Cannabis is legal in New York State, and dispensary licenses were issued in late November for the first thirty-seven retail outlets. See the Bloomberg media report here. At about the same time, New York issued the first set of Guidelines for cannabis retailers. See Leafly media report here. The Guidelines are temporary and will be replaced with permanent regulations shortly. The Guidelines are fascinating, and Leafly provides a few highlights. These include the following rules:
- No 24-hour retail outlets — unless authorized explicitly by municipal statute and by written municipal permission, cannabis retail shops cannot be open from 12:00 am to 8:00 am.
- No package designs, store signage, advertising, or marketing that would be attractive to those under 21 years of age — this includes a ban on bubble fonts and “neon” colors and a ban on merchandise that mimics the likeness of “food, candy, soda, drinks, cookies, or cereals.”
- Pricing must be transparent, and gifting, giveaways, discounts, and reward programs are banned — the ban includes the use of words’ sale,’ ‘free,’ ‘price drop,’ or ‘discount’ on a menu.
- In-store express lanes, drive-thrus, and pick-up counter areas are permitted.
- Non-employees of the licensed dispensary cannot be involved in the cannabis sales transactions — this applies to website orders.
- So, third-party delivery of the purchased product is banned — no Doordashing your cannabis.
- No vertical integration of the retail outlet with growers, processors, and transporters — the regulations ban all efforts to create seed-to-sales integrated cannabis businesses.
- Restrictions on ownership interests for all retail outlet aspects, including “… contracting with landlords, financiers, financial institutions, or management services entities.”
Operating a cannabis business is already a legally risky endeavor. These Guidelines add new challenges for those seeking to open a retail, legal cannabis business here in NYC. This is because cannabis is still illegal under FEDERAL law. This creates tremendous legal and practical hurdles in commercial leasing property, mainly if the leased property is mortgaged. Most commercial property lenders prohibit the leasing of such property to tenants who are engaged in illegal businesses. Aside from the financing angle, simply depositing rents and other income from a cannabis business can be problematic. Generally, federal and state-chartered banks cannot accept deposits and financial transactions resulting from known illegal business activity.
However, since cannabis has become legal in many states, banking and other regulations have been loosened, and other legal problems are slowly being resolved. One practical solution in other states has been the vertical integration of land ownership, growing, processing, transportation, and sales. With this method, the legal problems are reduced to problems for one business — instead of five businesses. However, the New York cannabis statutes and the newly-released Guidelines have prohibited this solution for the New York cannabis market. Now NYC landlords will have to decide if they want to take the risk of leasing to cannabis business tenants and subjecting themselves to the intense scrutiny of the NY cannabis regulators. Cannabis business owners can expect long, detailed, exacting commercial leases.
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Call the experienced New York commercial lease and real estate attorneys at Wright Law Firm NYC for more information. We provide top-tier commercial real estate legal services for the NYC business community. To schedule a consultation, contact our office by e-mail or call us at (212) 619-1500.