New York OCM to start investigating cannabis company true parties of interest

The New York State Office of Cannabis Management (OCM) is getting serious about enforcing its regulatory rules specifically those regarding TPIs (true parties of interest). While many stakeholders in New York would probably prefer the OCM to focus on shutting down the thousands of unlicensed shops, it is making progress on the Trade Practices Group.

Tom Donohue was hired to head the Trade Practices Group to investigate financial arrangements and structures that violate the state’s Adult-Use Regulations. Donohue was previously the general counsel and deputy commissioner of licensing at the New York State Liquor Authority. The OCM confirmed that Donohue was working with them as a director of operations. 

The Trade Practices Group has also contracted with a large firm that will investigate various relationships among true parties of interest (TPIs) and licensees, including financial arrangements, undue influence, and other prohibited arrangements. 

TPI deep dives

Under the Adult-Use Regulations, the OCM can request virtually any document from licensees, including signed contracts, financial documents, bank records, and even written summaries of oral agreements. The Trade Practices Group will be looking for Licensees who are attempting to skirt the prohibitions by not disclosing arrangements to OCM and will have the ability to investigate any arrangement of the licensee and its TPIs.  

According to Jason Klimek, a Special Council at Barclay Damon, when the OCM and the Trade Practices Group begin their audits, they are likely to review the following areas: 

  1. Assessment of TPIs: A critical component of these audits involves identifying the TPIs in cannabis operations. The OCM will scrutinize the ownership and management structures to ensure transparency and legality in the operation’s control and benefits. 
  2. Review of Compliance With the Two-Tier System: The OCM will likely pay special attention to the adherence to the two-tier system, a regulatory framework designed to separate the supply tier licensees from the retail tier licensees. This separation is crucial to prevent monopolistic practices and maintain a fair market environment. 
  3. Evaluation of Undue Influence: The audits may also involve a thorough investigation into any instances of undue influence, where individuals or entities might exert inappropriate control or pressure over cannabis operations, including licensees receiving gifts, rebates, royalties, or preferential shelf space. This is essential to maintain the integrity and independence of the licensed entities. 
  4. Prohibited Items in Contracts: The OCM will examine contracts and agreements to identify any prohibited items or clauses that might contravene regulations. This includes clauses that might lead to illegal practices, unfair control, or other regulatory violations. 
  5. Comprehensive Inspection of Premises and Records: The OCM may conduct extensive inspections covering physical premises and a wide array of records, including financial statements and corporate documents, to ensure full compliance with regulatory standards. 
  6. Packaging and Labeling Standards: Compliance with Part 128 regulations, which cover standards and prohibitions related to the packaging and labeling of cannabis products, is crucial. This includes child-resistant, tamper-evident, and sustainable packaging requirements as well as labeling that provides accurate information without making false claims or being attractive to minors. 
  7. Marketing and Advertising Compliance: Adherence to Part 129 regulations, which govern marketing and advertising practices, is also a critical aspect. This includes prohibitions on advertising that is misleading, attractive to minors, or promotes overconsumption as well as specific requirements for outdoor signs and digital advertising. 

Noncompliance actions

In cases of noncompliance, licensees will be required to submit corrective action plans, detailing how they will address and rectify the issues. Failing to meet audit requirements can lead to severe consequences, such as license suspension, revocation, or civil penalties. 

The OCM’s regulatory audits are comprehensive and extend beyond basic compliance checks. They will likely delve into complex aspects such as true party of interest, the two-tier system, undue influence, and contract terms to ensure a transparent, fair, and compliant cannabis industry in New York State. 


One comment

  • Rob Solomon

    February 8, 2024 at 5:36 pm

    Start with Cookies NYC. Biggest joke of them all. How much more in your face can it get?? They have the largest grows and distribution in the country and they were allowed to open a dispensary by skirting the law.


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