Seed-to-sale, net terms and advertising: ‘Ask me anything’ about NY cannabis with Jeffrey Hoffman

Jeffrey Hoffman is a New York City-based attorney who hosts “Ask Me Anything about Cannabis Legalization in New York” each week on LinkedIn. Hoffman and NY Cannabis Insider have partnered to bring those sessions into print in a Q&A format.

Hoffman’s practice focuses on cannabis industry clients, including licenses in the adult-use 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 at [email protected]

The following AMA from Nov. 2 has been edited for length and clarity. Hoffman’s next AMA is on Nov. 9 at 4:20 pm

What seed-to-sale tracking system is going to be implemented? If none, how will compliance be measured?

I can quite assure you that a seed-to-sale tracking system will indeed be selected. Right now, in New York’s medical program, they are using BioTrack, which I think would tend to indicate they have an inside track, no pun intended, for them to get the contract to do the seed-to-sale tracking for the state’s adult -use program.

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Obviously, the other big system out there is Metrc and I’m sure that they are putting in a proposal, although perhaps they might be a little concerned about BioTrack’s status as the incumbent in the medical program. I do think it will be one of those two.

We’re just waiting for the state to tell us which one it will be. I expect to hear that probably in the next month or two.

How do you go about obtaining a license to sell edible baked goods and/or what type of license is required in New York?

If you just want to sell edibles, you will need either a dispensary license or an on-site consumption license, or a microbusiness. These will be the three licenses here in New York which you can get that will allow you to sell edibles at retail.

Now, since this person is talking about edibles, I’m gonna go ahead and broaden it to talk a little bit about what it’ll take to create the edibles. So, if you want to produce edibles, you will need one of two licenses, you will either need a processor license – that is going to probably be the primary one. And so the processor license is what you would need to be able to acquire flower, or I guess really just flower from cultivators. Or to acquire distillate from other processors, and then use those materials using your processing license and the equipment you have to then create the edibles or the baked goods or whatever it is you’re going to want to produce.

Now, if you produce them, you will not be able to sell them at retail, unless you get a microbusiness license. The microbusiness license is the only license here in the state of New York on the adult-use side of things where you can be fully vertically integrated. And in fact, based on our reading of the law at this point, it would appear you must be vertically integrated – that is if you want to produce those edible baked goods as a microbusiness, you will also need to grow the cannabis that you will use to get the distillate that you will put into your edible baked goods. But if you get the microbusiness license, you will be able to do everything. So you will grow, you will produce, and you will be able to sell those edible baked goods at retail, as well.

Will New York State really be able to approve any net terms between retailers and their suppliers?

That is what we got from the guidance that was released last week.

If you are a dispensary and you want to pay a distributor cash, they must sell to you. That is one of the things that we got from the guidance. So, if you want cash on the barrelhead, the distributor must sell to you. And obviously, if they do that, you don’t have to deal with net terms, don’t have to deal with that guidance from the OCM, etc., other than the distributor must take cash from you, and off you go.

Now, it does say you could get up to 90 days terms. But I certainly think the OCM is going to have a distinct interest in dealing with the net terms related to any types of transactions of that nature. The last thing the OCM is going to want is all kinds of messes in its program where retailers have been extended all kinds of credit, and then due to whatever reason they’re unable to pay, and therefore really stranding the distributors in the value chain .

Now, for the CAURD applicants — I just don’t think that they’re going to want to have any types of issues with bad debt. The OCM is going to have a significant interest in trying to limit that bad debt as the industry gets up and running. Particularly when businesses are dealing with 70% effective tax rates due to 280E. So absolutely, New York State will be able to approve those net terms between the distributors and the retailers. I think that it is absolutely in the state’s interest to keep oversight over that to make sure that, number one, nothing that distributors do is abusive or predatory, and number two, that we don’t end up with a lot of deadbeat retailers. That would really just be a disaster in the program.

If the state goes with Metrc for adult-use, will medical retailers need to maintain both systems?

Not initially, because the medical retailers at this point are not allowed to participate in the adult-use program. Over time, and at the pleasure of Tremaine Wright and the Cannabis Control Board, the ROs will be allowed at some point in the future to participate in the adult-use market here in New York. They will be able to have three dispensaries which sell to adult-use customers. At that point, they most likely would have to maintain both systems if the state chooses to use different systems for their medical program and their adult-use program.

So again, right now, we got BioTrack in the medical program, which the ROs are using. And if the state chooses to have some other tracking system for the adult-use program, yes, the ROs will need to use both as long as the state continues to have Metrc be the provider for the medical program. I would think it would be in the state’s interest to have one provider for both programs.

So I think if you see a different provider chosen for the AU program initially, the state will then run the program for however long each of those contracts is for, and then once one or the other of the contracts has run out, and the state wants to pick one of the two vendors as the vendors for both programs, you may see something like that happen. I don’t think it’s in the state’s interest to have two seed-to-sale tracking programs running.

When can we expect guidance on the balance of license types from the cannabis law, such as the delivery licenses?

The delivery licenses are the licenses that we know the absolute least about from the cannabis law. I think there’s all of seven lines, maybe eight lines, in the cannabis law about the delivery licenses. We got a little bit more in that guidance released from the OCM last week, the 27-page guidance, where it does indicate that the retail licenses, including the CAURD guys, and the folks that are to come later, will be able to deliver . They’re going to have the same 25 FTE equivalents as the delivery licenses will.

In my mind, that pretty significantly devalues ​​the delivery license. So I really would encourage the OCM to think a bit more about that, maybe even have a working group of delivery folks come together and help them think through that process, because the delivery license is to be specifically promoted to social and economic equity applicants, so I really don’t think we want to devalue that license. But anyway.

I would think they’re going to release the guidance for the nine standard licenses around Thanksgiving, and if not Thanksgiving before Christmas, but my bet is at some point around Thanksgiving.

In terms of advertising cannabis products on social media, are there ways to successfully advertise without being flagged as an illegal activity?

Yes, post on LinkedIn. For whatever reason, what most people would consider the most conservative and business-oriented of the large social media sites happens to be the one that lets almost anything go. By and large, LinkedIn really lets you do a lot when it comes to cannabis, certainly much more than Instagram or Snapchat. I guess Twitter is going to be a bit of a wild card now that it has a new owner.

So start posting there and see what happens. But I do think you do have to be careful on social media, because they will take down your posts and ban you. But again, LinkedIn has been one of if not the best as far as that goes.

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