Assembly Bill A10698

                             
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   10698
 
                           I N  A S S E M B L Y
 
                              March 20, 2026
                                ___________
 
 Introduced  by  M. of A. DAIS -- read once and referred to the Committee
   on Economic Development
 
 AN ACT to amend the cannabis law, in relation  to  prohibiting  cannabis
   inversion and establishing penalties and whistleblower protections
 
   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:

   Section 1. This act shall be known and may be cited as  the  "cannabis
 supply chain integrity and anti-inversion act".
   §  2.  Legislative findings and intent. The legislature finds that the
 integrity of New York state's regulated cannabis market depends on tran-
 sparency, traceability, and  lawful  origin  of  cannabis  and  cannabis
 products  offered for sale to consumers in New York. The introduction of
 illicit cannabis into the regulated  supply  chain,  commonly  known  as
 "cannabis  inversion,"  threatens  consumer  health,  undermines  public
 confidence, deprives the state of tax revenue, and disadvantages compli-
 ant licensees. It is the intent of the legislature  to  define  cannabis
 inversion,  prohibit  such conduct, provide for meaningful penalties and
 license  consequences,  and  establish  accountability  for  responsible
 persons and laboratories.
   §  3.   Subdivision 1 of section 136 of the cannabis law is amended to
 read as follows:
   1. "Illicit cannabis" means and  includes  (A)  any  cannabis  flower,
 concentrated  cannabis and cannabis product on which any tax required to
 have been paid under any applicable state law, has not been paid. Illic-
 it cannabis shall not include any cannabis lawfully possessed in accord-
 ance with this chapter or the penal law[.];
   (B) SOURCED CANNABIS OR CANNABIS PRODUCTS FROM AN UNLICENSED OR  UNAU-
 THORIZED PERSON OR ENTITY; OR
   (C)  MISREPRESENTED  GEOGRAPHIC  ORIGIN, CULTIVATION SITE, OR CHAIN OF
 CUSTODY OF CANNABIS, CANNABIS PRODUCTS, OR CANNABIS-DERIVED MATERIALS.
   § 4. The cannabis law is amended by adding new section 125-a  to  read
 as follows:
   §  125-A.  CANNABIS  INVERSION.  "CANNABIS INVERSION" MEANS ANY ACT OR
 OMISSION INVOLVING ILLICIT CANNABIS.
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD14524-07-6
 A. 10698                            2
 
   1. (A) NO  REGISTRANT,  LICENSEE,  PERMITTEE,  OR  LABORATORY  TESTING
 FACILITY,  AND NO PERSON ACTING ON BEHALF OF ANY SUCH REGISTRANT, LICEN-
 SEE, PERMITTEE, OR LABORATORY TESTING FACILITY, SHALL ENGAGE IN CANNABIS
 INVERSION.
   (B)  A VIOLATION OF THIS SECTION SHALL CONSTITUTE CAUSE FOR DISCIPLINE
 PURSUANT TO SECTION ONE HUNDRED THIRTY-THREE OF  THIS  ARTICLE  AND  ANY
 APPLICABLE REGULATIONS.
   2. (A) IN ADDITION TO ANY OTHER PENALTY, THE OFFICE MAY IMPOSE A CIVIL
 PENALTY  OF  NOT  LESS THAN THREE TIMES THE RETAIL VALUE OF THE INVERTED
 CANNABIS OR CANNABIS PRODUCTS INVOLVED IN THE VIOLATION, OR TWO  HUNDRED
 FIFTY THOUSAND DOLLARS, WHICHEVER IS GREATER.
   (B)  INVERTED CANNABIS OR CANNABIS PRODUCTS, AND ANY PROCEEDS DIRECTLY
 DERIVED  THEREFROM,  SHALL  BE  SUBJECT  TO  SEIZURE,  FORFEITURE,   AND
 DESTRUCTION  OR OTHER DISPOSITION AS DETERMINED BY THE OFFICE IN ACCORD-
 ANCE WITH APPLICABLE LAW AND REGULATION.
   (C) UPON REASONABLE GROUNDS  TO  BELIEVE  A  VIOLATION  OCCURRED,  THE
 OFFICE  MAY  ORDER  IMMEDIATE  SUSPENSION  PENDING INVESTIGATION. UPON A
 FINDING THAT CANNABIS INVERSION WAS COMMITTED KNOWINGLY  OR  RECKLESSLY,
 REVOCATION  SHALL BE PRESUMED TO BE THE APPROPRIATE SANCTION, SUBJECT TO
 ANY PROCEDURES AND STANDARDS APPLICABLE UNDER SECTION ONE HUNDRED  THIR-
 TY-THREE OF THIS ARTICLE.
   (D) IN ADDITION TO ANY OTHER SANCTION, SUBMISSION, USE, OR ISSUANCE OF
 A  FRAUDULENT OR MATERIALLY UNRELIABLE CERTIFICATE OF ANALYSIS IN FURTH-
 ERANCE OF CANNABIS INVERSION SHALL CONSTITUTE CAUSE FOR PERMANENT  REVO-
 CATION  OF  A  LABORATORY TESTING PERMIT AND A CIVIL PENALTY OF NOT LESS
 THAN THREE TIMES THE RETAIL VALUE OF THE INVERTED CANNABIS  INVOLVED  IN
 THE  VIOLATION,  OR  TWO  HUNDRED  FIFTY  THOUSAND DOLLARS, WHICHEVER IS
 GREATER.
   (E) IT SHALL CONSTITUTE A VIOLATION OF  THIS  SECTION  IF  ANY  PERSON
 LISTED IN PARAGRAPH (A) OF THIS SUBDIVISION:
   (I)  UTILIZES  A  FRAUDULENT,  MISLEADING,  OR  MATERIALLY  UNRELIABLE
 CERTIFICATE OF ANALYSIS;
   (II) FALSIFIES OR OMITS  REQUIRED  INVENTORY,  TESTING,  TRANSFER,  OR
 TRACKING RECORDS;
   (III)  SELLS, TRANSFERS, OR OFFERS FOR SALE INVERTED CANNABIS PRODUCTS
 TO ANY REGISTRANT, LICENSEE, OR PERMITTEE; OR
   (IV) SELLS, TRANSFERS, OR OFFERS FOR SALE ANY  PRODUCTS  THAT  VIOLATE
 THE OFFICE'S REGULATIONS ON HEMP PRODUCTS SHALL HAVE THE BURDEN OF PROV-
 ING THAT THEY HAVE NOT KNOWINGLY ENGAGED IN INVERSION.
   (F)  FOR PURPOSES OF SUBDIVISION (E) OF THIS SECTION, THE OFFICE SHALL
 PRESUME THAT ANY  CANNABIS,  CANNABIS  DERIVATIVE,  CANNABIS  PLANT,  OR
 CANNABIS  PRODUCT  WHERE  THE COMPLETE CHAIN OF CUSTODY CANNOT BE DEMON-
 STRATED IS ILLICIT CANNABIS.  WHERE  ELECTRONIC  INVENTORY  RECORDS  ARE
 MISSING  OR  INADEQUATE  TO DEMONSTRATE THE COMPLETE CHAIN OF CUSTODY, A
 LICENSEE SHALL HAVE THE BURDEN OF PROOF AND MAY PRESENT VIDEO OR  PHOTO-
 GRAPHIC EVIDENCE TO BE CONSIDERED BY THE OFFICE TO OVERCOME THE PRESUMP-
 TION THAT SUCH PRODUCT IS ILLICIT CANNABIS.
   3.  (A)  FOR  PURPOSES OF THIS SECTION, "RESPONSIBLE PERSON" MEANS ANY
 PRINCIPAL OFFICER, MANAGING MEMBER, GENERAL PARTNER,  OR  OTHER  NATURAL
 PERSON  WHO  EXERCISES  OPERATIONAL CONTROL OR MANAGERIAL AUTHORITY OVER
 THE RELEVANT LICENSED OR PERMITTED ACTIVITY.
   (B) WHERE THE OFFICE FINDS THAT A RESPONSIBLE PERSON  KNEW  OR  SHOULD
 HAVE  KNOWN OF CANNABIS INVERSION AND FAILED TO TAKE REASONABLE STEPS TO
 PREVENT, STOP, OR REPORT SUCH CONDUCT, SUCH RESPONSIBLE  PERSON  MAY  BE
 HELD  JOINTLY  AND SEVERALLY LIABLE FOR CIVIL PENALTIES IMPOSED PURSUANT
 A. 10698                            3
 
 TO SUBDIVISION TWO OF THIS SECTION, IN ADDITION TO  ANY  LICENSE  DISCI-
 PLINE IMPOSED ON THE ENTITY.
   §  5.  Subdivision 1 of section 138-a of the cannabis law, as added by
 section 20 of part UU of chapter 56 of the laws of 2023, is  amended  to
 read as follows:
   1.  order  any  person  who  is  unlawfully  cultivating,  processing,
 distributing or selling cannabis, cannabis product, cannabinoid hemp  or
 hemp extract product, or any product marketed or labeled as such in this
 state without obtaining the appropriate registration, license, or permit
 therefor,  or  engaging  in  CANNABIS INVERSION OR IN an indirect retail
 sale to cease such prohibited conduct;
   § 6. The cannabis law is amended by adding a new section 138-c to read
 as follows:
   § 138-C. WHISTLEBLOWER PROTECTION; ANTI-RETALIATION. 1. NO REGISTRANT,
 LICENSEE, PERMITTEE, LABORATORY TESTING FACILITY, OR CONTRACTOR  THEREOF
 SHALL  DISCHARGE, THREATEN, PENALIZE, DISCIPLINE, OR OTHERWISE RETALIATE
 AGAINST ANY EMPLOYEE OR CONTRACTOR BECAUSE SUCH EMPLOYEE OR  CONTRACTOR,
 IN  GOOD  FAITH,  REPORTED OR ATTEMPTED TO REPORT SUSPECTED PROHIBITIONS
 AND RESTRICTIONS TO THE OFFICE, THE BOARD, OR ANY LAW ENFORCEMENT  AGEN-
 CY.
   2.  RETALIATION IN VIOLATION OF THIS SECTION SHALL CONSTITUTE AN INDE-
 PENDENT VIOLATION SUBJECT TO DISCIPLINE AND CIVIL PENALTIES PURSUANT  TO
 SECTION  ONE  HUNDRED  THIRTY-THREE OF THIS ARTICLE AND APPLICABLE REGU-
 LATIONS.
   § 7. Severability. If any clause,  sentence,  paragraph,  subdivision,
 section  or part of this act shall be adjudged by any court of competent
 jurisdiction to be invalid, such judgment shall not affect,  impair,  or
 invalidate the remainder thereof, but shall be confined in its operation
 to the clause, sentence, paragraph, subdivision, section or part thereof
 directly  involved  in the controversy in which such judgment shall have
 been rendered.
   § 8. This act shall take effect on the one hundred eightieth day after
 it shall have become a law. Effective immediately, the addition,  amend-
 ment and/or repeal of any rule or regulation necessary for the implemen-
 tation  of  this act on its effective date are authorized to be made and
 completed on or before such effective date.