New York Has Legalized Marijuana… Now What??

Person Holding Green Cannabis

On March 31, 2021, New York became the fifteenth State in the U.S. to legalize recreational marijuana. Some of the changes, such as expungement of past possession convictions, legalization of possession of certain amounts, and the ability to grow plants at home, are effective immediately, Others, such as the creation and adoption of laws regulating the sale of marijuana, will take substantially longer to come into play. 

Immediate Actions:

Effective immediately upon the signing of the New York State marijuana legislation, there will be no penalties for possession of less than 3 ounces of marijuana for individuals over the age of twenty-one, and anyone with past convictions for cannabis-related offenses which would no longer be criminalized will have their records expunged. Further, the New York State marijuana legalization laws will allow individuals to grow marijuana for personal consumption and will allow for the growth of  three immature and three mature plants at any given time. There will be a limit of six mature and six immature plants per household, regardless of the number of household members.. 

Legal Framework:

The legislation calls for the creation of a new agency, the New York State Office of Cannabis Management, which will operate as an independent entity within the Office of Alcoholic Beverage Control. The Office of Cannabis Management will operate similarly to the New York State Liquor Authority (“SLA”) in that there will be a Board which will, among other things, have discretion to: 

  1. Issue or refuse to issue any registration, license or permit;
  2. Limit the number of registrations, licenses and permits of each class to be issued within the state  or any political subdivision thereof; and
  3. Revoke, cancel or suspend for cause any registration, license, or permit and impose civil penalties. 

The New York State Cannabis Control Board will consist of a Chairperson, nominated by the governor, and four other members; each having one vote. The Chairperson, after receiving a recommendation and relevant application information and providing such information to all board members, will issue a preliminary determination on whether the license, registration or permit at issue shall be granted, denied, or held for further action. Within fourteen days of the Chairperson’s preliminary determination, any board member may object to the Chairperson’s preliminary determination, or request the matter be brought before the full board for consideration. A majority vote of all of the members will be required for the approval of any action taken by the full board.

While it will take some time- estimates range from 18-24 months- for the underlying legal framework to be approved and adopted, the existing New York Alcoholic Beverage Control Law should serve as a likely guide for many of the cannabis-related provisions. Both alcohol and cannabis are highly regulated substances with similar concerns, including qualifications to hold a license, physical standards for retail premises, required separation from schools and places of worship, etc. 

Take Action

If you are considering applying for a New York State marijuana dispensary license, please contact Alexandra B. Becker, Esq. by email (abecker@nhkllp.com) or phone (518.432.3188) for a no-cost consultation to see how the attorneys at Nolan Heller Kauffman LLP may be able to assist. 

PPP Loans & Bankruptcy: SBA Issues New Guidance

Earlier this month, the Small Business Administration (SBA) issued new guidance regarding the Paycheck Protection Program (PPP) and bankruptcy. When Congress passed the CARES Act, it did so without any statutory limitation on lending to businesses that were involved in bankruptcy proceedings. However, shortly after the PPP was first implemented, the SBA issued Interim Final Rules that prohibited a PPP loan from being made if the applicant, or any owner of 20% or more of the applicant, was “presently involved in a bankruptcy proceeding.” Prior to the SBA’s new guidance, it was safe to construe the phrase “presently involved in any bankruptcy” to mean that you are ineligible for a PPP loan as long as the applicant or owner is a debtor in a bankruptcy case that is open. Since bankruptcy cases may take years to close, this rule effectively prevented the vast majority of applicants that, directly or indirectly through an owner, had an open bankruptcy case.

For this reason, a number of entities with PPP loans that are involved in Chapter 11 bankruptcy proceedings have successfully challenged the SBA’s authority to enact this regulation. However, the results have been mixed in federal courts across the country and it appears that a majority of courts have concluded that the SBA had the authority to instill this prohibition even though it is completely contrary to the primary intent of the PPP – to get forgivable loans into the hands of America’s struggling small businesses quickly and efficiently.

Recently, the SBA released a more detailed explanation of what it means to be “presently involved in a bankruptcy proceeding” that opens the door to many borrowers that would have previously been ineligible because of how long bankruptcy cases can remain “open”. Understanding this guidance is critical to determining when, and if, your business is eligible to receive an U.S. Small Business Administration Paycheck Protection Program (PPP) loan and how you might be able to use a PPP loan to assist with your efforts to reorganize, despite certain bankruptcy proceedings.

PPP Loan Bankruptcy Guidance by Chapter:

The SBA’s PPP loans and bankruptcy guidance can be broken down by the Chapter and type of bankruptcy case:

Chapter 7

For Chapter 7 bankruptcy filings and PPP loans, “the applicant or owner is considered to be ‘presently involved in any bankruptcy’ for PPP eligibility purposes until the Bankruptcy Court has entered a discharge order in the case.”

Chapters 11, 12, or 13

For Chapter 11, 12 or 13 bankruptcy and PPP loans, “the applicant or owner is considered to be ‘presently involved in any bankruptcy’ for PPP eligibility purposes until the Bankruptcy Court has entered an order confirming the plan in the case.”

Dismissed Case

“Additionally, if the Bankruptcy Court has entered an order dismissing the case, regardless of the Chapter, the applicant or owner is no longer “presently involved in any bankruptcy.”

Understanding The Guidance

This PPP bankruptcy loan guidance represents a drastic departure from the SBA’s prior interpretation. For example, a Chapter 13 bankruptcy case may remain open and active for four to five years after an order confirming the plan is entered. Now, an individual who has a confirmed chapter 13 plan, or a business owned which they own, is eligible as soon as the order confirming the plan is entered – they no longer have to wait until the case is closed.

Additionally, this clarification from the SBA presents a new source of potential funding in Chapter 11 cases in order to increase the chances of being able to successfully emerge from Chapter 11. Now, it is conceivable that businesses in pending Chapter 11 cases, or those contemplating potential reorganizations, may be able to propose reorganization plans that, at least in part, provide for obtaining PPP loans after a confirmation order is entered to help fund their plans and increase the likelihood of completing successful reorganizations.

Take Action

If you have questions or concerns regarding the Paycheck Protection Program or how PPP loans might be utilized as part of a Chapter 11 bankruptcy reorganization, please contact Matthew M. Zapala, Esq., by email (mzapala@nhkllp.com) or phone (518.432.3133) for a no-cost consultation to see how Nolan Heller Kauffman LLP may be able to assist you.

Second Draw PPP Loan Applications & Eligibility Issues

 

American paper money on black surface

On March 11, 2021, President Biden signed into law the American Rescue Plan Act. Among many other things, the law extended the Paycheck Protection Program (PPP) loan application deadline from March 31, 2021 to May 31, 2021 for both First Draw and Second Draw Paycheck Protection Program loans.

Are you eligible for a Second Draw PPP loan?

If you are considering applying for a Second Draw PPP loan, you should know that a Second Draw loan is subject to additional eligibility requirements compared to the First Draw PPP loan you already received. The first requirement of requesting a Second Draw PPP loan is that the applicant must “have used or will use the full amount of the initial PPP loan for authorized purposes on or before the expected date of disbursement of the Second Draw PPP loan.”

Considering Applying for a Second Draw PPP Loan?

It is important to note a few things regarding this requirement if you are considering applying for a Second Draw PPP loan:

  1. It is best practice to have used the entirety of the First Draw PPP loan at the time that you apply for the Second Draw PPP loan. Doing so prevents any eligibility issues that could arise due to unforeseeable circumstances that prevent using the funds on authorized purposes before the disbursement date of the Second Draw loan.
  2. This requirement does not simply mandate spending the money prior to disbursement of the Second Draw loan – it requires use of “the full amount . . . for authorized purposes.” When you apply, you have to understand that if, for example, it later turns out that you accidentally used any portion of your First Draw PPP loan for something that did not qualify as an authorized purpose, your Second Draw PPP lender and/or the Small Business Administration (“SBA”) could take the position that you were not eligible for the loan. This could have several severe consequences, including that (1) the lender will declare the full amount of your Second Draw loan immediately due and payable, and (2) no portion of the Second Draw loan will be forgiven.

As the Paycheck Protection Program has evolved, “authorized purposes” for which PPP loan proceeds could be used have changed several times and the changes have been significant. Prior to applying for a Second Draw PPP loan, you should understand whether or not you have used “the full amount . . . for authorized purposes” and the potential issues you may face if your PPP lender or the SBA disagrees with you.

Nolan Heller Kauffman Is Here To Help

If you have questions or concerns regarding the Paycheck Protection Program, PPP authorized purposes, or specific issues relating to Second Draw PPP loans, please contact Matthew M. Zapala, Esq., by email (mzapala@nhkllp.com) or phone (518.432.3133) for a no-cost consultation to see how Nolan Heller Kauffman LLP may be able to assist with any of your Paycheck Protection Program questions, concerns and applications.