ALBANY—The State Legislature voted last week to legalize medical marijuana, making New York the 23rd state, along with the District of Columbia, to allow use of the drug for medical purposes.
Each state has unique restrictions on the drug, which remains illegal under federal law, and New York’s program is particularly unique, in that it does not allow for smokable forms of the drug and sunsets after seven years.
Here’s a guide to some of the lingering questions about the law.
1) Who can use medical marijuana in New York State?
New York’s program would allow medical doctors to prescribe marijuana for about a half-dozen serious or life-threatening medical conditions: epilepsy, multiple sclerosis, A.L.S. (also known as Lou Gehrig’s disease), Parkinson’s disease, Huntington’s disease, neuropathies, spinal cord injuries, cancer and HIV/AIDS. Within 18 months of the bill becoming law, the state’s health commissioner must decide whether to allow the drug for several other conditions: Alzheimer’s disease, muscular dystrophy, dystonia, post-traumatic stress disorder and rheumatoid arthritis. The list of conditions for which the drug can be prescribed is very narrow. That was intentional—lawmakers and Governor Andrew Cuomo said repeatedly they didn’t want New York’s program to end up like California’s, where medical marijuana can be prescribed for milder conditions like chronic back pain.
2) How much money will it bring in for the state?
The state is planning to levy a 7 percent excise tax on businesses’ gross income from the sale of medical marijuana, but state budget officials said last week they don’t yet have a clear sense of how many people will use the drug. That means they don’t have an estimate of how much tax revenue it could yield. The tax will be collected in a special account managed by the state comptroller, and half of it will go back to the counties where the drug was manufactured and sold (22.5 percent to the county where it was grown, and 22.5 percent to the county where it was sold). Another 5 percent of the revenue will go to the state’s drug abuse prevention programs, and 5 percent will be handed over to the state’s criminal justice department for law enforcement projects.
3) How will people pay for medical marijuana? Can they use cash, checks or credit cards?
A medical marijuana patient in New York State will almost certainly have to pay for the drug with cash. Under New York’s law, insurers aren’t required to cover the drug as part of their policies. And marijuana is still illegal at the federal level, where it’s been listed since 1970 as a Schedule 1 controlled substance, meaning it has both a high potential for abuse and no accepted medical use, under the provisions of the Controlled Substances Act.
Despite the proliferation of state laws legalizing marijuana in recent years, banking institutions and credit card companies are erring on the side of caution when it comes to marijuana.
Banks and financial institutions won’t yet allow customers to pay for illegal substances with their cards, and won’t allow businesses to deposit their marijuana revenues at their branches, because it could be prosecuted as money-laundering. The federal government doesn’t have a clear policy on banks’ transacting with marijuana companies, and in fact has given conflicting statements in recent months.
In 2009, U.S. Deputy Attorney General David Ogden issued a memo to U.S. attorneys across the country that said, essentially, that they didn’t have to prosecute marijuana companies in states where the drug had been legalized.
Then, in 2011, the Department of Justice reversed itself. Deputy U.S. Attorney General James M. Cole issued a memorandum saying the 2009 memo was never intended to shield marijuana dispensaries from federal enforcement actions or prosecutions.
In February of this year, U.S. Attorney Eric Holder wrote a memo saying banks could work with marijuana industries, without fear of being prosecuted for money laundering. Shortly afterward, the Justice Department’s Financial Crimes Enforcement Network issued a more tortured advisory: It told banks the choice of whether or not to work with marijuana businesses was up to them, but warned them they would still be required to file “suspicious activity reports” to the federal government of any activity that could be a violation of federal law, including activity involving marijuana.
Sanette Chao, a spokeswoman for American Express, told Capital in an email: “American Express does not allow card acceptance for medical marijuana. It is our policy to adhere to federal law in such matters.”
4) If marijuana is still illegal at the federal level, how can it be legal at the state level? Can’t this get tricky, for patients, doctors, businesses and other people involved?
Yes, this could get weird, in a lot of different ways.
First, for patients. The state’s law contains a non-discrimination clause that says you can’t be fired from your job or discriminated against for using medical marijuana because it’s a covered “disability.” But in reality, that hasn’t always protected employees. In Colorado in 2010, a quadriplegic medical marijuana patient named Brandon Coats was fired from his job at the Dish Network over his legal use of the drug. He appealed his firing and the case is still playing out in court.
Just because the federal government has adopted a sort-of laissez-faire attitude toward marijuana prosecutions doesn’t mean that that will always be the case, said Ed Roche, a professor of tax law at the University of Denver’s Sturm College of Law.
“Obviously we’ve got this dichotomy where it’s legal for state purposes and illegal for federal purposes,” Roche told Capital. “Right now, the federal government says we will not make it a priority to prosecute you. But there’s no grandfathering of marijuana business,” Roche said. Under a new presidential administration and new attorney general, the policy could change, and prosecutors could start aggressively coming after marijuana businesses.
In theory, the supremacy clause of the U.S. Constitution means that what the federal government says, goes.
But in practice, discrepancies between states’ marijuana laws and the federal laws tend to play out in court. So any federal prosecutor who wants to go after a marijuana business for violating federal law would be within his or her right to do so, even with New York’s legalization of the drug for medicinal purposes. Whether the prosecutor would win the case is another matter.
5) Back to the taxes. How can the state collect taxes on businesses that are cash only?
“The biggest problem facing medical marijuana is the same problem Tony Montana faced in Scarface — What are you going to do with all the cash? ” Roche said. In other states, like Colorado, marijuana businesses pay state and federal taxes on their sales in an old-fashioned way—literally loading cash into a suitcase or other vessel, and handing it over to the government.
While New York State is levying a 7 percent excise tax on gross marijuana income, marijuana retailers are also going to have to pay taxes to the federal government, which is hard-nosed about collecting its due, even if marijuana is still illegal. The Internal Revenue Service demands tax payments from marijuana businesses, but won’t allow the companies to deduct their business expenses when filing returns, under a Reagan-era federal tax regulation designed to prevent drug dealers from exploiting the tax code.
And medical marijuana manufacturers and dispensaries will have to negotiate with labor unions in New York to use organized union workers in their facilities, raising the question of how the businesses will deal with things like income tax deductions and Social Security payments to the I.R.S. The manufacturers actually can’t walk over to a local I.R.S. agency branch with a suitcase full of cash, because new rules implemented at the federal level require employers to deduct those expenses electronically. That could be very difficult for marijuana companies unable to deposit their funds in banks or other financial institutions.
6) Where will I be able to get medical marijuana?
The state will authorize as many as five manufacturers and 20 dispensaries to grow and sell the drug statewide. The law doesn’t spell out where those manufacturers and dispensaries can be located, but gives the state discretion to control where licenses are issued to help ensure geographical diversity. Any patient who wants to use medical marijuana must receive a prescription for it from a doctor or caregiver who has received a special state training on the drug and its potential side effects.
7) Who will decide which companies get the licenses to grow and distribute marijuana?
The state health department has a lot of leeway to pick the companies that could end up with lucrative marijuana manufacturing licenses. And with so few licenses available for New York State manufacturers, expect fierce competition from companies hoping to do business here, despite the burden of heavy regulations. Last week, the state health commissioner said the state will draft regulations outlining the process by which manufacturers and dispensary operators will be chosen. The bill sets forth some requirements for potential manufacturers and dispensers. Any manufacturer seeking a license must possess “good moral character,” and anyone who comes into contact with or otherwise handles the drug can’t have any prior convictions or jail time for drug felonies in the past decade. The bill also requires any manufacturer or dispensary to enter into negotiations with organized labor to use union workers at its facilities, and potential manufacturers must demonstrate they can post a $2 million bond, or that they would already own the land and facilities they’d use to grow the drug at indoor farms.
8) How different is New York’s limit on the number of manufacturers and dispensaries from the law in other states?
States’ rules vary widely, but they tend to follow a pattern. States where the drug was legalized by referendum are more likely to allow more manufacturers and dispensaries, while states that legalized the drug through an act of the Legislature are more likely to restrict their programs, an analysis of state laws shows.
For example, Minnesota, whose Legislature passed a bill last month authorizing medical marijuana, will allow just two in-state manufacturers to grow the drug, and limit the number of dispensaries to four statewide. Connecticut is similarly restrictive, allowing just 10 dispensaries statewide.
Other states regulate the number of dispensaries and manufacturers on a percentage basis. Arizona, which enacted a medical marijuana law in 2010, put regulations in place to cap the number of dispensaries at 10 percent of the total number of pharmacies in the state, or about 124 dispensaries statewide.
9) What are the other ways New York’s law will be different from the ones in states like Colorado or California?
One key difference between New York’s law and those on the books in most other states is that New York will prohibit patients from smoking marijuana, instead restricting its use to oils, vaporizers or other ingestible forms of marijuana.
And New York’s program would be largely under the control of the state’s executive branch. The law gives the state health department, state police and governor a wide berth in developing several aspects of the program. The health commissioner would be able to decide how much to charge for medical marijuana, and has the power to add or subtract diseases the drug can be prescribed to treat. And the program could be shut down at any time. If the health department or police departments decide the program is out of control and resulting in diversion of the drug for illegal uses, the commissioner or state police superintendent can issue a recommendation to the governor to end the program immediately. Even if the program is successful, the law has a built-in sunset provision: The law will expire after seven years if the Legislature doesn’t take action to renew it.
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