In New York’s up-and-coming cannabis industry, it’s the season of giving: free cannabis, that is.
In September 2021, Henrietta-based business HempSol announced that customers would receive a “free” cannabis gift with the purchase of a $65 t-shirt. This business model alerted New Yorkers to other “cannabis gift with purchase” arrangements at CBD and smoke shops, as well as pop-up cannabis gifting events throughout the state. With the sale of an overpriced t-shirt, lighter, or other item, numerous CBD businesses and smoke shops offered New Yorkers a THC-infused gift throughout the fall of 2021 and early winter of 2022.
While some consumers regard this cannabis gifting as resourceful and innovative, Cannabis Control Board Chair Tremaine Wright has condemned cannabis gifting from its conception, insisting that there is “no gray market” in the state’s developing cannabis industry. Under the Marijuana Regulation and Taxation Act (MRTA), which legalized cannabis in New York in 2021, only regulated cannabis sales are legal. Yet amidst the pandemic and concerns regarding cannabis policing and social equity, regulations for cannabis retail sales have yet to be published, prompting some New York cannabis growers to employ the creative yet legally fuzzy strategy of cannabis gifting.
Businesses offering cannabis gifts were not formally penalized until early February, when more than two dozen received letters from the NY Office of Cannabis Management. These letters instructed businesses to cease and desist cannabis gifts or risk substantial fines, possible criminal penalties, and an inability to obtain a legal cannabis license. Although Wright and others insist on a regulated cannabis market, legal cannabis sales can only begin after New York approves regulations governing those sales. Wright predicts that draft regulations will be released by late winter/ early spring of 2022; after a 60-day comment period and final approval, applications to open cannabis businesses can finally be submitted.
So, what’s the hold up? Through its recently-launched Cannabis Conversations, the New York government is attempting to answer this question by engaging directly with its cannabis community. The publication of regulations for retail cannabis is partially delayed due to public health concerns. Before sales commence, Wright and others want to ensure the safety of consumers, citing the unregulated sale and gifting of concentrated cannabis cartridges in 2019, some of which contained deadly Vitamin E acetate and were associated with 2,800 hospitalizations and 68 deaths. Another key concern is the development of a “supportive ecosystem” for all cannabis business owners, says Wright: New York is prioritizing social equity applicants, including women-owned businesses, distressed farmers, and those harmed by over-policing and mass incarceration. Finally, New York’s much-anticipated cannabis regulations must outline the industry’s use of sales tax revenues, which Wright intends to reinvest in the community. After covering the cost of Office of Cannabis Management operations, equity applicants, and law enforcement training, 40 percent of remaining tax revenue will support NY schools, says Wright; another 40 percent will be returned to communities most harmed by disproportionate cannabis policing, with the final 20 percent dedicated to drug treatment programs and public education.
Consumer safety and social equity are essential to a healthy cannabis industry; yet as Wright acknowledges, it will take time to design and cultivate this ecosystem. As New York cannabis consumers and businesses await MRTA regulations, cannabis gifting is expected to decrease in response to the February crackdown. Yet throughout the state, the spirit of cannabis entrepreneurship remains vibrant. Particularly for social equity applicants, the regulatory delays may serve as an unexpected blessing, giving cannabis business owners the gift of time – time to establish funding, legal expertise, and customer relationships – in lieu of cannabis gifts.
Takeaways:
- In New York’s recently legalized cannabis industry, some businesses have employed a “cannabis gift with purchase” model to establish their customer bases in anticipation of a fully-regulated cannabis industry.
- The New York Office of Cannabis Management openly condemns cannabis gifting in New York and recently distributed cease-and-desist letters to businesses engaging in the practice.
- The delayed publication of cannabis regulations in New York – and subsequent popularity of cannabis gifting – can be attributed to a number of factors, including the state’s focus on social equity applicants, concerns about public safety, and detailed plans for cannabis sales tax revenue.
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