On March 31, 2021, New York Governor Andrew Cuomo signed into law the Marijuana Regulation and Taxation Act (the “Act”). The Act generally prohibits vertical integration, meaning that the same licensee will generally not be permitted to cultivate, process, distribute and sell cannabis products. Applicants will need to choose which aspect of the business they would like to pursue (e.g. a cultivation license for growing cannabis) and apply for a license for that specific niche.
However, in Section 73 of the Act, the New York State legislature included an exception to the general vertical integration prohibition for a “microbusiness.” Specifically, Section 73 of that Act states that “A microbusiness license shall authorize the limited cultivation, processing, distribution, delivery, and dispensing of their own adult-use cannabis and cannabis products.
That begs the question, what is a microbusiness? Unfortunately, the Act provides little guidance. The Act states in relevant part “The size, scope and eligibility criteria of a microbusiness shall be determined in regulation by the board in consultation with the executive director and the chief equity officer. The granting of such licenses shall promote social and economic equity applicants as provided for in this chapter.”
It remains to be seen how, and under what circumstances, individuals who wish to vertically integrate in the cannabis business will be authorized to do so. It is important to note, however, that the legislature made it crystal clear that “A microbusiness licensee may not hold any direct or indirect interest in any other license in this chapter and may only distribute its own cannabis and cannabis products to dispensaries.”
Based on the foregoing, it appears that the microbusiness exception is designed for small, boutique, or “craft” cannabis businesses that handle the same product from “seed to sale.” Perhaps these microbusinesses will be similar to a small batch craft brewery or distillery where the product is processed and sold to consumers in the same location. Once the Office of Cannabis Management and Cannabis Control Board promulgate the regulations pursuant to the Act, we will have more information with which we can advise clients so that they may weigh their licensing options.
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