While many individuals and entities are inquiring how to obtain the highly competitive adult-use marijuana licenses under the recently enacted New York Marijuana Regulation and Taxation Act (the “Act”), there also opportunities to participate in New York’s emerging cannabis industry by providing essential support services to the anticipated cannabis-related enterprises (“CREs”). We have provided a summary of some of the services that will be essential to the success of New York’s cannabis industry.
Depositories & Financing
Marijuana remains a Schedule I controlled substance under the federal Controlled Substances Act of 1970. As a result, federally-insured financial institutions will not accept deposits or provide financing to CREs and CREs are forced to operate without bank accounts, credit card systems, and cannot secure traditional financing. But a cash-run operation creates significant issues, including, but not limited to, security, accounting, payroll, and tracking. While there are alternatives, such as crypto-currency and cash-less technology systems, these are not the norm in the industry. As such, there is a need to provide essential depository and financial services to CREs.
Notably, the United States House of Representatives recently passed the SAFE Banking Act of 2021 to address these issues. The SAFE Act would prohibit federal regulators from penalizing a bank that provides banking services to CREs that are operating legally under state law. This act is currently being considered in the Senate but has not yet been signed into law.
Quality Control Testing
Cultivators, manufacturers, and distributors must have their marijuana products tested by an independent cannabis testing laboratory to ensure that the marijuana produced and distributed within New York meets the state’s minimum quality standards. As a result, laboratory testing sites are crucial to the success of New York’s industry. In order to obtain a laboratory permit, an applicant must establish that (a) the owners and directors of the laboratory are of good moral character, (b) the laboratory and its staff have the skills, resources and expertise needed to perform the testing, (c) the laboratory has adequate policies, procedures, and security to ensure proper collection, preparation, analysis, reporting and disposal of cannabis, (d) the laboratory is physically located in New York, and (e) the laboratory meets all regulations that may be prescribed by the Cannabis Control Board (the “Board”). Notably, it is anticipated that quality control testing will be a bottleneck in the industry.
CREs will require the support of record keeping services because the Act imposes stringent record keeping and retention requirements. In fact, record keeping and retention is required at every stage of the industry from acquiring, possessing, manufacturing, and distributing to selling, delivering, and testing marijuana. Additionally, all CREs are subject to periodic inspections by any representative of the Board, any peace officer, or any police officer.
It will be an arduous and significant task to remain compliant with the conditions of a CRE’s license. Many CREs will outsource this service to third-party entities in an effort to focus on the business and simultaneously stay in regulatory compliance,
Security & Surveillance
Businesses providing security personnel and surveillance systems will be an essential service to all CREs, which will be required to adopt and maintain security protocols and systems. As stated above, CREs are presented with significant security risks given the product that is being sold and their method of operation.
The Board may require that CREs utilize an approved seed-to-sale tracking system compiling a CRE’s marijuana inventory and transaction data. Such a system would assign each plant an identification number which follows it from propagation as a seed through the entire supply chain.
Businesses providing such services are currently working with CREs in other states, as well as with state governments.
It is an exciting time to be an entrepreneur in New York State. Even if you are not interested in directly participating in a CRE, there are other opportunities to support these enterprises, which will create a variety of other kinds of businesses – some that have never existed before.
The Wagoner Firm PLLC, offers life cycle services to our cannabis clients through our experienced counsel and invaluable stakeholder connections. We represent savvy business clients from start-ups to industry titans on a host of issues and actively engage with partners in government affairs, public relations, marketing and business planning to ensure the very best results.
Please contact us if you have any questions about pursuing a cannabis business or any of the businesses described above.