Undue Influence, Incentives, and Business Agreements

NYCRR Title 9, Part 124

Part 124 of Title 9 sets the rules that govern how cannabis businesses may contract, sell, finance, and work with third parties. These rules exist to prevent hidden control, unfair leverage, exclusive dealing, and financial arrangements that undermine license integrity.

This section explains what is allowed, what is prohibited, when agreements create a True Party of Interest (TPI), and how OCM enforces these boundaries.

What This Covers

Undue influence and prohibited incentives
Terms of sale between licensees
Goods and services agreements
Financial or controlling interests and TPI thresholds
Contracting limits and outsourcing rules
Subsidiaries and receivership

Undue Influence and Incentives (124.1)

Licensees may not enter into agreements or practices that give another person or company improper control over their business.

Normal commercial transactions are allowed. Pressure, manipulation, exclusivity, or financial leverage that distorts fair business practices is prohibited.

Retailers may not receive:

Gifts
Improper discounts
Loans
Premiums, rebates, or royalties
Free cannabis except OCM-authorized retailer samples
Preferential shelf space
Loyalty or incentive rewards from suppliers

Suppliers may provide:

Free retailer samples for business negotiation (tracked and labeled)
Branded merchandise of nominal value for staff use only
Retail advertising materials up to the annual cap set by regulation

Third-party platforms must:

Sign required OCM confidentiality and data access agreements
List every authorized retailer equally
Provide open API access for read and write functions
Obtain explicit opt-in before using retailer customer interaction data
Display products using objective consumer criteria only
Redirect consumers to the retailer’s own domain before pricing

Prohibited platform or licensee arrangements include:

Blocking qualified distributors
Preventing retailers from negotiating fees
Requiring exclusivity in listings or distribution
Forcing purchase of unrelated goods or services

Anyone who meets the definition of a TPI must comply with all TPI rules for that license type.

Terms of Sale (124.2)

This section governs how cannabis and cannabis products are sold between licensees.

Distributors must:

Use written contracts for all transactions
Sell products at true standalone value
Avoid discriminatory pricing or payment terms
Offer volume discounts only if offered to all retailers
Avoid exclusivity requirements in service or ecommerce agreements

Additional rules:

Distributors and supply-tier licensees must sell to any authorized retailer willing to pay cash
Credit sales are permitted only if payment occurs within 30 days and complies with Part 124
Delinquent retailers must be reported to OCM
OCM maintains a list of delinquent retailers who may only purchase on a cash basis

OCM may review disputes, extend deadlines, and issue determinations. Retailers may appeal under Part 133.

Goods and Services Agreements (124.3)

This section distinguishes between agreements that are safe and those that may create prohibited interests.

Exempt agreements include standard support services:

Accounting
Legal services
Janitorial and cleaning
Architecture, construction, and HVAC
Equipment leasing
Security
Software
Registered lobbying

Landlords and financiers may work with multiple licensees. If they meet TPI thresholds, they must comply with TPI rules.

Non-exempt agreements include:

Consulting
Advisory services
Strategic services tied to cannabis operations

Any agreement based on revenue, profits, royalties, or business performance is restricted and may create a prohibited interest.

Multiple agreements with the same licensee are aggregated when determining whether a financial or controlling interest exists.

Financial or Controlling Interests (124.4)

An agreement creates a TPI when it gives control or excessive financial return.

An agreement may create a TPI if it:

Forces the licensee to avoid buying from or selling to certain businesses
Is not an arm’s-length transaction
Cannot be terminated with reasonable notice

Financial thresholds that trigger TPI status include:

More than 10 percent of gross revenue
More than 50 percent of GAAP net profit
More than 250,000 dollars annually

OCM may terminate prohibited agreements, require divestment, and impose civil penalties.

Contracting Requirements (124.5)

Licensees may not outsource core licensed cannabis activities.

Activities that cannot be outsourced:

Cultivation
Processing
Distribution
Retail sales

Ancillary services that may be contracted include:

Accounting
Legal services
Janitorial services
HVAC
Software
Construction and architecture
Security

Licensees must retain audit rights over all goods and services agreements.

Subsidiaries (124.6)

Subsidiaries must be structured carefully.

A subsidiary must:

Be 100 percent owned by the licensee
Route all compliance, enforcement, and liability back to the parent licensee
Follow required naming conventions including the licensee name and a sequence identifier

Subsidiaries do not hold independent compliance responsibility.

Receivership (124.7)

This section applies when a licensee becomes unable to operate due to death, disability, insolvency, bankruptcy, or similar events.

A court-appointed receiver may temporarily operate the business if:

The receiver is at least 21 years old
OCM approves the appointment
Required identifying information is submitted
Ownership restrictions and TPI rules are followed

OCM must be notified of any receivership or control proceeding. Employees must be notified if the business enters receivership or closes.

What Operators Usually Miss

Revenue-based consulting agreements often create TPIs
Multiple small agreements can aggregate into a prohibited interest
Exclusivity clauses trigger scrutiny even without ownership
Retail incentives are heavily restricted
Platforms are regulated, not neutral intermediaries

When This Comes Up

Negotiating supplier, platform, or consultant agreements
Signing distribution or ecommerce contracts
Structuring landlord or financing relationships
Responding to OCM audits or investigations
Resolving delinquent payment disputes

What Happens If You Ignore This

Violations may result in:

Forced termination of contracts
Civil penalties
License suspension or revocation
Required divestment of interests
Enforcement actions against multiple parties