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If you received a “cease-and-desist” letter (commonly referred to as a “C&D”) in the mail from New York’s Office of Cannabis Management (“OCM”), fear not, but pay attention. You have received the C&D because the OCM believes, or has reason to believe, you are selling cannabis or operating a cannabis-related business in New York without a license. If you did not receive a C&D from the OCM, but are selling cannabis in New York without a license, you can read the letter here.
“I got a C&D. Now what?”
If you received a C&D from the OCM, there are a few things you can do. First, you can respond to the letter (more on this in the next paragraph). It is highly recommended you hire a New York-licensed attorney to do this for you. Next, if you are selling cannabis or operating a cannabis business in New York without a license, you can temporarily stop or suspend your cannabis-related business activities until you obtain a New York license.
Responding to a C&D is not legally required or mandatory, but depending on your specific circumstances, it may be beneficial to talk to an attorney about it. An attorney will carefully read the C&D, tell you what it means from a legal perspective, and provide you any legal options. Your attorney might also suggest any risk-mitigating legal strategies that can possibly help you avoid any serious fines or penalties.
This particular C&D is notifying you that the OCM believes or has reason to believe you are selling or gifting cannabis, or operating a cannabis business in New York, without a license,. The C&D further states if you continue these activities or operations without first obtaining a New York license, you risk being punished by facing penalties, paying heavy fines, or being denied a New York license once you actually apply for one.
The C&D also says your landlord, if he/she/they is/are leasing retail space to you or anyone who is selling or operating a cannabis business without a New York license, also risk penalties like the ones previously mentioned above. The OCM also warns New York landlords that they risk losing the ability to lease retail space to New York-licensed cannabis businesses in the future.
Unfortunately, though recreational adult-use of marijuana has become legal in New York, the State of New York has yet to adopt a statute, or law, concerning retail licensing for cannabis businesses. All we know so far is a person or business cannot sell marijuana in New York without a retail license. The OCM has stated they anticipate the statutes, or laws, addressing the legal sale of cannabis in New York, to be available by the end of 2022.
Needless to say, there is a lot of confusion in the marketplace among cannabis businesses and consumers, especially when the local news reports almost daily on how quickly things are speeding along just across the river in states like New Jersey. If you received a C&D from the OCM, here are a couple things you can do:
- Book a legal consultation with an attorney and discuss your plans to sell cannabis or legalize your commercial cannabis activities. Start building a relationship with the attorney by keeping him/her/them in the loop of your plans. If the initial legal consultation is helpful, consider hiring the attorney to address the C&D or to help you apply for a New York retailer’s license once they become available.
Note: Before meeting with an attorney, you may have to pay a fee for the legal consultation. Consultation fees are common for legitimate, private law firms and solo practitioners. Paying a consultation fee is important because it lets the attorney know you are serious about your business and about hiring their legal services. The fee itself is usually inexpensive compared to hiring an attorney for an hour of their time (i.e., $150 consultation fee vs. $400-800 per hour for the attorney’s time, depending on their years of experience). Another tip is to ask the attorney to apply your consultation fee as a credit toward your final balance. This is great, easy way to maximize your investment and get the most out of your legal consultation fee and time with the attorney. It is also recommended you send them any other correspondence or notices you have received from the OCM or any other New York agencies or authorities, and any questions in advance so the attorney can prepare to address them ahead of your call or meeting with him/her.
- Hire a New York-licensed attorney to draft a response letter to the C&D. If you mistakenly received the letter or are not currently selling cannabis in New York, a response letter can set the record straight and address any misstated or inaccurate information about you or your business. Depending on the length, complexity, and amount of evidence needed to support your C&D response letter (also called “Exhibits”), a New York attorney may charge anywhere from $750 and $1500 to respond to a C&D.
“I decided to pause my cannabis activities so I can apply for my New York license. Now what?”
If you have decided to pause or temporarily suspend your commercial cannabis activities in New York because you eventually wish to apply for a license to sell cannabis in New York, here are a few other things you can do while you wait:
- Take care of any legal housekeeping items connected to future cannabis business. Complete any legal steps related to your company formation (I.e., publication requirements for New York LLC’s and completing and filing certain IRS tax forms for S- and C-Corporations). You can also hire an attorney to help you file trademark applications for your future cannabis business’s name, logo, slogan, or even a music jingle if you have one!
- If you don’t have a name, logo, slogan, or music jingle yet, make up a name or hire a graphic designer to design your business logo. Ask a musician friend or hire a freelance musician or composer to create and record a catchy jingle for your new cannabis brand! You can also hire a project manager to help you write or put together a business plan and marketing materials, which you will need once you are a licensed, New York cannabis business and start promoting your very own cannabis brand online.
- If you are planning to start a cannabis business or intend to sell or grow cannabis legally in New York, your attorney can also help you form an LLC or an S Corporation, C Corporation, and draft any related company documents, such as an operating agreement, a shareholders agreement, or partnership or joint venture agreements. These legal documents are very important, especially if you plan to form or start a cannabis business with one or more partners. The attorney can also help you obtain a Labor Peace Agreement, which will be required of all New York license applicants.
Plan your investment in your future cannabis venture
It has been estimated from legal and business professionals in other states where the sale of recreational cannabis has been legalized, that the total time it will take to prepare a New York cannabis license from start to finish (or submission) will be approximately 400 hours! The license itself will also require a sizable application fee somewhere in the range of $200,000. Take some time to also think about what kind of support you will need once you become a licensed New York cannabis dispensary or retailer, e.g., lawyers, accountants, bookkeepers, and any other staff or professional services you may need. Get creative and start thinking about what your social media handles or hashtags will be and which platforms are most effective or give the most exposure to your business. You can start by looking at what licensed retailers in other states have done where the sale of cannabis is legal and go from there. Come up with a plan and write it down, or hire a project manager to help.
Lastly, do your research on insurance. Find out which insurance providers work with cannabis-related businesses and learn what types of insurance you will need, e.g., worker’s compensation, business interruption, health, agricultural or farming, etc. Cannabis is considered a “high-risk” business by many insurance providers, which can make getting and maintaining insurance quite difficult and expensive. Do your research ahead of time so you are prepared and have everything ready to go once you become a licensed cannabis dispensary or retailer and resume or begin doing business in New York.
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