As New York’s adult-use cannabis market grows, the Office of Cannabis Management has created a special investigatory unit to specifically target licensees engaging in unfair business practices.
Only about three weeks in, and the new Trade Practices Bureau (TPB) is already working on 15 to 25 complaints, Director James Rogers told CRB Monitor News. Inversion, true party of interest (TPI) violations, and predatory financial agreements are among the top priorities.
OCM announced the formation of the TPB at the Feb. 14 Cannabis Control Board meeting.
“The launch of the Trade Practices Bureau marks a significant step forward in our efforts to ensure a fair, transparent, and equitable cannabis market,” said OCM Acting Executive Director Felicia A.B. Reid in a statement. “By identifying and addressing trade practice violations such as predatory lending, fraudulent business practices, and illicit market activity, we are reinforcing our commitment to creating a level playing field for licensed operators and upholding the economic and social equity priorities of New York’s Cannabis Law.”
The unit is under the Office of General Counsel. Rogers previously served as deputy attorney general and special counsel to the New York State Attorney General.
He said the purpose of this unit is to apply a different compliance approach to the more complex cases and egregious rulebreakers.
“The agency did a pretty good job drawing out a regulatory scheme to protect social equity and small business owners,” Rogers said. “But those regulations only work if we stop the cheating. That’s the missing piece.”
The TPB is staffed with experienced investigative attorneys who know how to ask the right questions, analyze data and apply forensic accounting methods. Investigators will also have the powers of subpoena and to take testimony under oath. The team will build cases with the possibility of presenting them to the Cannabis Control Board or the courts for disciplinary action.
Since the launching of adult use in December, New York’s cannabis industry has generated more than $1 billion in sales, with over 300 dispensaries averaging $380 million a month. The Empire State has 1,588 active cannabis business licenses, with another 816 approved or pending, according to the CRB Monitor database, as of Feb. 28.
But just like other large, established markets and emerging cannabis markets, New York has grappled with problems such as illegal cannabis imports (inversion), as well as ownership and contract violations that create an unfair market, particularly for small business owners.
Rogers said they are focusing on threats to ownership where the licensee loses control of the business through predatory loan or service agreements. They’ll also concentrate on TPI regulations that limit investment types and amounts in a business.
License stacking, or holding more licenses than allowed, is another target area. A retail license holder may not have a direct or indirect financial or controlling interest in more than three adult-use dispensary licenses. Only passive investors may have an interest in more than one cultivator license. Cultivators may also hold one processor license and one distributor license, as well as a nursery license. But a cultivator or its TPI cannot have any ownership interest in a retail dispensary, delivery license or on-site consumption license.
Additionally, a license holder may not have a direct or indirect interest in more than one processing license, except for a Type 3 Branding License, which is a new license type that does not permit direct involvement in physical processing of cannabis products.
The TPB will also look at fraudulent licensee reporting and other fraudulent business practices “that impact the integrity of the cannabis market or cannabis licenses,” said the press release.
The OCM established a TPB hotline (855-420-TIPS) to receive complaints from the public. Complaints can also be filed online. Reports may be made anonymously, but Rogers stressed the team is “really serious” about maintaining confidentiality.
The unit will also investigate cases gleaned from surveillance efforts and media reports. It will partner with other OCM divisions including Compliance, Enforcement and Investigations, as well as with external law enforcement agencies.
Investigatory unit has broad cannabis industry support
Rogers noted that cannabis entrepreneurs take on enormous risk to operate a successful business. “They can navigate business risk and market fluctuations. They cannot navigate cheaters,” he said.
Several New York cannabis industry groups expressed their support of the TPB in the state’s press release.
“We appreciate the efforts of the OCM in both eliminating the inversion that plagues our industry, along with investigating predatory operators that are trapping our licensees in untenable agreements,” said John Vavalo, president of the Association of New York Cannabis Processors.
“Inversion should be the top issue addressed by OCM and elected officials as it threatens the integrity and safety of our market,” said Joe Calderone, president of the Cannabis Farmers Alliance. “We look forward to working with the OCM to stop the flow of out of state cannabis into the marketplace.”
“New York’s cannabis market is founded on a two-tier market system established by law, yet increasingly our members and retailers have been confronted by pay-to-play schemes that undermine the goals of the system to prevent consolidation, monopolization, and a race to the bottom,” Mack Hueber, president of the Empire Cannabis Manufacturing Alliance. “New York already has the nation’s most equitable cannabis market, and the taskforce announced today will help ensure that the Empire State continues to lead the way.”
Rogers said New York is a state with room for everybody to succeed, but they won’t tolerate anyone who breaks the rules for their own benefit or greed. “If you break the rules, then you’ve lost your chance.”
