Cannabis Compliance Issues - A New York State of Mind

The New York cannabis market is expected to be a billion dollar industry in its first full year and more than double in size by 2026. The Cannabis Control Board has been established to promulgate forthcoming regulations that all licensees must follow. In the meantime, they have created an interim document (released October 28th, 2022) to provide retailers with guidance as the Empire State gears up for its first recreational sales slated for sometime later this year. The state is currently evaluating just over 900 Conditional Adult Use Recreational Dispensary (CAURD) applicants who will be among the first 150 operators, 20 of which have been promised by the end of the year. So far no approvals have been confirmed and speculation of delays hang in the air like a dank plume of smoke.

There are already a host of rules that CAURD license holders need to comply with to maintain good standing with the New York State Office of Cannabis Management.

The guidance includes requirements for branding, security, location, hours of operation and staffing. The Office will maintain a list of all licensees delinquent in paying for cannabis products purchased on credit from distributors. Distributors cannot sell on credit to any retailer on the delinquent payment list. This means managing cash flow and having access to bridge loans or other sources of capital are imperative.

The guidance also calls for strict inventory management and tracking with a seed-to-sale system (likely Biotrack). As those already operating in the cannabis space know these seed-to-sale systems can be clunky, cumbersome and downright inaccurate. This means monthly inventory counts and reconciliations will be imperative for licensing compliance. Don’t take my word for it. Here is the exact text from the Office of Cannabis Management.

Licensees must use an inventory tracking system capable of compiling the dispensary’s cannabis product inventory, transaction data, and tax liability. That system must be compatible and capable of reporting real-time data to the Office. Licensees must: accurately record all inventory in the inventory tracking system; maintain, real-time, at a minimum, the following information, in the inventory tracking system: Licensees shall establish inventory controls and procedures and conduct comprehensive inventories of cannabis products which shall include the following: Maintaining real-time inventory tracking; Conducting a monthly inventory audit of all cannabis products; and For each audit, recording at a minimum, the following, in the inventory tracking system; name(s) and signature(s) of worker(s) who conducted the inventory audit; date of the inventory audit; summary of inventory findings; and any other information as determined by the Office. A licensee, upon becoming aware of discrepancies identified during an inventory audit, shall notify the Office no later than twenty-four hours after discovery of the event in a manner prescribed by the Office.

In addition to maintaining your license, inventory tracking is essential for GAAP cost accounting and for cannabis specific cost accounting that will be used to reduce your tax liability as much as possible while still complying with 280E. 

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