New York State Paves the Way for Medical Marijuana

December 3, 2014 | Health Services

Earlier this year, Governor Cuomo signed into law a bill that will allow New York to join 22 other states and the District of Columbia by allowing residents of the state to purchase and use marijuana for medicinal purposes. However, as with the many other states that allow for the use of medical marijuana, the law lays the framework for a complex regulatory system that tightly controls the growth, sale, and distribution of medical marijuana to prevent diversion. While the law was passed in July, medical marijuana will not be produced in the state until 2016. 

Medical marijuana will only be made available to those suffering symptoms caused by “severe diseases,” defined by statute to include cancer, HIV/AIDS, multiple sclerosis, and similar illnesses defined by statute (N.Y. Pub. Health Law § 3360 et. seq.). The commissioner of the Department of Health (the “Commissioner”) may add additional qualifying illnesses to the list by regulation. Patients eligible for medical marijuana will be certified with the Department of Health (“DOH”) after approval from a practitioner, who is approved to prescribe medical marijuana. A practitioner will only be able to certify a patient to use medical marijuana if he or she has treated the patient for the condition requiring the marijuana and is of the professional opinion the patient will benefit from the marijuana. The patient will then be entitled to get an identification card from DOH, similar to a driver’s license, that will allow him or her to purchase marijuana at a dispensary. The patient will need to be re-certified every year, unless he or she is deemed to be suffering from a “terminal illness,” in which case the certification would last for the patient’s lifespan.

On the other side of the equation, organizations that produce and distribute marijuana will be strictly controlled. “Registered Organization,” as they are referred to in the statute, will be required to manage the manufacturing process “from seed to sale,” meaning the growth, extraction/manufacturing, and dispensing of medical marijuana. There will only be five Registered Organizations licensed under the statute, and each Registered Organization will only be allowed to operate up to four dispensaries, meaning there will only be 20 locations to purchase medical marijuana in the State. The legislation requires that the Commissioner ensure that the Registered Organizations and dispensing sites are geographically distributed across the State, but there is no particular limit or requirements for certain regions or counties. Registered Organizations will have to grow and manufacture marijuana indoors in secure facilities located within New York; more specifics on security measures are expected in the yet-to-be released regulations. 

In addition to the laws allowing for certified patients (“certified” is used instead of “prescribe” due to conflicts with federal laws) and registered organizations, the legislation also makes the necessary changes to the penal code. Certified patients and registered organizations are exempted from the existing criminal prohibition on the possession of marijuana. On the other hand, two crimes are added to the penal code: the criminal retention of medical marijuana and the criminal diversion of medical marijuana. Registered Organizations, healthcare practitioners, and persons who act in lawful course and good faith cannot be liable for the diversion of medical marijuana. However, when a person sells, trades, or otherwise delivers medical marijuana to an individual the diverter has reasonable grounds to know is not a certified patient or otherwise lawfully allowed to possess such marijuana, the diverter may be guilty of a Class B misdemeanor (punishable by no more than three months in prison or a fine not to exceed $500). 

The legislation also imposes a seven percent excise tax on the sale of medical marijuana. Such tax is in addition to sales tax and any other tax that may be applicable, and cannot be passed on to the purchaser. The revenue from the excise tax will be put in a special trust fund managed by the State, and distributed in the following manner: 22.5% to the county in which the marijuana sold was manufactured, 22.5% to the county in which the marijuana sold was dispensed, and five percent to the Office of Alcoholism and Substance Abuse Services, five percent to the Division of Criminal Justice Services. 45% of the trust fund has yet to be allocated by law or regulation.

While the new legislation addresses New York law, there are still hurdles for certified patients and registered organizations, as marijuana remains classified by the Drug Enforcement Administration (“DEA”) as a Schedule 1 narcotic per 21 C.F.R. § 1308.11-1308.15. Schedule 1 narcotics by definition have “a high potential for abuse,” “no currently accepted medical use,” and “a lack of accepted safety for use of the drug . . . under medical supervision.” 21 U.S.C. § 812(b)(1). 

Even though marijuana remains illegal on the federal level, the proliferation of states legalizing marijuana for medical (and recently, recreational) use has led the Department of Justice (“DOJ”) to issue a memorandum offering a détente regarding enforcement of the federal prohibition on marijuana. The memorandum states that the DOJ has traditionally relied on state and local law enforcement to address low-level marijuana activity, and reserved the use of its own limited resources for marijuana activity that it deemed particularly troublesome. Therefore, the memorandum states that if states have implemented strong and effective regulatory schemes regarding marijuana, and marijuana activity within those states remains in the bounds of the regulatory scheme and out of what the DOJ deems “federal priorities,” it will not dedicate its resources to enforcing the Controlled Substances Act against such activities. Areas of federal priority are listed in the memorandum as: (i) prevention of distribution to minors, (ii) prevention of revenue from going to criminal enterprises, (iii) prevention of diversion into states that do not have a legal structure for marijuana, (iv) prevention of state-sanctioned marijuana activity being used as a cover for the trafficking of other illicit drugs or activities, (v) prevention of violence and the use of firearms in the cultivation of marijuana, (vi) prevention of “drugged driving” and other public health hazards, (vii) prevention of cultivation of marijuana on public lands, and (viii) prevention of marijuana use or possession on federal property. Memorandum from Deputy Attorney General James M. Cole, Guidance Regarding Marijuana Enforcement (August 29, 2013) (http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf

Though one can see how a registered organization or certified patient under the New York law can avoid running afoul of the federal priorities listed above, and therefore avoid the scrutiny of the DOJ, that is not to say the federal prohibition will not cause issues. Banks are hesitant to be involved in the marijuana business, concerned about running afoul of federal laws both in the banking and controlled substances realm. Major credit card companies are similarly unwilling to allow their cards to be used to purchase marijuana.

Regulations promulgated under the New York law do not have a specific timeframe, though the legislation calls for registration of organizations and certification of patients to begin by January 5, 2016. Accordingly, DOH has about one year to promulgate the regulations that will provide clear guidance for the medical marijuana industry in New York (unless it exercises its right under the statute to delay implementation). Further analysis will be forthcoming upon the promulgation of the regulations or other developments on the state and federal levels. 

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