With so much frustration around the pace of New York’s adult use cannabis rollout, it might be tough to imagine a mature market.
What will it look like? Which cannabis companies and brands will thrive? Who will be left?
Those questions were a big part of the discussion during Thursday’s Cannabis Control Board meeting in New York.
During the first part of the meeting, board members approved several resolutions, including one to approve nearly 100 more adult use licenses. They approved another on enforcement. Chris Alexander, executive director of the Office of Cannabis Management, called the updates “streamlining” and pointed out that more enforcement resolutions are likely because Gov. Kathy Hochul has proposed an enforcement plan in her budget — which is overdue.
“We will still need to bring back another package of enforcement regulations after the expanded enforcement bill passes through the state budget,” Alexander said.
Alexander also noted that regulators are celebrating the milestone of more than 100 licensed cannabis shops open across the state.
John Kagia, OCM’s director of policy, covered a lot of ground during his market update. He gave a snapshot of lessons learned in Colorado, the first state to launch adult use sales in the U.S., and pointed toward areas for caution as New York’s industry matures.
One of those areas, according to Kagia, is “price compression,” which could lead to lower revenue for cannabis business owners. In Colorado, it took roughly 10 years, he said, for the average price of a gram to plummet from $14 to $3. The time for prices to drop in Massachusetts was about half that, Kagia said.
“Price compression is an inevitability in markets as they become more efficient,” Kagia said. “This market, just by virtue of the fact that it is going to become more efficient over time, will experience some of these dynamics.”
There was a little pushback to Kagia’s presentation, during which he also referenced potential market saturation, including from Board chair Tremaine Wright, who noted that “while we are balancing concerns,” regulators should think about the fact that New York’s market is still relatively young.
“There’s still room,” Wright said, noting that regulators have yet to write regulations for new license types like consumption spaces. “ I feel like we are kind of pulling back instead of leaning in. And in this moment, I want to make sure that we are leaning in.”
Kagia reiterated that New York’s market will top the billion mark and be a “world leading market.”
“The point of my remarks was not to dissuade us about the scale of opportunity that is coming,” Kagia said. “What we’re just trying to guard against is capital destruction that could be potentially avoided with a more measured process. And the reason why I think that’s important is, unlike other sectors of the economy, unlike the tech sector, capital is not unlimited in cannabis.”
Kagia also highlighted OCM’s new process for cannabis suppliers to report delinquent payments from retailers, which is one of several ways that regulators are aiming to get out ahead of pain points that cannabis operators in other states are experiencing.
“In the markets where you don’t have a process for reporting delinquent payments, where the regulations don’t account for the fact that this can happen, particularly as price compression happens, it creates significant exposure to the suppliers who end up not being paid. We think it’s important, it’s really important, to guard against that,” Kagia said.
Kagia also previewed the 2024 Market Performance Report, which is due this December. Topics will cover market growth and competitiveness, consumer trends and retail access, as well as other factors that could have a big impact on the continued rollout. Perhaps the most sizable of these factors? The pending decision from the Drug Enforcement Administration on whether to reschedule cannabis, as the U.S. Department of Health and Human services has recommended.
“There’s been a lot of expectation, a lot of anticipation, that the DEA might advance a rescheduling recommendation, moving cannabis from Schedule I to Schedule III. That’s certainly going to be a very significant influencer in the outlook for the market going into 2025 and beyond, not the least of reasons being that, at a minimum, it should dramatically ease access to capital, because banks have been using the fact that cannabis remains in Schedule I as a critical reason why they can’t finance this market,” Kagia said.
The public comment period included several speakers who expressed frustration over what they say is a lack of communication from regulators, and a slow pace of licensing. More than one speaker expressed desperation to open as their savings dwindle and their startup debt balloons.
