Cannabis Business in New York

The New York state cannabis market generated over $150 million in retail sales for the Fiscal Year 2022-2023:

• More than 3.5 million units of cannabis products from over 550 distinct cannabis strains were sold across the 40 Adult-Use retail dispensaries that are open for business across the state,
• The Medical Cannabis Program in NY has grown to nearly 122 thousand registered patients, saving consumers at least 6 percent in excise tax,
• Cannabis Growers' Showcases contributed 3% of the total revenue, amounting to $4.8 million,
• Nearly $16.3 million in revenue was reported for the State Fiscal Year 2023.

Types of Cannabis Business in New York

Cannabis businesses in New York can be broken down into two major types:

• Cannabis-Touching (plant touching) business
• Cannabis-Adjacent (non-plant touching / support) business

It’s important to understand which business you are dealing with because each type comes with its own rules, laws, and challenges.

What is a Cannabis Touching Business in New York?

Cannabis-touching businesses in the State of New York are directly involved in the cultivation, processing, distribution, or retail sale of cannabis products. These businesses have a direct connection to the cannabis products they handle.

Under the Marijuana Regulation and Taxation Act (MRTA), vertical integration is generally prohibited for adult-use cannabis businesses in New York. This means that unlike in some other nearby states, a single New York company cannot hold multiple types of cannabis licenses, such as those for both cultivation and retail. This regulation is designed to prevent monopolistic practices and to ensure a diverse marketplace, giving small businesses an opportunity to compete. However, there are exceptions for certain pre-existing medical marijuana license holders, who are allowed to manage the entire production and sales process, often referred to as "seed-to-sale."

The MRTA also limits the number of licenses that any one company can own, further supporting the competitive landscape for small businesses. Additionally, New York employs a True Party of Interest (TPI) framework, which requires all individuals or entities with a financial or controlling interest in a cannabis business to disclose their involvement. This includes both direct and indirect financial interests, as well as passive investors, ensuring transparency and maintaining the independence of each licensed business​.

Here are some additional examples of plant-touching cannabis businesses and what they do:

• CULTIVATORS: In New York State, there were 25 cultivator licenses issued in 2024. Cultivators are responsible for growing cannabis plants, either indoors or outdoors. They may specialize in various strains and engage in breeding programs to develop new types of cannabis. Cultivators must comply with state regulations regarding the methods and conditions of cultivation to ensure quality and compliance.
• PROCESSORS: The processors in the State of New York transform raw cannabis into various products such as oils, edibles, concentrates, and topicals. This involves extraction techniques, refinement, and sometimes the creation of new product forms. Processors must adhere to stringent state regulations to ensure product safety and consistency. There were 19 processor licenses granted in 2024.
• TESTERS: Testing laboratories play a crucial role in ensuring that cannabis products are safe and free from contaminants like mold and pesticides. These labs conduct rigorous testing to verify the purity and potency of cannabis before it reaches dispensaries.
• DISPENSARIES AND RETAIL STORES: Dispensaries and retail stores are the points of sale where cannabis products are sold directly to consumers. In 2024, the State of New York welcomes 17 new licensees. All of these establishments must follow state regulations concerning sales, including verifying customer age and adhering to purchase limits. Dispensaries are also responsible for maintaining compliance with various state tracking and reporting systems.
• DISTRIBUTORS AND SUPPLY CHAIN: There were 22 new distributor establishments licensed by the New York State government in 2024. Distributors handle the logistics of moving cannabis products from producers to retailers. This includes managing the supply chain, ensuring secure transportation, and complying with state tracking systems to maintain transparency and accountability throughout the distribution process.
• CANNABIS NURSERY: Cultivators that exclusively produce clones, immature plants, seeds, and other agricultural products intended for the propagation, planting, and cultivation of cannabis by licensed adult-use cannabis cultivators, cooperatives, microbusinesses, and registered organizations.

Currently, 270 conditional cultivators, 40 conditional processors, distributors, and 75 adult-use retail dispensaries are licensed to grow, distribute, and sell cannabis across New York State. These are all plant-touching businesses.

What Are Non-Plant Touching Cannabis Businesses in New York?

Non-plant cannabis touching businesses, also known as cannabis-adjacent, ancillary, or support businesses, offer services or products related to the cannabis industry without directly handling the plant. These companies are essential for the cannabis industry in New York, providing the necessary infrastructure and support. Here are some examples:

• Banking and Payment Processing Solutions: Due to the federal illegality of cannabis, traditional financial services are often unavailable to cannabis businesses. Specialized financial services, including banking, loans, and payment processing solutions, are crucial to ensure smooth operations and compliance with state regulations.
• Insurance Services: Cannabis businesses require comprehensive insurance coverage to protect their operations, staff, and products. This includes coverage for different stages of cannabis production, business operations, and liability. Working with an insurance agent knowledgeable in the cannabis industry is vital to obtain appropriate coverage.
• Accounting Services: Specialized accounting services are crucial for cannabis business owners due to unique financial and regulatory challenges. Section 280E of the IRS Code limits tax deductions to the cost of goods sold (COGS), resulting in higher taxes. Additionally, strict inventory management requirements demand precise tracking and financial recording from seed to sale. Specialized accountants ensure compliance and optimize financial strategies within these constraints, helping cannabis businesses manage their unique set of legal and fiscal challenges effectively.
• Legal Services and Regulatory Compliance: Lawyers and legal firms specializing in cannabis laws help businesses navigate complex and often changing regulations at both the state and federal levels. These legal professionals are essential for ensuring that businesses comply with all legal requirements and avoid potential legal issues.
• Consulting and Management Services: Consulting firms assist cannabis businesses with compliance, licensing, business operations, and market strategy. These services help businesses streamline their operations, maintain regulatory compliance, and develop effective market strategies to stay competitive.
• Packaging and Labeling: With strict regulations on how cannabis must be packaged, including requirements for child-resistant, opaque, and clearly labeled packaging, companies that specialize in compliant packaging solutions are crucial. These businesses ensure that cannabis products meet all regulatory requirements, protecting both the consumer and the business.
• Marketing and Branding: Due to strict advertising restrictions on cannabis products, specialized marketing and branding services help businesses promote their products within the legal framework. These services ensure that marketing strategies comply with state regulations while effectively reaching the target audience.
• Technology, Software, and Equipment: Technology plays a crucial role in modern cannabis business operations in New York. From seed-to-sale tracking systems and consumer apps to Point-of-Sale systems, eCommerce platforms, and security solutions, these technological tools are essential for maintaining compliance, enhancing operational efficiency, and improving customer service.
• Data Analytics: Data analytics is vital for optimizing operations, ensuring regulatory compliance, and improving financial management in the cannabis industry. By analyzing consumer behavior, supply chains, and product quality, data analytics supports strategic decision-making, risk management, and helps businesses adapt to market trends while strengthening customer relationships.
• Advocacy Organizations: These entities represent the interests of the cannabis industry at the state level. These organizations work to influence policy, provide industry insights, and advocate for the legal and regulatory changes necessary for the industry's growth and sustainability.

What Are The Differences Between Plant-Touching and Non-Plant Touching Businesses?

The distinctions between cannabis plant-touching and cannabis-adjacent businesses significantly affect compliance, regulatory scrutiny, insurance coverage, and financial operations. Here are the key differences:

STATE LAWS:

• Cannabis-Touching Businesses: These businesses in the State of New York require specific state licenses and must comply with strict regulations, including security measures and product testing. They also face significant banking restrictions due to federal laws.
• Cannabis-Adjacent Businesses: These businesses generally need only standard business licenses, encounter fewer regulatory hurdles, and have better access to banking and financial services.

ACCOUNTING:

• Cannabis-Touching Businesses: These businesses in the State of New York are subject to Section 280E of the IRS Code, which prevents them from deducting typical business expenses, resulting in higher taxes. They also face complex inventory management requirements and strict compliance regulations.
• Cannabis-Adjacent Businesses: These businesses can claim standard business deductions on their taxes and use more straightforward accounting practices. They do not face the stringent compliance required for cannabis inventory tracking, making their financial operations less burdensome.

BANKING:

• Cannabis-Touching Businesses: These businesses face significant banking restrictions due to federal regulations, often operating in cash and relying on a limited number of banks willing to accept the legal risks. This results in high compliance requirements and challenges in financial management.
• Cannabis-Adjacent Businesses: These entities enjoy broader access to financial services, including traditional banking accounts, loans, and credit lines, due to their indirect involvement with cannabis. This facilitates simpler financial operations and growth opportunities.