Changes to the proposed New York law

The medical marijuana bill which I described in my first post has changed as the legislative year draws to a close.

As I read the revised bill, I reach one paramount conclusion: someone in Albany is taking seriously what is happening with medical marijuana in other states.

Why do I say that? I detect in the amendments references to the statutory transformation of Colorado and to the recent controversy in New Jersey.

Fundamentally the bill is tracking the evolution of the system in Colorado (by statute) into a revenue-raising measure. In addition I believe that one of the changes may enable the state to preclude the emergence of any private sector in the supply-side of the market, as we see the Governor has attempted (will still attempt to do?) in New Jersey.

Assessment

The really big thing that stands out in the amended bill is the revenue-raising function that appears in new Section 3368. This section provides that a supplier (other than a governmental entity) pays 7.5% of gross sales to the Department of Health (DOH).

This new provision suggests to me a reference to the new Colorado statute which, in addition to placing application requirements on Colorado dispensaries and allowing local governments to ban them, provides for payments by Colorado dispensaries to the state department of revenue, which itself looks to me like a hybrid revenue-raising/medical-use bill.

Special status for entity that contracts to supply cannabis to the Department of Health

Section 3364(1-A) provides that DOH can contract with another “entity” through a “request for proposals process” to manufacture medical marijuana to sell to DOH in connection with DOH’s operation as a marijuana supplier. (DOH, an administrative agency in the state government, is one of the six types of corporate entities that can operate in the supply side of the market.) It says that “an entity contracting with the department … shall be deemed to be a registered producer when acting under that contract.”

Why does this section catch my attention? Right away it contemplates that the DOH could actually function as a participant in the supply side. In my May post I opined (subtly and in other words) that that scenario was practically impossible due to the low likelihood that the state government would itself cultivate and distribute a Schedule I substance. (I actually wondered internally why that provision would be in the statute given the unlikelihood that the executive branch of the state government would secede from federal cannabis prohibition so extremely.) However, the fact that someone cared enough to add this provision suggests that someone is considering the possibility.

Next and even more interesting is the language that allows everyone and his brother to avoid the standard application process and enter the supply side of the market – they just need to apply to supply DOH with cannabis. You see, this section says that an “entity” can submit proposals to DOH for the terms on which it will manufacture for DOH. I am thinking very much of the scenario which New Jersey Governor Chris Christie proposed for his state: whereas there the governor proposed changing the regulatory scheme to make a university the sole authorized producer of cannabis and allow only hospitals to distribute, here I see the potential for the executive branch to allow only a single large corporate entity, e.g. a university, to operate as a producer and to allow only DOH to dispense to patients.

Under the standard application process as contemplated in the bill, you apply to DOH for a license to participate in the supply side of the market, i.e. manufacturing or otherwise acquiring cannabis and distributing it to the public. The process is somewhat burdensome in that you need to demonstrate a lot of things to DOH, for example that your directors are all of good moral character and not, e.g., convicted drug felons and that you have the actual capacity to keep people from stealing the cannabis and selling on the black market. (There are others; see the May article for a fuller treatment.)

However, this scheme now allows anyone to propose directly to DOH to supply cannabis to DOH – and that person will be deemed retroactively to be a registered producer (one of the six types of supply-side participants). Why does the amended bill allow an express lane to registration for an entity that contracts to supply DOH with cannabis – except to move DOH to the head of the line for dispensing? NJ Governor Christie called for the elimination of the centerpiece of that state’s law: the creation of the six “Alternative Treatment Centers” i.e. corporate entities that will function analogously to retail (i.e. direct-to-consumer) distributors. Instead Christie wanted (wants?) to give the job of supplying the market exclusively to hospitals. To date, legislative sponsors of the NJ law have rebuffed Christie’s efforts. I see in the proposed change to the NY bill the potential for DOH to monopolize the supply side – simply by determining that it is no longer in the public interest to register retail dispensaries when DOH can dispense and instead operate as the sole source.

Of course, that scenario was always potentially feasible under the old bill. However, the fact that someone took the trouble to spell it out in an amendment catches my attention, especially in light of what Christie tried to do to the NJ statute.

My concern is that the proposal, explicit in New Jersey and implicit in New York, that the supply side of the market be reserved to a university, a hospital, or a government agency (“Institutional suppliers” for the purposes of this post) will effectively negate the bill for as many months or years as it takes to determine whether that arrangement actually works. If only Instutions are allowed to function, and relatively nimble private sector not-for-profit corporations and for-profit wholesalers are not permitted to begin operating as soon as their applications can be improved, the market will be subject to the vagaries of the Institutions, whether intentional lethargy or timidity if they are subjected to threat from the federal government. At that point, it will be necessary to renew the debate about the proper operation of the statute and propose and negotiate statutory or regulatory revisions.
It appears to be a delay tactic to forestall the appearance of the not-for-profit corporate suppliers described in Section 3364(1)(C) of the proposed statute. I think it obvious that these “retail dispensaries” are the key element in the proposed system: they will the actors in the supply-side most likely to facilitate a viable market – and the actors that are most threatening to the people who see a threat in a legal, above-ground medical marijuana market. (See, e.g., the uninformed warnings issued by Bloomberg and Brennan forecasting the uncontrolled spread of dispensaries throughout New York City.)

I could be wrong. I just see a potential problem.

No requirement that DOH act timely on application for registration by supplier

I had not noted previously that the bill does not set any time limit within which DOH must act on an application for registration by a supplier but it requires that DOH act on an application for registration by a patient within thirty days from DOH’s receipt of a complete application. See Section 3363(6). I find this provision more interesting in light of the new section discussing DOH’s prospective operation as a medical marijuana distributor to patients.

Further, I don’t see any date by which DOH must promulgate regulations and application forms for the patients and suppliers. Hmmm.

Circumscribing the “public interest” factor

I commented previously on the far-reaching potential of allowing DOH to consider the completely undefined “public interest” in deciding whether to deny an application for registration by a not-for-profit dispensary. New Section 3365(2)((V) specifically states that in evaluating whether granting an application would be in the “public interest,” DOH may “consider whether the number of registered organizations in an area will be adequate or excessive to reasonably serve the area….” That seems to me a potentially useful clarification or, at a minimum, suggestion.

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