Cannabis MSOs set to enter NY adult-use market after policy change

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New legislation and major policy shifts have been proposed to stabilize the shaky rollout of New York’s adult-use marijuana program, including allowing some of the nation’s largest multistate operators to enter the expanded market by year’s end.

Regulators at the Office of Cannabis Management (OCM) recently proposed the revised regulations to jump-start the potential $3 billion market with more retail locations.

Regulators also hope to energize a supply chain that currently offers limited business opportunities.

As of press time, only 12 retailers had opened since the Dec. 29 launch of recreational marijuana sales in New York, and three are designated as “temporary delivery only,” an authorization that allows retailers to fulfill orders for up to one year from an office location.

About half of New York’s 1,520 municipalities are opting out of adult-use retail, including the majority of towns in densely populated Long Island.

The proliferation of cannabis deserts prompted Albany-based Legacy Dispensers to launch delivery services on Long Island with a minimum purchase price of $250 and a $25 delivery fee, Newsday reported. 

The OCM’s plan for multistate operators to enter the market has generated plenty of buzz and controversy in New York, where cannabis MSOs including Curaleaf Holdings, Green Thumb Industries and PharmaCann want to make a bigger splash.

Those companies currently serve only the state’s medical marijuana market.

The proposals, which OCM is expected to approve following a public comment period, effectively eliminate a three-year waiting period for the state’s 10 vertically integrated medical marijuana providers, or registered organizations (ROs), to enter the recreational market.

Regulators adopted the waiting period to provide a first-to-market advantage for social equity retailers and smaller suppliers, but they shifted gears in an effort to expand retail channels and accelerate business.

MSOs have welcomed the change, but smaller operators feel snubbed.

“There’s a lot of opportunity, but equity right now doesn’t feel achievable,” said Annette Fernandez, an industry advocate and founder of La Casa Lola, a cannabis wellness brand in the Washington Heights neighborhood of Manhattan geared toward women of color.

Under the state waiver plan, MSOs will be assessed multimillion-dollar, one-time fees to transition into the adult-use market.

Those fees will support a Social Equity & Economic Plan that regulators approved May 11.

The social equity plan, which is light on specifics, promises workforce support, antitrust measures to hinder monopolization by larger companies and “a broad diversity of ownership and improving market access for small, independent businesses.”

The latest developments – particularly the about-face on MSO entry – have rankled some stakeholders but also helped mobilize efforts to kickstart the industry through grassroots initiatives as well as legislative overhauls.

“Nobody was expecting to see the regulations changed with the snap of a finger about the ROs entering the market, but it’s our job as coalition leaders to try to pivot and handle the situation accordingly,” said Jayson Tantalo, who helped establish the New York CAURD Coalition (NYCC) for licensees and applicants.

Conditional Adult-Use Retail Dispensary (CAURD) licenses are earmarked for applicants with:

  • A prior arrest or charge related to low-level marijuana offenses.
  • A family member who was charged with or arrested for low-level marijuana offenses.
  • At least two years operating a profitable business.

Reform bill backers

The NYCC, which counts over 150 members and a majority of the state’s 215 Conditional Adult-Use Retail Dispensary (CAURD) licensees, is supporting new legislation proposed by state Sen. Jeremy Cooney that would overhaul the regulated market.

Similar to the OCM proposal, Senate Bill S7045 would allow MSOs to covert three of their medical marijuana stores to recreational retail while charging them at least $20 million in one-time fees paid in installments to exclusively fund “social and economic equity and incubator assistance.”

Other stipulations of the bill include:

  • Managing, capitalizing and providing low- and zero-interest loans to social and economic equity applicants.
  • Extending conditional permits for cultivators and processors for another year. Under New York rules, conditional adult-use cultivators and processors faced a June 1 deadline to process and/or distribute their own cannabis products.

Today’s deadline has drawn concerns from growers, manufacturers and lawmakers who argue that operators are struggling due to the lack of retail outlets, and the addition of third-party contractors would further drive up costs.

The Cannabis Association of New York, which counts hundreds of members throughout the supply chain and ancillary businesses, is supporting two recently introduced bills that would amend state law.

Assembly Bill A7430 and Senate Bill S7354 would extend the conditional-use deadline and allowances until June 1, 2024.

“This legislation is critical to the survival of our state-licensed, adult-use conditional cultivators who are unable to sell their product at this time due to lack of promised market,” the association wrote in a support letter.

“Should New York fail to amend the law extending the conditional processing period, it will place our existing farmers, who have converted portions of their land to grow a cannabis crop, at a significant strategic disadvantage compared to the rest of the sector,” the letter continued.

“This would be disastrous for the nascent market and would dull the otherwise burgeoning new economic opportunity available to those wishing to take a risk on cannabis cultivation in New York.”

Capital concerns

The legislation and regulatory changes aim to prop up the market while providing needed capital for social equity licensees and applicants who have been disproportionately affected by low-level cannabis offenses.

New York planned to establish a $200 million social-equity fund administered through the Dormitory Authority of New York to help fund start-up costs, find rental properties for entrepreneurs and establish “turnkey dispensaries.”

But the state has failed to secure private investments, leading many industry insiders to question the fund’s validity.

“From the beginning, we knew the two biggest obstacles were going to be capital and real estate,” La Casa Lola’s Fernandez said.

The entrepreneur said the MSO allowances conflict with the intention of the state’s Marihuana Regulation and Taxation Act (MRTA), which aimed to provide unprecedented opportunities for “justice-involved” individuals or their families.

“In order to get capital into the system, we’re going to bring the big guys in,” Fernandez quipped. “They’re funding equity with MSO dollars. It’s disheartening.”

MSOs like PharmaCann, which operates four medical marijuana dispensaries in New York, are ready to jump on the opportunity.

“While the $20 million fee is magnitudes greater than the licensing fee imposed by any state government for adult-use cannabis operators, we also recognize that New York has been unsuccessful so far in securing the social-equity funding outlined in the law,” Jeremy Unruh, PharmaCann’s senior vice president of public and regulatory affairs, told MJBizDaily.

“As a result, the registered organizations are prepared to aid the state in coming up with its initial social equity start-up funding.”

The OCM, Unruh added, must ensure MSOs are able to work down the fees with vertical operations or allowed to provide wholesale services for some time.

Chicago-based PharmaCann is part of a coalition of MSOs that filed a lawsuit in March against New York regulators for shutting them out of the adult-use market.

The suit, which includes Acreage Holdings, Curaleaf and Green Thumb as plaintiffs, aims to provide a quick path to entry.

The latest OCM proposals also lay out the first guidelines for consumption spaces and cannabis farmers markets.

Under the proposals, consumption areas must be affixed to a retail location and will be able to serve customers until 4 a.m., a late-night option widely restricted in other markets.

The guidelines also allow up to three growers to partner with a retailer to sell cannabis products at non-storefront locations.

The cannabis farmers markets could start as early as this summer, the Buffalo News reported.

Industry reaction

Sasha Nutgent, retail manager at Housing Works Cannabis Co. in Manhattan, the first licensed dispensary to open in the state, hoped regulators would wait longer to create a path for MSOs to enter the adult-use cannabis market.

“We just want to make sure that we’re not going to oversaturate the market with ROs,” she said, referring to multistate operators.

“That may give them an unfair advantage.”

Alex Norman, a CAURD applicant and founder of cannabis brand Budega NYC, acknowledged the realities of the situation.

“We were always going to eventually compete against the biggest companies in the game. There was never an expectation that they were never going to come in,” Norman said.

Above all else, Tantalo of the New York CAURD Coalition wants to see regulators stabilize the industry so that smaller operators can move past the choppy rollout and compete for business.

“A lot of people are being impacted financially,” he said. “Every link in the supply chain is on the verge of bankruptcy.”

Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.