Jeffrey Hoffman: New York’s Journey to Cannabis Legalization and Licensing

Jeffrey Hoffman

Attorney & Management Consultant

Jeffrey Hoffman is an attorney in New York whose practice focuses on clients in the cannabis industry, including licensees in the adult-use cannabis market, practitioners in the medical cannabis space, and cannabis adjacent product and service providers. He has a particular interest in social and economic equity cannabis license applicants, and he also informs and assists those convicted of cannabis offenses in getting such convictions expunged from their record.

He can be reached via email at or by phone at ‭(646) 692-4083‬. Follow him on LinkedIn:


On March 31, 2021, the Marihuana Regulation & Taxation Act (MRTA), key parts of which are known as the Cannabis Law,came into effect in New York. It legalized adult-use cannabis in the state and established a framework for licensing the cultivation, processing, distribution, retail dispensing, delivery, and on-site consumption of cannabis. The legislation created the Office of Cannabis Management (OCM) led by the Cannabis Control Board (CCB) which will set regulations and manage the state’s cannabis industry. Additionally, the law provides for the expungement of various cannabis convictions in order to clear the records of past offenders.

New York’s path to legalization was not as rapid as many outside observers may have expected. Once Colorado and Washington legalized cannabis in 2012, it was thought that New York, widely viewed as one of the most liberal states in the country, would soon follow suit. However, the liberal nature of the state is overwhelmingly driven by its “downstate” population, most notably in New York City. The “upstate” portion of New York is considerably more conservative, and in fact for most of the past 30 years, control of the New York Legislature was split with Democrats controlling the Assembly while Republicans controlled the Senate. And for that matter, Governor Cuomo, who had been in office since 2011, was not a fan of cannabis. No adult-use cannabis legalization would happen in this political environment.

Then in 2018, two things happened in the “wave election”


1. Democrats took the Senate

2. Cynthia Nixon, widely known for her role as Miranda on the popular TV show Sex and the City, primaried Governor Cuomo, driving him to the left and into the arms of cannabis legalization

However, despite single party control of Albany, bickering amongst and between the branches of government prevented any actual movement on the issue of cannabis legalization. It wasn’t until early 2021, when Governor Cuomo was mired in the various scandals that would bring down his administration, that the Legislature was able to force the issue and pass the Cannabis Law. But just for good measure, between the time the Cannabis Law was enacted in March until Governor Cuomo left office at the end of August, he never made his appointments to the Cannabis Control Board. It wasn’t until Governor Hochul made the appointments in September that things could get underway.

Some parts of the Cannabis Law are already in full effect in New York. It is now legal for a person 21 years of age or older to possess and use up to three ounces of cannabis flower and twenty-four grams of cannabis concentrate. In a departure from other states which limit the smoking of cannabis to private homes or other private spaces, New York allows the smoking of cannabis in any location where smoking tobacco is allowed, and the state will eventually license on-site consumption lounges which will effectively be “cannabis bars.” Additionally, the automatic expungement of some cannabis convictions is currently in progress.During 2022, the CCB will draft regulations for the implementation of the Cannabis Law. They will promulgate the rules for cannabis businesses and the licenses for the cultivation, processing, distribution, retail dispensing, delivery, and on-site consumption of cannabis. With limited exceptions, businesses will only be allowed to have one kind of license.

For example, a processing licensee will not be able to also have a retail dispensing license. The main exception to this is the Microbusiness license which will enable an entity to be fully vertically integrated but only to the extent that it grows, processes, distributes, and sells its own cannabis.
The goal of the CCB is to make the regulations available later this year and have the licensing process start and businesses opening in late 2022 or early 2023.
Conditional Licences
To jumpstart the cannabis industry, the legislature and the CCB are working to implement “conditional” licenses for cultivation, processing, and retail dispensing. The conditional licenses for cultivation and processing were established by the legislature and will allow entities that were already participating in the state’s hemp program to now grow adult-use cannabis. The application for conditional cultivation licenses opened very quickly after the legislature passed the law, and the state has already issued 52 such licenses.

The application for conditional processing licenses should be available soon. On the other hand, the conditional retail dispensary licenses are based on a proposed regulation by the CCB. Such regulations must go through one and perhaps two public comment periods, which may result in significant changes to the regulation, so we are a few months at a minimum before the application for this conditional license will be available. Additionally, the conditional retail dispensary license is more controversial than the other licenses. As currently drafted, the regulation calls for this license to be available exclusively to entities with 51%+ control vested in individuals, or those of a specific relationship to individuals, who were convicted of a cannabis offense in New York prior to the enactment of the Cannabis Law. Also, applicants must demonstrate that they were, at a minimum, a 10% owner of a business that was profitable for at least 2 years.

The Cannabis Law requires that an effort be made to include various groups in the cannabis license pool via its social and economic equity initiative. Such groups include minority and women owned businesses, service disabled veterans, and distressed farmers. Additionally, individuals who were impacted by a conviction of a cannabis-related offense prior to the effective date of the Cannabis Law, are a member of a community disproportionately impacted by the enforcement of cannabis prohibition, and have an income lower than 80% of the median income of the county in which they reside will also receive special consideration for licensing. The goal of the Cannabis Law is to issue 50% of the licenses in the state to social and economic equity licensees, and such applicants shall have a lower licensing fee and shall not be required to demonstrate a “right to property” in their application, but need only provide a plan to acquire a “right to property.”

Social Equity Cannabis Investment Fund.

In order to support social and economic equity applicants, Governor Hochul has proposed the creation of a $200M Social Equity Cannabis Investment Fund. The Fund will be managed by the Dormitory Authority of the State of New York (DASNY), one of the largest issuers of municipal debt in the United States, for the purpose of using state and private investor funds to lease, upfit, and rent commercial space to social and economic equity retail dispensary licensees such that social and economic licensees have “sufficient land, building and equipment to properly conduct the commercial activity for which they have been granted a license.” It is likely that conditional retail dispensary licensees described above will be required to locate their businesses in these facilities.

Should the legislature green light the fund, it would be formed in the Spring of 2022 and have a term of 10 years from the date it is fully capitalized (projected to be in 2024). The fund will include a minimum of $150M of private capital and up to $50M of capital from the state from revenues deposited in the Cannabis Revenue Fund (cannabis taxation and licensing fees).
The public monies in the fund will be held in escrow, drawn upon for each capital call, and be non-interest bearing and subordinated in payment priority to the private funds in order to enhance the yield and credit for the benefit of the private investors. The fund will make loans to social and economic equity retail dispensary license holders to finance all direct and indirect expenses associated with the sourcing, leasing, planning, design, construction and equipping of their dispensaries.
The loans will be non-recourse, general unsecured debt obligations of the license holders. DANSY anticipates that it will invest $750K to $1.5M million per retail dispensary. As part of the process, DASNY shall have the exclusive authority to select all site locations of all dispensaries and negotiate all lease terms. DASNY would execute the leases with each landlord as well as the subleases with the licensees selected to operate the locations in question. DASNY would also manage the construction, fit-out, and equipping of all locations, service all loan repayments, manage the collection of rent from operators and the payment of rent to landlords, and remediate any payment or other defaults.
As with other regulated activities in New York, state and local governments will collect taxes on the activities contemplated under the Cannabis Law. For adult-use cannabis, there will be a 13% tax on retail sales, 9% of which will go to the state and 4% to the local governments where the sales take place, along with a wholesale tax of 0.005 cents (1/2 of a cent) per milligram of THC for cannabis flower, 0.008 cents (8/10 of a cent) per milligram of THC for concentrated cannabis, and 3 cents per milligram of THC for edible products.
As an additional tax measure, New York has addressed, at a state level, one of the biggest challenges for cannabis businesses: the fact that such businesses are not allowed to deduct most expenses on their federal and state tax filings. At the federal level, this is due to what is known as “280E” (more specifically, 26 U.S.C.A. § 280E) which states in relevant part:

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”


Due to this provision, and the fact that cannabis is still listed under schedule I of the Controlled Substances Act, cannabis businesses are only able to offset gross receipts by the cost of goods sold (COGS). For example, in the case of a dispensary, this would be their wholesale expense in acquiring the cannabis products which they then sell at retail. All other expenses, such as salaries, insurance, and rent are not deductible, and this results in a considerable effective tax rate for these businesses.
As part of the recently approved state budget, lawmakers in New York have enabled cannabis businesses in the state to enjoy all deductions which other businesses currently enjoy. Specifically, for the next three tax years,

“The provisions of Section 280E of the Internal Revenue Code, relating to expenditures in connection with the illegal sale of drugs, shall not apply for the purposes of this chapter to the carrying on of any trade or business that is commercial cannabis activity by a licensee.”


In addition to establishing a regulated cannabis industry in New York, a significant component of the Cannabis Law is the expungement of cannabis convictions from criminal records. The reason that so many individuals have been negatively impacted by convictions for possessing or using cannabis is due to the fact that they have had to check the “yes box” when job or housing applications asked if they had ever been convicted of a crime. The draconian anti-cannabis enforcement pursued over the years in the United States is one of the most inane things a society has ever done to itself, and this component of the Cannabis Law is one step towards righting that wrong. Generally, convictions for possessing up to 16 ounces or selling up to 25 grams of cannabis are now eligible for expungement.
New York City – Cannabis Tourism Capital Of The World?

To date, New York has created some of the most liberal cannabis laws, not just in the United States, but anywhere in the world. New York City is the most visited city in the country by both domestic and international tourists, and it ranks in the top ten among all cities worldwide. It is not unreasonable to think that, once New York fully implements its visitor-friendly cannabis industry, it will take the title of “Cannabis Tourism Capital of the World” from its former namesake: Amsterdam. Could the New York cannabis market be worth $10B or more? It doesn’t seem far-fetched at all.


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Matt Maurer – Minden Gross
Jeff Hergot – Wildboer Dellelce LLP

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Tim Morales – The Cannabis Industry Association Costa Rica

Elvin Rodríguez Fabilena


Julie Godard
Carl L Rowley -Thompson Coburn LLP

Jerry Chesler – Chesler Consulting

Ian Stewart – Wilson Elser Moskowitz Edelman & Dicker LLP
Otis Felder – Wilson Elser Moskowitz Edelman & Dicker LLP
Lance Rogers – Greenspoon Marder – San Diego
Jessica McElfresh -McElfresh Law – San Diego
Tracy Gallegos – Partner – Fox Rothschild

Adam Detsky – Knight Nicastro
Dave Rodman – Dave Rodman Law Group
Peter Fendel – CMR Real Estate Network
Nate Reed – CMR Real Estate Network

Matthew Ginder – Greenspoon Marder
David C. Kotler – Cohen Kotler

William Bogot – Fox Rothschild

Valerio Romano, Attorney – VGR Law Firm, PC

Neal Gidvani – Snr Assoc: Greenspoon Marder
Phillip Silvestri – Snr Assoc: Greenspoon Marder

Tracy Gallegos – Associate Fox Rothschild

New Jersey

Matthew G. Miller – MG Miller Intellectual Property Law LLC
Daniel T. McKillop – Scarinci Hollenbeck, LLC

New York
Gregory J. Ryan, Esq. Tesser, Ryan & Rochman, LLP
Tim Nolen Tesser, Ryan & Rochman, LLP
Cadwalader, Wickersham & Taft LLP

Paul Loney & Kristie Cromwell – Loney Law Group
William Stewart – Half Baked Labs

Andrew B. Sacks – Managing Partner Sacks Weston Diamond
William Roark – Principal Hamburg, Rubin, Mullin, Maxwell & Lupin
Joshua Horn – Partner Fox Rothschild

Washington DC
Teddy Eynon – Partner Fox Rothschild