New York continues to crack down on unlicensed cannabis sales masquerading as “gifts” or “membership fees.” The Office of Cannabis Management (OCM) sent cease and desist letters a few weeks ago, which threatened substantial fines, possible criminal penalties, and “put[ting] your ability to obtain a license in the legal cannabis market at substantial risk.” Of course, a cease and desist letter is only as good as the consequence for ignoring it.

Which is where Senator Diane Savino stepped in. On March 8, 2022, Senator Savino released proposed bill S8511. “The purpose of this bill is to define unlawful activities of person’s utilizing commercial establishments as a front to distribute cannabis in violation of the Cannabis Control Law.”

In practice, the legislation does two things, both of which should have tangible effects on “early” operators:

1. the unlawful sale, transfer, gift or trading of cannabis from a commercial establishment, store, club or facility is now criminal:
   • the unlawful sale, transfer, gift or trading  of any cannabis constitutes criminal sale of cannabis in the third degree (a Class A misdemeanor);
   • the unlawful sale, transfer, gift or trading of three or more ounces of cannabis constitutes the criminal sale of cannabis in the second degree (a Class E felony); and
   • the unlawful sale, transfer, gift or trading of sixteen ore more ounces of cannabis constitutes the criminal sale of cannabis in the first degree (a Class D Felony).
2. Any conviction under this bill precludes the person from “seeking, qualifying or receiving any permit, license or authority to perform any activities under the cannabis law.

There have been a number of well-publicized attempts to get an early start on cannabis sales (many of which vocally express that they believe that cannabis club memberships are sufficient for operating). Any conceivable argument in favor of that loophole would be quashed by S8511. The bill justifies itself as follows:

“New York State has established the cannabis law to allow for the lawful transaction of cannabis to adult users pursuant to stringent regulations and policies. More recently, there has been a misreading of the New York State Cannabis Law to authorize the transaction of cannabis to patrons of commercial establishments by way of “gifting” or “trading” cannabis for the purchase of another lawful product or purchasing a “membership” in a club or establishment.”

We view this as a welcome development given New York’s emphasis on creating a fully functioning legal cannabis industry. We get the frustration in the delays in rules and regulations and licensing, but in our view, club memberships and organized gifting were obviously contrary to the intent and spirt of the MRTA. We are on the doorstep of an actual legal cannabis industry in New York: a little patience goes a long way!

New York Cannabis “Gifting” — Criminal! on Harris Bricken Sliwoski LLP.