With congressional lawmakers still working to build consensus around marijuana banking reform at the federal level, the governor of New York has signed legislation that attempts to make it slightly easier for financial institutions to work with state-licensed cannabis clients.
The new law authorizes the state’s Office of Cannabis Management (OCM) to provide financial institutions with information about marijuana business licensees or applicants, which is meant to ease compliance with reporting requirements. Licensees and applicants would first have to consent to information being shared.
The measure, sponsored by Sen. Jeremy Cooney (D) and Assemblymember Crystal Peoples-Stokes (D), was signed into law late last week by Gov. Kathy Hochul (D).
“This will allow financial institutions to have access to verify personal and financial information for their prospective cannabis clients,” according to a justification memo attached to the bill. “It will improve ‘Know Your Customer’ compliance and make it easier and less costly for financial institutions who want to bank cannabis businesses to comply with the federal reporting.”
Big News! This bill is an important first step in making it possible for cannabis businesses to access the financing they need, reducing lag time by allowing financial institutions to work directly with OCM to obtain required information. pic.twitter.com/jTRqLrFHsC
— Senator Jeremy Cooney (@SenatorCooney) November 22, 2023
Because marijuana remains a federally illegal, Schedule I substance, banks are required to comply with complicated anti-money-laundering laws and file so-called suspicious activity reports for every cannabis-related transaction. “The costly burden imposed by additional compliance and reporting measures prevents most financial institutions from banking cannabis companies,” the memo says, “even if they want to.”
While the New York law clearly won’t affect banking requirements at the federal level, it’s nevertheless meant to smooth the process—and ideally expand access to banking services—for the state’s fledgling adult-use cannabis industry.
The bill memo notes that handling large amounts of cash, which businesses are often forced to do when they’re unable to secure banking services, puts both workers and the public at risk.
“Access to financial services is not just an economic issue, it also impacts public safety. Cash businesses are more readily exploited for money laundering and other nefarious purposes, which undermines the public policy goal of creating safe, legal and regulated markets,” it says. “Additionally, it creates personal safety risks for the cannabis workers handling the large amounts of cash.”
The new law also furthers the state’s social equity goals, it says, “by removing some of the financial and systemic barriers that can prevent individuals from actually participating in the market safely.”
In another attempt to ease burdens on local New York businesses, Hochul signed separate marijuana legislation to provide tax relief to New York City marijuana businesses that are currently blocked from making federal deductions under an Internal Revenue Service (IRS) code known as 280E.
While Hochul signed a separate budget bill last year that included provisions allow state-level cannabis business tax deductions—a partial remedy to the ongoing federal issue—New York City has its own tax laws that weren’t affected by that change. The new measure is meant to fill that policy gap.
Meanwhile, lawmakers in Albany have been considering potential legislative solutions to ongoing problems with the state’s implementation of cannabis legalization. At an October hearing, for example, the body discussed the state’s THC potency tax, enforcement efforts to mitigate the illicit market, licensing distribution priorities, preventing youth from accessing cannabis and laboratory testing practices, among other issues
Frustrations over New York’s cannabis program have compounded over recent months, as regulators have worked to stand up a market that prioritizes social equity, awarding conditional licenses to people who’ve been most impacted by prohibition. The process has been slow, however—and illicit cannabis businesses have proliferated in the interim. Meanwhile, lawsuits have temporarily halted cannabis licensing, further complicating the issue.
Regulators are already making moves—some of them controversial—to broaden access to the legal market. In September, the state Cannabis Control Board (CCB) adopted a change to open retail licensing to all applicants, including big businesses from outside the state and existing medical marijuana companies. The change sparked an outcry from social equity applicants, who said it will undercut the state’s ambitious plan to prioritize small businesses and companies owned by people most directly impacted by prohibition.
Broadening eligibility for participation in the state’s marijuana market is likely to speed the opening of more legal businesses at a time when unlicensed retailers have proliferated, particularly in New York City. Despite the state approving adult-use legalization in 2021, so far only about two dozen legal retailers have opened statewide.
In a lawsuit filed by a veterans group, a judge in August halted licensing under the Conditional Adult-Use Retail Dispensary (CAURD) program, preventing regulators from granting new conditional adult-use recreational dispensary licenses or processing existing ones.
Cooney said at the time that he was “disappointed” by the judge’s decision to halt new cannabis licenses while the legal challenge plays out.
As part of the state’s effort to speed consumer access to legal marijuana, regulators also launched a program, known as the Cannabis Growers Showcase (CGS), an initiative of OCM that allows licensed growers and processors to sell directly to consumers.
Regulators voted to approve that program in July and quickly began accepting applications. The first pop-up event kicked off in the Hudson Valley in August, and another was held down the road from this year’s state fair.
In September, 66 state lawmakers—about a third of the entire state legislature—also wrote to Hochul urging her to sign a bill that would allow licensed marijuana producers to sell products to tribal retailers. The plan would offer a release valve to hundreds of cannabis farmers who are currently sitting on surpluses but have no place to sell their products.
The circumstances have resulted in more than 250,000 pounds of unsold cannabis being held by growers, the letter says. “Farmers who took out loans and leveraged all their assets to cultivate these crops are demoralized and facing financial disaster unless we act quickly to provide them with an alternate market.”
Meanwhile, New York regulators are working to debunk what they say is the “false” narrative that cannabis is commonly contaminated with fentanyl—a “misconception” that remains “widespread” despite a lack of evidence. OCM recently put out a factsheet on the issue, acknowledging that while fentanyl has been found in drugs like MDMA and heroin, anecdotal claims about marijuana laced with the potent opioid are so far unfounded.
The state’s Office of Addiction Services and Supports (OASAS) also recently revised guidance around THC testing for people in treatment for substance use disorder, advising marijuana screening only in cases where “the patient has identified a reduction in, or cessation of cannabis as part of their treatment goals.”