NY medical marijuana giants struggle to break into recreational market

When New York State awarded the first of 10 licenses to grow and sell medical marijuana in 2015, bid winner Excited at the opportunity to control a lucrative untapped market – but they know that greater spoils lie ahead.

If New York legalizes recreational marijuana, medical marijuana companies will be well positioned to dominate the market, just as they are in states like Illinois and Arizona.

But New York has taken a different approach, promising to put those hurt by the war on drugs front-line for retail licenses, with registration opening on Thursday.

That approach has jostled 10 medical marijuana licensors and those interested in their businesses — nearly all of them large, multi-state operators — scrambling. Some have donated to Governor Kathy Hochul’s campaign, and nearly all have hired lobbyists, spending more than $2 million this year in the hope that they can get the best out of what’s going on. some are expected to become 6 billion dollar market.

At the heart of their campaign is a fee, required by state marijuana laws, that operators must pay to sell marijuana outside of a health plan. Initial discussions mentioned a potential fee of $20 million per operator; It’s no surprise that the medical marijuana industry wants to lower that number.

“It needs to be based on economic reality,” said Ngiste Abebe, president of the New York Medical Cannabis Industry Association and chief executive officer at Columbia Care, one of the medical operators in New York. economy of the market. While executives are “excited” to support social justice, she said she “would love to see the economic analysis that justifies the $20 million.”

Priority decision for members of the community have been affected as the nation’s anti-drug laws have shaken New York’s struggling medical marijuana industry players, many of them are leaning on the profits they’ll be making in the entertainment space.

Prior to the passage of the cannabis law in 2021, the industry lobbied the state to go to great lengths to deliver the first blow to recreational sales, arguing that, as operators established, they are best positioned to quickly capture and transform the illicit market.

An industry-sponsored report even cause significant tax losses to the state if health operators are restrained.

But the lawmakers were adamant, insisting that social justice candidates – defined as women, minorities, suffering farmers, veterans and those affected by the war against drugs – there should be a real opportunity for growth.

However, the industry won’t make one important provision: In exchange for a fee, each of the 10 medical operators will be allowed to open three entertainment stations, making them active players The only vertical integration in the New York market. This fee will then be used to seed the businesses of social justice candidates.

But New York’s marijuana laws say nothing about how much the fee should be or when it should be booked. And while officials have begun to enact regulations focusing on other aspects of the emerging industry, license fees remain a mystery.

Regulatory uncertainty has taken its toll: Cannabis company Ascend Wellness recently announced that it will give up plans to acquire MedMen’s medical marijuana operations in New York.

However, medical companies are not without leverage in this fight: The state will need their weed to help fill store shelves. the first social justice store.

Although the state has licensed more than 200 hemp farmers to grow cannabis outdoors and in greenhouses, there are limits to the amount and type of product that can be produced that way.

If retail stores open without enough supply, some worry it could keep users from entering the market legally – an existential threat. “We definitely need supply coming from ROs,” said Chris Alexander, chief executive officer of the state’s Office of Cannabis Regulatory Affairs. economy in New York.

Medical operators are happy to offload some of their wholesale products to new retail outlets to address this issue. But any sale will depend on setting a special fee – an act that signals the end of a rare era when New York’s legal marijuana market was dominated by entrepreneurs. small.

Mr. Alexander said that while regulators are “sensitive” to the views of operators, the final decision on fees will largely be based on the needs of the social justice program.

“The only real guidance we have is to require that the amount be sufficient to fund the equity program, or at least the need for upfront,” he said. “So that’s kind of a guiding element.”

He added that the entry of medical operators into the entertainment market would likely be conditional on ensuring that they continue to prioritize medical patients, possibly by spending a certain amount or percentage of products. certain for them.

Regulators and patients have long complained about draconian regulations and taxes, which make medical marijuana less accessible and more expensive than commercially available illicit products. And while some of those restrictions have been relaxed in recent years, the New York operation has never seen the success of health programs like Florida’s, which boasts 600,000 patients. and growing (New York’s patient count is 124,000 and decreasing).

At the same time, the illegal market is thriving in New York, some of them in plain sight.

“The state needs to implement a cannabis growing program that establishes licensees, including ROs, to compete meaningfully with the illicit market,” Ms. Abebe said.

“They need to establish an attractive market,” she added. “So far, we haven’t seen that understanding or commitment.”

To address these challenges, operators are promoting a structure that ties a part of the fee to the success of their businesses, so that the state shares in the industry’s profits. They also hope to pay over several years, rather than upfront, to allow the market to stabilize. Such a proposal would amount to about $3 million per operator, all told.

The question is not if the charge issue will be resolved, but when. And time is running out: Fees will need to go through a full regulatory process and be approved by the state’s Cannabis Control Board, with enough time to grow and process a crop that meets demand.

Mr. Alexander said of the timeline: “It was a lot of moving pieces. “I feel like sometimes I’m the bear at the circus with the discs.”

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