New York Cannabis Cooperative Law

New York goes Legal!

New York has legalized adult use cannabis.  On March 31,2021, the governor signed the Marijuana Regulation and Taxation Act (MRTA), establishing a regulatory agency and a cannabis tax.

MRTA provides for a variety of license types, including cultivator, processor, cooperative, distributor, retail, microbusiness, delivery, nursery, and on-site consumption.

In this blog, we will take a quick look at the New York cannabis cooperative license.  The regulations have not yet been drafted, so we only have the statute’s broad outline of the license, but we can get a glimpse of what cooperatively grown cannabis might look like in New York state.

Permitted Activities

A cooperative will be permitted to acquire, possess, cultivate, process, distribute, and wholesale cannabis to other licensees.  However, a cooperative will not be allowed to sell directly to consumers.  This is consistent with MRTA’s general prohibition on vertical integration and monopolies, but we wonder whether some degree of access to retail or delivery would be the incentivization and benefit that coops deserve.

What is a Co-op?

MRTA requires that cooperatives operate according to the seven principles of cooperatives.  While this is important, it is high level and open to interpretation.  Additionally, MRTA establishes criteria that align with the IRS’s test for eligibility for subchapter T (the tax provision favorable to some cooperative businesses).  The New York law provides an objective test as to whether a Co-op licensee actually functions in a cooperative manner.  The three elements are:

-          Subordinate capital, regarding both control over the enterprise and ownership of the profits;

-          Democratic control by the members (one vote per member);

-          Allocate surplus to members in proportion to participation.

Who can be a Member?

Members must be New York residents and they must be natural persons.  Members cannot be members of more than one licensed cannabis Co-op, nor can any member have a financial or controlling interest in any other cannabis license. 

Independent Ownership

Just as there are restrictions on a member’s interest in other licensed entities, the Co-op itself cannot have financial interest, stock ownership, interlocking directors, mortgage or lien, or property interest in a licensed retail dispensary.

What to Expect in the Regulations

Regulators will have to decide and clarify a number of issues, including:

-          Canopy size limits;

-          Limits on number of locations;

-          Measures to incentivize the use and licensure of coops;

-          Minimum residency requirements for Co-op members (i.e., 12 months);

-          Will entities be permitted to be Co-op members?

 

What do Potential Co-op Licensees Need to Think About?

Although it is early in the process, anyone thinking about seeking a New York cooperative license can start to consider certain fundamental questions:

  • What type of business entity favors your business model (i.e., LLC, corporation, etc)?

  • Would the Co-op be designed to have a lot of small-scale members, or a lesser number of large-scale growers?

  • Would the Co-op be focused on a single location, or be designed to accommodate locations anywhere in the state?

  • Would the Co-op grow outdoors or indoors? Urban or rural?

  • Would the Co-op function like a producer Co-op? A worker Co-op?  Some kind of hybrid Co-op that could only exist in the cannabis industry?

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Stay tuned for updates as we watch New York closely.  Get in touch with us if you’re interested in starting a cooperative weed company.  We want to hear all about it!

Kyle Sosebee