights.   In addition, employers, who have not yet done so, should update their payroll deduction process and begin to collect the employee’s contribution to pay for the new benefits. The best practice is to notify the employee before beginning to take the new payroll deductions. In 2018, the employer should deduct 0.126% of the employee’s weekly wage. There is a cap so not deduction is taken against any portion of the weekly wage  in excess of  $1,305.92.

Where the event which will give rise to a claim for paid family leave is foreseeable, the employee is supposed to notify her employer thirty days prior to taking leave. The request is made with a form issued by the employers insurance company. The employee will also be required to provide the insurance carrier with documents supporting her qualification for leave.  The type of proof will vary depending on the reason for the leave. For instance, in the case of a newborn child, the insurance company will require a birth certificate.

A qualified employee will be entitled to half of her average weekly wage up to a maximum of $652.96.


Employers who have not done so, should contact their insurance brokers, obtain the necessary insurance and begin deducting the employees contribution from their employees’ pay.




For years, the TTB has been underfunded and has receded from the front lines in the fight against violations of the trade practice rules applicable to manufacturers, suppliers and wholesalers.  However, in 2017, the TTB returned to the front lines. Congress provided $5 million in new funding to the TTB for fiscal years 2017 and 2018 for “the cost of programs to enforce trade practice violation of the Federal Alcohol Administration Act.”  We can expect to see more TTB investigations into  tied house violations, commercial bribery and schemes to pay retailers to carry the supplier or wholesaler’s products.



XO is the designation for “Extra Old” cognac. The Bureau National Interprofessionnel du Cognac (“BNIC”) which regulates cognac has increased the minimum age to qualify for an XO label from six years to a minimum of ten years.  BNIC will allow the XO designation on beverages aged six, seven, eight and nine years that are packaged before March 31, 2018 to be sold until March 31, 2019.