Why Legalization Matters in New York, and Why It’s Poised to Be the U.S. Cannabis Empire

With federal legalization bills stealing the headlines, it’s been easy to overlook the fact that one of the largest adult-use markets in the United States is slowly but steadily nearing its launch date.

New York is the 10th largest economy in the world — third largest among states in the U.S., behind California and Texas — with more than 20 million residents and 60 million visitors annually. State officials project New York’s cannabis industry to generate $3.5 billion in sales and $350 million in tax revenue annually by 2025, making it a crown jewel of the American legalization landscape.

“New York is the prize cannabis market,” says attorney Lauren Rudick, a partner at the New York law firm Hiller PC.

But numerous obstacles remain before the state can reach its market potential, from the challenges of real estate and municipalities opting out of allowing cannabis activity to building an entire regulatory and licensing infrastructure.

New York regulators will have the advantage of watching and learning from more than a dozen other states that have already implemented adult-use programs, and though Rudick believes New York’s program could help establish the standards for federal legalization, years of inaction have made the Empire State a follower rather than a leader of the movement.

For now.

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Falling behind

When Colorado and Washington legalized recreational marijuana in 2012, they made national news, lauded as pioneers in drug policy. Alaska and Oregon soon followed.

When California legalized recreational marijuana four years later, in 2016, it was seen as the logical next step, a foregone conclusion in a movement that was rapidly picking up momentum. As goes California, so goes the nation. Maine, Massachusetts and Nevada legalized cannabis in the same election. Michigan became the second-largest rec market when it legalized cannabis two years later.

By 2020, election news — and the general attention of a battered and embattled nation — was centered around Trump vs. Biden and the ongoing coronavirus saga, but the residents of Arizona, Montana, New Jersey and South Dakota voted to legalize adult-use marijuana, quietly bringing the grand total of recreational cannabis states up to 15, plus the District of Columbia. But still not New York.

The fact that South Dakota, a perpetual contender for the most conservative state in the country, legalized cannabis before New York prompted many to question why the Empire State couldn’t get it done.

Former Governor Andrew Cuomo was an outspoken opponent of legalization early in his tenure. He signed the state’s medical marijuana measure into law in 2014, but the highly restrictive program has largely failed to serve patients, with over-regulation and limited access leading to high prices, a dearth of products and a thriving illicit market.

Although Cuomo changed his tune on legalization in 2018, it took three more years for him to sign the Marijuana Regulation and Tax Act into law — and only then under the specter of a sexual harassment scandal that would ultimately end his gubernatorial reign, making it look more like a distraction from his misconduct than a true accomplishment.

By that time, it wasn’t particularly noteworthy in the national cannabis landscape. It wasn’t the first East Coast state to approve an adult-use program (that was Maine and Massachusetts in 2016). It wasn’t the first East Coast state to legalize possession (that was Vermont, back in 2018). It wasn’t the first state to legalize cannabis through its legislature (that was Illinois, in 2019).

And as the Cuomo administration dragged their feet in taking the next steps — not just in creating rules and regulations for the program, but even appointing the regulators to do so — the simple signing of the bill seemed less and less impactful, though the legislation itself is among the most forward-thinking in the country.

RELATED: New York Bans Cannabis, Psychedelic Mushroom Ads On Public Transport

A new example

With Cuomo eventually resigning in disgrace, the responsibility of launching the adult-use program falls on new Governor Kathy Hochul, who immediately began the process of appointing key regulators and state officials, finally providing a sense that the Empire State market is moving forward.

Although measurable progress is still slow — regulators have indicated the first state licenses won’t be granted until 2023 — it’s clear that New York will be one of the most important markets in the country, based on its sheer size, its status as a cultural, financial and tourist hub, its proximity to other major markets in the northeast and the unique features that have been included in the law, including a heavy focus on social equity and justice.

“New York’s new adult-use cannabis measure is the most progressive in the country,” says Rudick, pointing out the legislation’s automatic expungement of certain cannabis crimes and the program’s goal of awarding 50% of adult-use cannabis business licenses to those who meet the state’s social equity criteria.

“If implemented correctly, New York could be the new bellwether for the industry,” says Andrew Ward, a Brooklyn-based cannabis industry writer and author. “If it falls short, the scrutiny could be endless and justifiable. With new leadership from Governor Hochul and incoming New York City Mayor Eric Adams, there is hope that they and the various other lawmakers and regulators in the state can align to set a new example for the nation.”

While every state in the country grapples with their racially unjust drug laws, New York, in particular, has to reckon with its history.

Rudick says New York has “a unique responsibility to address failed drug policy.”

The state’s notorious “Rockefeller Laws,” which included some of the nation’s harshest drug penalties, went into effect in 1973, resulting in a disproportionate number of arrests and incarcerations of people of color compared to whites.

“New York City’s racially charged stop-and-frisk program often used cannabis as a way to arrest Black, brown and other people of color,” Ward adds. “With cannabis now legalized, and adult-use further cementing that status, there is hope that we can begin to improve in several critical areas of life for New Yorkers.”

In 2020, the New York City Police Department arrested 437 people for marijuana, more than 95% of whom were non-white. The first quarter of 2021 actually saw a spike in arrests — 163 — before the Marijuana Regulation and Tax Act passed and reduced those numbers precipitously (only 34 people were arrested for marijuana in Q2 and Q3 combined, all but one of them non-white).

“The amount of revenue, job opportunities and improvements it could bring to the state is substantial,” Ward says. “But more so, the key is that people won’t be arrested for the plant anymore, which thankfully is already underway.”

New York’s social equity licensing is also an attempt to right some of the wrongs of past prohibition.

Matthew Kittay, a partner at the New York office of the law firm Fox Rothschild, says social equity issues in New York are “sharp and in focus.”

“This is due to the fact that many other states have had a chance to be first movers in the space, and New York has learned from and incorporated those lessons into its own program,” he says. “Related to that, New York has been an epicenter for the War on Drugs historically, and social equity will play a major role in balancing legacy mistreatment with future economic opportunity.”

The state has set an extremely optimistic goal of awarding 50% of its cannabis business licenses to social equity applicants. For comparison, in Colorado, the nation’s most mature cannabis market, 16.4% of cannabis business owners are minorities, according to a recent report from the state Department of Revenue.

According to Rudick, the social equity criteria include those who have suffered the collateral consequences associated with cannabis drug arrests or failed drug policy (or their immediate family members have suffered) and those who are underrepresented in ownership of cannabis businesses (such as women, people of color, disabled veterans and disadvantaged farmers).

But beyond the market size or social justice concerns, New York is a cultural and financial mecca unlike anywhere else in the United States with an influence that reaches across the country and around the world. If you can make it there, you can make it anywhere. With Wall Street, Broadway, Fifth Avenue, the vast media empires that call New York home, an assortment of world-class museums and the legendary nightlife and culinary experiences, the opportunities seem endless.

“There hasn’t been any meaningful (cannabis) industry here historically,” Kittay says, “so the industry and the environment will play off each other and create many cool new experiences and brands for consumers.”

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