Governor Cuomo’s FY 2021 budget included a bill that will create a legal cannabis industry in New York. The Cannabis Regulation and Taxation Act is a progressive bill that will be controversial in this politically divided state.
Over three-fifths of New York’s population lives outside of New York City. Upstate and some downstate New Yorkers may find it difficult to embrace the bill for a number of reasons including the high level of government oversight, progressive employment requirements, high tax rates, and lack of local control.
The bill killer is that the majority of towns and counties in the state will be forced to allow adult-use cannabis businesses. There is no viable opt-out option. New York’s Association of Towns, the local municipality lobbying arm, included the bill in its recent legislative update. This may be a signal that the locals are fighting back.
New York’s approach to municipal control and adult-use cannabis may not be legal, and at best, is unique. Other states provide towns and cities with the ability to opt-out of adult-use cannabis. A bill that recently died in the California Legislature required cities to permit medical dispensaries using a calculation based on the number of liquor licenses in a city. This approach treated cannabis as medicine.
The legislation also glaringly favors the few large cities in the state. This may be designed to ease the state’s administrative burdens. Others may interpret it as Albany and New York City controlling local standards.
Smaller counties and cities may feel strong-armed into an industry that they don’t want. In 2006, the New York State Comptroller performed an analysis of the municipal structure, which is based on an 18th-century model that has remained relatively unchanged since 1900.
At that time, the state counted 1,605 local municipalities that included 932 towns, 554 villages, 62 cities, and 57 counties. The total of towns in the state has remained at 932 since 1900. As villages can be created and dissolved through local action, this is the only type of change that has occurred as 125 villages were created and 37 dissolved since 1920. Only 3 cities have been created in the state since 1920.
Why is this significant?
There are a lot of local governments in New York State. We believe that Governor Cuomo’s bill will create an anti-cannabis activist environment due to the inability of local governments to control local standards and opt-out of adult-use cannabis.
The loss of control is further agitated by the costs a town must assume to create the industry including code enforcement and increased policing. The bill provides tax revenues to counties and not the cities where the businesses are operating. We hope that the bill is significantly changed as it goes through the legislative process.
The legislation fails to provide local governments with a viable opt-out option. As drafted, a local jurisdiction may only opt-out of commercial cannabis if:
The county or city has a population of more than 100,000, and the county or city adopts an ordinance, regulation or resolution to prohibit commercial cannabis and hemp activities. According to the 2010 census numbers, only 8 cities and 23 of the 57 counties in New York have more than 100,000 residents. So almost 60% of the counties and 99% of towns and cities in New York State would be forced into commercial cannabis.
The counties and cities that are forced to permit commercial cannabis and hemp activities may only adopt ordinances to govern the operation and location of the businesses. This provision would allow the cities to limit the number based on zoning restrictions. However, the legislation prevents local governments from zoning out all commercial cannabis and hemp operations.
The bill permits the cultivation of cannabis and hemp as an agricultural activity. This would allow current farmland to be utilized at will for growing cannabis and hemp. This is a large issue in California where they rejected this approach in most counties as local residents object to the odor, the safety issues, and the risk of cross-pollination between cannabis and hemp.
Show me the money!
Governor Cuomo’s bill provides that 2% of the gross proceeds will be placed in an account for cities that have a population of one million or more. This means the state will only pay New York City directly. For all other cities, the state will provide the 2% local tax to the county in which a dispensary is located. The provision does not require the county to directly flow through the money to the city.
Local towns and cities would be forced to incur the cost of implementing the industry without corresponding revenues. These costs are significant especially if the town must use a competitive bidding process in order to avoid litigation due to a limited number of licenses. The city must also cover the cost of code enforcement and increased police patrols. This is a hard pill to swallow for many small towns and farming communities that are still recovering from 2008.
Experience in other states shows there is a high risk of litigation costs for local communities. The legislation requires the state’s cannabis commission to be made a party to certain actions, which will further drive up the costs for cities and counties. The state’s 2% local tax is less than Illinois at 3% or California’s unlimited local tax. The bill is asking local communities to fund the cannabis industry. This is not the right approach.
Is this the time?
We wished that the Governor’s bill was a bit more measured in order to get the industry kicked off on the right foot. We are concerned that the Cannabis Regulation and Taxation Act will be viewed as just another tactic used by Albany and New York City to dictate local standards. This might not be the best approach so closely after the enactment of the bail reform law. Our high hopes for progress this year are dimmed. Perhaps a bipartisan approach during the legislative session can make it more palatable to all.