NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A4306
SPONSOR: Dinowitz TITLE OF BILL:
An act to amend the cannabis law, in relation to expanding who can hold
membership in an adult-use cooperative license
PURPOSE:
This bill would allow limited liability entities to hold membership in
an adult-use cooperative license under the Cannabis Law while still
maintaining the spirit of the Marijuana Regulation and Taxation Act by
ensuring the barriers to enter the market are not increased.
SUMMARY OF PROVISIONS:
Section one of the bill amends subdivision 3 of § 70 of the cannabis
law to remove the requirement that cooperative members holding an
adult-use cooperative license be a natural person.
Section two of the bill provides the effective date.
JUSTIFICATION:
In the Fall of 2023, the NYS Office of Cannabis Management (OCM) opened
long-awaited licensing portals for a number for supply-side and retail-
side operations in the State's nascent cannabis market. On the licensing
front, New York has decided to go a novel route in licensing individuals
and entities who wish to participate: there will be no "vertical inte-
gration" allowed in our market. The reasoning behind this policy is to
combat well-known barriers to entry into a highly competitive and expen-
sive cannabis business world, and to prevent monopolies from taking over
the market and limiting product diversity and consumer choice. Prevent-
ing full-blown vertical integration also creates multiple entry points
for entrepreneurs of all business levels, styles, size, and experience
to have a chance at what is one of the nation's largest cannabis
markets.
However, there are three notable exceptions to this unique ban: 1.
Existing Registered organizations (RO's) who currently control the
supply and retail sides of our medical cannabis market are already set
up and operating as fully vertically integrated entities, and they are
allowed to continue operating as such; 2. The Microbusiness License in
which very limited vertical integration is allowed:licensees will be
able to cultivate, process, and engage in distribution OR retail sales;
and 3. Adult-Use Cooperatives in which very limited vertical integration
is allowed: democratically controlled licensees will be able to culti-
vate, process, and distribute (they cannot sell directly to consumers).
This proposal deals with the Adult-Use Cooperative License.
In making this slight technical change whereby the phrase "shall be a
natural person" is struck from the law, the State opens opportunities
for more of these Adult-Use Cooperative Licenses. With the law as it is
currently written, only natural persons can establish a cooperative in
NYS, but business entities established by the NYS Department of State
cannot.
The State wishes to make co-ops more attractive by allowing already
established ' entities to be able to obtain this type of license which
would be beneficial for overall market health and diversity. Doing so
will also offer protection to co-op members from personal liability by
allowing them to come structured as a limited liability entity. Addi-
tionally, this amendment would encourage investment, which is especially
crucial for this capital-strapped industry, as investors can join as
members through their entities, which they prefer for tax and liability
purposes.
While one of the core missions in the MRTA is to prevent conglomerates
from taking over the market structure and raising barriers to entry, the
thought is that this proposal does not run the risk of that happening
simply by removing the "natural person" language for several reasons.
For background - there are two types of "members" discussed in the OCM
regulations: "Labor Members" and "Other Members"
(i.e. investor members.) Labor members under the MRTA and in OCM's
regulations, retain more authority over the co-op than investor members.
The big business conglomerates would likely not want to subordinate
capital to labor or be subject to the voting preferences that the regu-
lations place on laborers, etc. Most importantly, no entity or person
can be a True Party of Interest (TPI) in a co-op license and any other
license. So, if big business conglomerates do decide to be a co-op
member, this is their only entry into NYS's cannabis market in a mean-
ingful way. In short, a co-op member can only be a passive investor in
other licenses but nothing more than that. As such, this proposal does
have some inherent checks and controls to prevent abuses while also
enhancing the Adult-Use Cooperative License's reach and applicability.
PRIOR LEGISLATIVE HISTORY:
2023-24: A.7694 - Economic Development / S.7504 - Passed Senate
FISCAL IMPLICATIONS:
None.
EFFECTIVE DATE:
This act shall take effect immediately.
STATE OF NEW YORK
________________________________________________________________________
4306
2025-2026 Regular Sessions
IN ASSEMBLY
February 4, 2025
___________
Introduced by M. of A. DINOWITZ -- read once and referred to the Commit-
tee on Economic Development
AN ACT to amend the cannabis law, in relation to expanding who can hold
membership in an adult-use cooperative license
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subdivision 3 of section 70 of the cannabis law is amended
2 to read as follows:
3 3. A cooperative member [shall be a natural person and] shall not be a
4 member of more than one adult-use cooperative licensed pursuant to this
5 section.
6 § 2. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD08261-01-5
