Municipal Opt-Out Deadline Countdown
On March 31, 2021, New York became one of the latest states to legalize adult-use/recreational marijuana with the signing of the Marijuana Regulation & Taxation Act (MRTA). The law establishes the framework for the use, taxation, manufacture, and commercial sale of marijuana and created the Office of Cannabis Management (OCM). The OCM, overseen by the Cannabis Control Board, is responsible for the creation of regulations and implementation of the MRTA.
The MRTA allows New York State municipalities—cities, towns, and villages—to opt out of permitting the licensing of adult-use marijuana dispensaries and/or on-site consumption lounges in their jurisdiction. Municipalities cannot prohibit the legalization of marijuana in general; residents can still possess and consume within the municipality. Prohibition is limited to the two types of retail businesses exclusively and does not apply to cultivation or manufacturing facilities. The default of MRTA is that municipalities are automatically opted-in to the retail marijuana market; municipalities only have to take action if they plan to opt out. Those municipalities that do decide to opt out will not be eligible to receive any of the revenue generated from adult-use marijuana sales; MRTA establishes a 13 percent tax on adult-use marijuana sales, 4 percent of which is split between the county (25%) and municipalities (75%). The number of local governments that decide to opt out may impact availability of marijuana to some residents and could potentially impact total sales and tax revenues if enough local governments prohibit adult-use marijuana sales. Projections of revenues that the state will generate from the legalization of adult-use marijuana may fall short if dispensaries are geographically limited due to prohibitions, resulting in legal marijuana being hard to obtain.
New York State’s Marijuana Tax Structure
New York State has set a December 31, 2021 deadline for municipalities to make their decision. If a municipality initially opts in, they will be unable to opt out at any time after the December deadline. The provision was designed to give the marijuana markets some stability and consistency; a company would not want to invest substantial resources in a municipality for a dispensary and/or on-site consumption lounge without some guarantee that the municipality will not change their mind about permitting the operation of such businesses. Municipalities that choose to opt out, however, can opt in to the retail market at any time. Additionally, municipalities that do allow marijuana dispensaries and/or on-site consumption lounges can use zoning laws and other reasonable time, place, and manner restrictions to regulate their operations.
…there has been a decided uptick in the number of towns, cities, and villages that are beginning to schedule public hearings on the issue for late October, November, and December.
Local governments exercising their right to prohibit marijuana related businesses in their jurisdiction is not unexpected; in states that have previously passed adult-use marijuana legalization, there are often a large number of municipalities that initially choose not to participate. Earlier this year in New Jersey, for example, nearly 70 percent of municipalities opted out of all six categories of adult-use marijuana licenses (cultivator, manufacturer, wholesaler, distributer, retailer, and delivery) that were outlined in the state’s legislation. Similar patterns were seen when adult-use marijuana was enacted in California, Colorado, Illinois, Massachusetts, and Michigan. While many residents are in favor of adult-use marijuana legalization in their state, when it comes to the actual implementation there is a fair amount of the “not in my backyard” (NIMBY) phenomena. Whether the number of municipalities that opt out in New York is artificially increased by the slow roll out of state regulations will have to be seen.
As the December 31 deadline looms, the Rockefeller Institute has been tracking the opt-in/opt-out decision-making by localities as it is happening, reviewing the meeting minutes of village, town, and city boards across New York, monitoring media coverage, and reaching out to municipalities directly. While this process is still unfolding and we plan to share additional data and analysis in the future, there are some initial takeaways.
Delays in State Oversights Leading to Uncertainty
A wrinkle in the establishment of New York’s recreational cannabis market has been the delay in the appointment of members to the Cannabis Control Board and Office of Cannabis Management. The oversight bodies are comprised of members appointed by the Governor, the Assembly, and the Senate, the Cannabis Control Board is tasked with fleshing out the framework for legalization set forth in the MRTA. They have been charged with developing regulations for licensing of dispensaries and lounges as well as setting guidelines for the home growing of marijuana plants. Final appointments to the Cannabis Control Board and the Office of Cannabis Management were not made until September 2021—six months after MRTA became law—and the Cannabis Control Board didn’t hold their first meeting until October 5, 2021. The delays resulted in the Board missing their first statutory requirement—the creation of the rules for the home grow of medical marijuana. To date, the Cannabis Control Board has issued no guidance on the licensing of retail marijuana businesses.
Making a Decision for Now
The delayed state guidance has had a direct effect on local government decision making. Of the municipalities that have made the decision to opt out, they frequently cite the lack of clarity on the licensing requirements and other regulations for marijuana retail businesses. Municipalities feel that they are being forced to make a decision with incomplete information; if they agree to allow marijuana dispensaries and/or on-site consumption lounges in their community and then are unhappy with the regulations put in place by the state, they have no recourse to then prohibit these businesses at a later date. This sentiment was echoed not only by municipal officials, but also by residents in public hearings.
Of the municipalities that have decided to opt out, this is not seen as a permanent decision for many. Municipalities are largely taking a wait and see approach and will consider opting in when there is a clearer picture of what retail marijuana operations will look like after state regulations are announced and after seeing how it plays out in other communities that opt in initially.
Facing a Compressed Timeline
While a handful of municipalities have made their official decision, the majority of municipalities have not and are now pushing up against the December 31st deadline to do so. Inactivity on the issue could be an indicator that a municipality is opting in, since no action is needed as that is the default, but there has been a decided uptick in the number of towns, cities, and villages that are beginning to schedule public hearings on the issue for late October, November, and December. Municipalities that were waiting on additional guidance from the state before making a decision will likely not have that luxury. We expect to see a flurry of decision-making by municipalities in the next two months regarding dispensaries and on-site consumption lounges.
It is too soon to tell how the roll out of adult-use marijuana in New York State will be impacted by municipal decision-making on permitting dispensaries and/or on-site consumption lounges. State Senator George Borrello has proposed delaying the December 31, 2021 deadline for municipalities to opt out, given the lack of guidance provided by the Office of Cannabis Management on regulations. This potentially could minimize the number of municipalities that opt out out of uncertainty rather than actual opposition. The Rockefeller Institute will continue to monitor the decision-making of municipalities regarding retail adult-use marijuana and the implementation of MRTA in New York State.
ABOUT THE AUTHOR
Heather Trela is director of operations and fellow at the Rockefeller Institute of Government