NYS Department of Health Report Green Lights Legalization of Marijuana
July 25, 2018
In January 2018, during the Executive budget address, Governor Cuomo directed the Department of Health (DOH) to review the health, criminal justice and economic impacts of regulating recreational marijuana in New York. In doing so, he requested DOH to act in consultation with other NYS agencies and to evaluate the experience, consequences and effects of legalized marijuana in neighboring states and territories. Seven months later, on July 13, the DOH released their highly anticipated assessment and recommendations. The report follows DOH’s recent promulgation of emergency regulations that added opioid use as a qualifying condition for medical marijuana and allowing medical marijuana to be used as an alternative treatment for pain relief in lieu of opioids. Additionally, the Governor recently directed the Department of Financial Services to issue guidance to encourage NYS chartered banks and credit unions to consider establishing banking relationships with medical marijuana-related businesses in New York that are operating in full compliance with all applicable State laws and regulations, including the Compassionate Care Act.
DOH’s report reviews the current landscape of state laws surrounding marijuana usage in the United States: Twenty-nine states and Washington D.C. have adopted medical marijuana programs, and 8 states and Washington D.C. have legalized marijuana for regulated recreational use by adults. The report concedes the recent activities in surrounding states and Canada have prompted the need for New York to consider the legalization of marijuana thoughtfully and responsibly. The report examines how the prohibition of marijuana led to a significant number of arrests for possession of marijuana and caused adverse and disproportionate economic, health, and safety impacts for individuals with low incomes and communities of color. Additionally, the report highlights several studies that have illustrated reductions in opioid prescribing and overdose deaths with the availability of marijuana products.
While the report acknowledges marijuana use is not without its risks, it concludes that the benefits of an adult regulated marijuana program would have significant health, social justice and economic benefits that outweigh any potential negative impacts for New York. The report recommends harm reduction strategies and principles be incorporated into the regulated marijuana program to help ensure consumer and industry safety. For example, a regulated adult-use only marijuana program should prohibit use by youth (those under 21 years of age) and simultaneously implement strategies to reduce youth use of marijuana. Regulating marijuana would allow for laboratory testing, product labeling, guidance and consumer education at dispensaries. This would allow consumers to be better informed about the products they are purchasing, understand the dosage options, various ingestion methods, what products and techniques may work best for them, as well as understand potential adverse consequences and potential harms of marijuana use. An adult regulated marijuana program could also help promote marijuana as an effective alternative pain treatment to opioids. Additionally, a regulated marijuana program should create guidelines to ensure packaging is child proof and contains appropriate warning labels to avoid accidental consumption.
The report outlines the impact marijuana legalization would have on the criminal justice system. In 2010, the marijuana arrest rate in New York was the highest in the country and twice the national average. Unfortunately, despite equal marijuana use among racial groups, black individuals were nearly four times more likely than whites to be arrested for possession. Subject matter experts echoed similar sentiments to DOH and stated the most appropriate way to rectify this issue would be to legalize marijuana. Marijuana-related convictions have a lasting impact on individuals, their families and the communities where these individuals live. Individuals with a criminal record typically experience lifelong challenges with securing stable employment, housing and economic stability. The DOH report indicates if marijuana was regulated, there would be a reduction of expenditures related to enforcement, prosecution and punishment for illegal marijuana offenses. This would allow law enforcement to devote more of their time to community oriented policing and other more pressing focus areas.
The DOH study illustrates that NYS would be one of the largest regulated marijuana markets in the country and that there is great potential for tax revenue for the State. DOH stated this funding could be used to help provide financial support for other programs, such as public health, community reinvestment, education, transportation, research, law enforcement, workforce development, and employment initiatives. The report estimates there is projected to be 1,290,000 consumers in NY that would access regulated marijuana within the first year. Based on certain inputs, assumptions, and average retail prices for marijuana, the estimated revenue for the first year could be between $1.7 billion and $3.5 billion annually – based on the sale of 6.5-10.2 million ounces being sold at $270 – $340 per ounce. It should be noted, however that the average price of an ounce of marijuana in the United States, according to a recent Forbes article is around $247 an ounce. Thus, these projections are arguably inflated. Furthermore, depending on the retail tax rate that is ultimately imposed (the analysis used 7% and 15% for comparison purposes), NYS could receive between $248 million to upwards of $677 million in tax revenue annually. However, the higher the tax rate imposed, the more likely users will continue to resort to the black market to obtain marijuana.
The report acknowledges the implementation of a regulated marijuana program would require legislative and regulatory actions to appropriately address the diverse geographic needs throughout New York. NYS must determine what type of licenses to offer under the regulated marijuana program and whether or not vertical integration would be allowed. DOH recommends NYS limit the number of licenses available initially, and adopt a licensure model that is similar to Massachusetts, which prioritizes applicants for licensure based on providing equal opportunities for individuals who meet certain criteria (those living in areas of disproportionate impact, employment of residents in such areas, employment of people with drug-related criminal offender record that are otherwise employable, and ownership by persons of color). Additionally, NYS would need to develop regulations and requirements for each element of the supply chain, cultivation and production practices, laboratory guidance, packaging and tamper proofing of products, and how marijuana will be retailed. DOH recommends NYS place limits on the amount of THC allowed in marijuana, the types of products that may be offered for sale, and limit the maximum amount an individual may purchase to one ounce.
Regarding the taxation of regulated marijuana products, DOH recommends NYS begin with a low taxation rate, between 7% and 10%, to help encourage users to transition to the legalized market. The report also emphasized that the workforce needs for this emerging industry must be addressed as the program continues to be developed to ensure safe working conditions.
Lastly, the DOH report recommended NYS convene a workgroup of subject matter experts, with relevant public health expertise, to: (1) contemplate the nuances of a regulated marijuana program; (2) review existing legislation; and (3) make recommendations to the State that are consistent with the overarching goals of harm reduction and public education.
For additional information on this report or other legislative or regulatory matters, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.
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