For Entrepreneurs, New York Medical Marijuana Program a Work in Progress

By John Schroyer

The New York Compassionate Care Act, signed into law this past July, finally brings the state into the medical marijuana fold.

The measure will create an infrastructure around the production and sale of cannabis-infused products, allowing entrepreneurs to tap a new MMJ market.

But the program is limited from a business standpoint, which has dampened opportunities and created much uncertainty over how big the market will be once sales start.

Advocates and entrepreneurs hope that the state Legislature will expand the program and address some of their concerns next year. Without change, they say, the program will remain small and relatively ineffective for such a huge state, and it will wind up short-changing businesses and patients alike.

“I know they want to transition into this slowly, but if they want to develop a robust program for patients that’s producing top-tier quality products, they’ve got to create something that’s economically friendly for entrepreneurs,” said Derek Peterson, chief executive officer of Terra Tech, a publicly traded agricultural company that’s quickly expanding into marijuana and is eyeing the New York market.

Trio of Key Reforms Needed

Peterson, who owns a dispensary and extraction lab in California, and other business-minded observers say there are three key changes needed for New York to be a truly viable setting for the medical cannabis industry:

  • First, state legislators or the Department of Health (DOH) need to expand the list of qualifying medical ailments that can get a patient access to MMJ. Right now, patients with serious illnesses such as cancer, AIDS, multiple sclerosis, epilepsy and a few other ailments will qualify for medical marijuana. But many potential patients – such as military veterans with post-traumatic stress disorder – will not be able to access medical cannabis, which will limit the size of the market.

Marijuana sales therefore could be in the tens of millions rather than the hundreds of millions, despite New York’s massive population. That makes it less attractive from a business perspective, at least at the start. “The breadth of potential patients needs to be there for entrepreneurs in order for it to make sense,” Peterson said.

  • Secondly, the state must increase the number of business licenses and allowable dispensaries, observers say. Under the law as it is now, only five companies will eventually be issued business licenses – each allowed to operate a maximum of four dispensaries total. That isn’t nearly enough to serve the market, even with the limited list of qualifying conditions, said Evan Nison, founder of the New York Cannabis Alliance. If the cap is not raised by the state commissioner of health or by the Legislature, there could be a serious shortfall in supply, Nison warned.
  • Lastly, regulators need to revamp the law to include smokeable marijuana.

The law prohibits smoking cannabis right now, although advocates argue that vaporizing isn’t technically smoking, so vaping flowers may still be allowed. Other than that, MMJ forms permitted in New York include infused products, such as tinctures, oils, shatters, waxes, pills and edibles. This stipulation could make it harder for dispensaries to attract patients who prefer to smoke cannabis, as they could continue to rely on the black market.

Finding qualified staff will also be difficult for cannabis businesses, as they’ll need to have specialized backgrounds. Knowing how to extract concentrates and refine them into usable oils, waxes and shatters requires “a whole other level of experience and sophistication” on the part of employees, said Peterson, whose company recently won eight MMJ business licenses in Nevada.

The Chances of Reform

The New York Cannabis Alliance will be pushing New York lawmakers and health officials to make those three changes next year.

Nison – who has been working on marijuana policy in New York and New Jersey for years – said any substantive changes to the MMJ program will likely come from within the health department instead of from the Legislature.

The reason: The GOP-controlled state Senate stymied MMJ bills for nearly two decades, and finally only passed the Compassionate Care Act after children with severe epilepsy became the public face of the movement.

Nison expects that Senate Republicans will remain obstinate when it comes to allowing patients to smoke cannabis, expanding the number of qualifying medical conditions, and other reforms. The DOH, on the other hand, “is fairly cooperative,” Nison said.

“They (the DOH) can allow for more dispensaries. In the law it says that each company has a minimum of four dispensaries,” Nison contended. The office of Sen. Diane Savino, D-Staten Island, confirmed that the DOH has the power under the law to expand the number of dispensaries from 20 to much more than that.

The health department could also possibly broaden the list of medical conditions, Nison said.

Business Interest Still High

If the state passes through the three key changes, it would open the floodgates for the business community and encourage more entrepreneurs to get involved.

Interest from entrepreneurs is already high as it is, despite the limitations and the relatively high startup costs. Many businesspeople with deep pockets are already jumping on board, and some high rollers are ready to pour millions into their business plans.

“There are a lot of people that want to make that investment, even though it’s not the most economically friendly environment right now,” Peterson said.

Terra Tech could spend $5 million to $7 million on startup costs for a growing facility if the company gets a license, Peterson estimated. And then it would likely take millions more to build or retrofit office space for dispensaries.

There are many uncertainties, however.

For one, there’s not even a draft of potential MMJ state regulations for entrepreneurs and investors to examine yet. There’s also no apparent timeline yet for when the DOH may begin accepting applications, or any word on what kind of process it may use to decide which companies will get the five licenses.

Businesses don’t even know how much it will cost just to apply. The DOH has 18 months from this past July to issue regulations, business licenses and patient registry ID cards.

Monica Mahaffey, the DOH director of public affairs, said there’s no set timeline for publishing regulations, and until that happens, companies will have to wait to apply for business licenses.

Watch Out for the Kill Switch

There are still pitfalls for hopeful cannabis entrepreneurs to be wary of, said New York attorney Noah Potter, who has followed drug policy in New York since the mid-1990s.

He pointed out that the law contains what he called a “kill switch,” which gives Gov. Andrew Cuomo almost unilateral authority to cancel some or all MMJ business licenses if he believes there is a “risk to the public health or safety.”

If that happens, businesspeople like Peterson could be out millions.

There’s also a sunset provision in the law that automatically cancels the entire program after seven years, unless it’s renewed by the Legislature.

Potter said Cuomo and plenty of other politicians have been approaching MMJ as though it poses a serious public health risk, which Potter says is absurd.

“The trend is to make the systems unfriendly and overly strict,” Potter said.

There will also be an ongoing fight to legalize recreational marijuana, led by state Sen. Liz Krueger, D-Manhattan. Krueger sponsored a bill to that effect during the last legislative session, and to no one’s surprise, it was killed in committee by Senate Republicans.

But Krueger’s chief of staff, Brad Usher, said Krueger is passionate about the issue to the point where she’ll probably introduce similar bills every year she remains in the Legislature.

If New York legalizes recreational marijuana, the game will change once again.

Krueger’s already putting the finishing touches on a rec legalization bill for next year and will probably pre-file it with the Legislature in December.

“As long as she’s in the Legislature, this will be a priority,” Usher said.

John Schroyer can be reached at [email protected]

Daily News | Cultivation | Edibles/Infused Products | Legal & Regulatory News for Marijuana Businesses | New York Medical Cannabis Business & Marijuana Legal News

 2 Comments

  1. Craig December 2, 2014
  2. Lawrence Goodwin December 2, 2014

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