New York’s Cannabis Advisory Board and its industry subcommittee met on Tuesday, amid a particularly fraught moment for the state’s cannabis business hopefuls.
Next week, the application window opens for aspiring adult use cannabis business owners, formally putting an end to the head start given to certain applicants, such as those with a cannabis conviction. But nearly 10 months after the first legal cannabis shop opened its doors, just 23 legal cannabis retailers are in operation, due largely to lawsuits that have stalled or halted the early licensing rollout. Meanwhile, unlicensed retailers aren’t waiting, and at least 1,500 unregulated sellers have proliferated, concentrated in New York City.
All of this brought an air of anxiety and tension to the discussion on Tuesday. Joe Belluck, chair of the Cannabis Advisory Board, spoke at the beginning of the full board meeting to discuss the role of the board, including its mandate to oversee community reinvestment grants – that is, once enough cannabis tax revenue starts rolling in – and also to make recommendations to the state’s Cannabis Control Board (CCB).
“It’s hard to do those things without the resources to do them,” Belluck said, adding that CCB chair Tremaine Wright hasn’t reached out to any members of the advisory board ahead of CCB meetings during which the CCB votes on resolutions.
The inaugural meeting of the Cannabis Industry and Market Subcommittee took place before the full advisory board on Tuesday. The subcommittee’s focus issues range from cannabis licensing and banking to market stability.
The subcommittee chair is Pete Shafer, owner of Nanticoke Gardens, and its members include: Allan Gandelman, president of the New York Cannabis Growers and Processors Association; Armando Rosado, a private investigator at AR Investigations, Inc.; Dereth Glance, regional director of the New York State Department of Environmental Conservation; and Dana Politis, associate commissioner of workforce development for the New York State Department of Labor.
Regulators made some new announcements during the discussions. First, Damian Fagon, chief equity officer for the Office of Cannabis Management, announced that the Communities Disproportionately Impacted (CDI) map, which will play into prioritization for licensing, will be released this week on OCM’s website. Also, John Kagia, director of policy for OCM, said that “a lot more detail” will be “issued over the coming days around the license rollout,” including “how many licenses, the application process for the issuance of licensing to our social and economic equity applicants versus to the general public and what those allocations are going to look like.”
The meeting was particularly candid, with subcommittee members directly asking state cannabis regulators questions about the issues that are keeping New York’s cannabis business owners up at night, such as unlicensed sellers and unfair competition.
Kagia gave a short presentation about the state’s cannabis market potential and said that the state’s goal is to transition as many of the estimated three million cannabis consumers as possible from the unregulated market to the legal, regulated market.
“These numbers are rising,” Kagia said, referring to the state’s progress toward this goal.
Kagia said that he expects New York cannabis consumers to have a “very high tolerance” for “premium spending.” Or, in other words, New Yorkers expect to shell out for rent and dinner, why not cannabis? In most other jurisdictions that have legal cannabis, Kagia said, the unregulated market was “dramatically cheaper than the legal market, which made that transition more challenging.”
“But, we’ve already seen that our current legal operators are offering products that are roughly on parity with their unregulated market,” Kagia said, referencing pricing.
Kagia pumped the October 4 date for the adult use business licensing application window to go live, saying he was “profoundly excited.”
“We are not going to be opening up all of the different types of licenses on day one. We’re going to be taking a very measured, very calibrated approach to how we think about the rollout of licensing in the state of New York,” Kagia said.
While regulators referenced the future market quite a bit, the tone changed on Tuesday when the conversation turned to the stalled Conditional Adult Use Retail Dispensary (CAURD) license program. The state of this program – along with the looming entry of the state’s existing medical cannabis operators, known as ROs, and the impending flood of new applicants – led to hours of emotional public comment at the latest Cannabis Control Board meeting, as Cannabis Wire reported. Some commenters cried, practically begging regulators to codify the CAURD program and to reconsider allowing ROs, most of which are some of the largest cannabis companies in the country, to enter the state’s adult use market this year.
“What’s the pathway forward for CAURD? We have continued to push forward in the court process,” said Chris Alexander, OCM’s executive director. He turned to next week’s broader application window, adding, “we are encouraging our CAURD folks to apply to leave all of our options open as we work to ensure that they’re able to fully participate in the market.”
Another hurdle for New York’s cannabis industry is the reality of the “really, really challenging capital environment,” Kagia said, returning to this topic multiple times during the discussion.
“This is the most difficult environment for cannabis capital that this industry has seen since Colorado legalized in 2014. Issues related to banking, managing the impact of 280E on cannabis businesses, I think are going to be really important work for this subcommittee to delve into because of the impact that it has on business profitability and the ability for businesses to reinvest in their operations,” Kagia said.
Fagon also nodded toward some of the difficulty that businesses have had raising funds and then turned to some upcoming outreach events with investors, community foundations, and chambers of commerce, among others.
“New York City is the investment capital of the world. We have to do a better job of educating those investment groups on how to be looking at this opportunity,” Fagon said. “We know that there’s capital in these communities that is ready to go into their businesses. They just need the understanding of the return on investment.”
The conversation turned to enforcement. Gandelman pointed to the role of out-of-state brands.
“There is a lot of New York State brands on those shelves, but there are also a lot of out-of-state brands on those shelves, which normally is a great thing,” Gandelman said, referring to the shelves of legal shops. “The issue that we’re starting to see day to day on the ground, as some of these smaller businesses try to compete, is the issue that some of the brands on the shelves from out of state are also being sold next door in the illicit shops. And I think this is going to develop into a bigger problem if we don’t address it soon.”
Gandelman asked if regulators had “given thought into how to address” that.
Kagia acknowledged that many of the unregulated products being sold in unlicensed shops are products diverted from out of state, or are copycat products.
“This is a massive issue for our market. And given as we are expanding our enforcement resources, this is absolutely one of the issues that we’re looking at, the presence of major out-of-state brands in illicit shops that are also trying to be participants in a legal, regulated market,” Kagia said. “That’s an unsustainable framework. And so, we’re working very kind of robustly internally to figure out the most robust strategy by which we can address this.”
Regulators regularly returned back to the sunny side of what the future market could look like – not what it currently looks like.
“We’re pushing on all fronts. We still know that this is not the full size the market will be,” Alexander said. “We know that we still have so much more to do to build out this market. We’re just trying to get our legs under us, you know, and start running. So, we’re ready to do that. And I think that October 4 will be a huge date.”
In addition to the CAURDs, regulators gave existing hemp farmers the opportunity to apply for conditional cultivation licenses to grow cannabis first for the adult use shops. Conditional licensees will eventually have to apply to transition to full licensure.
Shafer, the chair, asked Alexander about upcoming guidance about the “good standing” requirement to transition from conditional cultivation to fully licensed. Gandelman said that it’s “really scary to apply and not know if you’re in good standing or not.”
Alexander said that the guidance is coming “soon,” and that there will be a number of requirements for transitioning, like surveys, completion of a mentoring program, weekly inventory reporting, and maintaining a labor peace agreement.
Gandelman asked whether the cannabis grower showcases will continue in 2024. As the retail rollout has been slow, regulators have allowed growers to partner with retailers to hold pop-up showcases across the state.
The showcase program “will expire,” Kagia said. “But there’s a lot of lessons learned that we are going to take and move forward into figuring out what the broader events look like,” he added.
Another looming date is the Nov. 1 deadline for existing license holders to use the state’s selected seed-to-sale system. This was another area where competition with the unregulated market came up. Shafer suggested that the implementation of this rule be dependent on a specific threshold for sales, so that businesses that aren’t up and running don’t have to participate before revenue is rolling in.
“There’s a real expense associated with it,” Shafer said. “I think it’s part of our job on the subcommittee to bring that to light. And again, with the focus on leveling the playing field, the fact is, not every cultivator can afford the seed-to-sale system yet because of the landscape of the market right now, there’s not enough outlets to sell the product.”