Week in Review: Growth potential in New York, Oregon rec market red hot & MI stumbles

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By John Schroyer

New York’s health department recommends doubling the size of the state’s medical marijuana industry, Oregon recreational applications flood in as adult-use sales skyrocket, and Michigan’s MJ legal limbo may persist a few more years.

Here’s a closer look at some notable developments in the marijuana industry over the past week.

Doubling down

In a rare move for a state agency, the New York State Department of Health this week issued a report recommending – among other things – that the number of MMJ business licenses be doubled, to 10 from five.

Various media reports stated the legislature and governor would have to sign off on such a radical change for the program. But attorney Adam Scavone, who has multiple New York cannabis clients, said not so fast.

Scavone noted the health department has the statutory authority to expand the number of dispensaries that each licensee is permitted to operate. And if the agency really wanted to increase the supply of MMJ available for patients, it would simply allow the five current licensees to open more storefronts.

“They have the power to do this now, and they’re not exercising it. So there must be some political reason for suggesting this in the context of the report instead of just going ahead and doing it,” Scavone said.

In addition, he said, the New York Compassionate Care Act, which created the state’s MMJ program, doesn’t explicitly say that licensees can only operate a single cultivation site, which is the current setup under the health department.

It’s possible the legislature may need to amend the law to further open up the industry, but Scavone reckons that may not be the case.

How would the existing five licensees react if the department or the legislature did act to issue more MMJ business permits – instead of simply allowing the five to expand their operations?

“I’d expect them to scream bloody murder,” Scavone said.

Off the hook in Oregon

Oregon’s 11-month-old recreational marijuana industry is on a roll.

It’s killing it when it comes to sheer sales numbers, which topped $100 million during the first seven months of 2016. And the state has attracted over 2,000 rec license applicants – with more likely to roll in.

As of Aug. 23, the Oregon Liquor Control Commission said it had received 2,059 total current applications, including those that were later withdrawn or are in the “draft,” or pending, stage. It also said the prospective licensees behind 1,289 of those applications had paid the application fee and that that paperwork was being processed.

Green Delta Consulting’s Liz Blaz Fitch isn’t surprised.

“There are just no barriers to entry for this. This is people who are all over the spectrum,” she said. “You have multi-level companies; but you also have people who have been growing 16 plants in their house trying to get a license.”

Blaz Fitch expects the rate of applications to slow as the months wear on. But she doesn’t expect the applications to drop precipitously.

She also expects a lot of market consolidation in coming years – similar to what’s been happening in Colorado – with larger cannabis companies buying smaller firms that can’t compete.

“Very realistically, a lot of businesses aren’t going to survive,” Blaz Fitch predicted, simply because of the high cost of doing business in the cannabis trade.

That, however, doesn’t mean sales figures are going to quit going up, she said.

“You have to consider that right now people are purchasing one edible,” Blaz Fitch said, referring to the current, temporary purchase limit for adult-use customers. “As far as the actual sales go, I do think that the numbers are going to hold, if not go up. More people are going to come to Oregon. More people are going to continue to come to Oregon, just like Colorado and Washington.”

Stymied (again) in Michigan

Things don’t look good for Michigan’s flailing cannabis industry.

Earlier this year, Michigan lawmakers again failed to pass a statewide regulatory system for Michigan’s sizable medical cannabis market. And this week a campaign to legalize rec fell short in its legal battle to place an initiative on the November ballot.

MILegalize, the rec campaign that sued after the secretary of state ruled that it didn’t qualify for this year’s ballot, lost its first legal fight on Tuesday, when a local judge ruled against the group. While the campaign had turned in enough signatures to make the ballot, Michigan Court of Claims Judge Stephen Borrello ruled that many were collected outside the 180-day window allowed for citizen petitions.

Jamie Lowell, the proprietor of 3rd Coast Compassion Center in Ypsilanti, Michigan, and a board member of MILegalize, insisted there’s still hope for rec legalization this year.

“It was always going to end up” going to the state Supreme Court, Lowell said, regardless of how Judge Borrello had ruled. “We’re going to continue to fight this as long as necessary and as long as there’s a recourse. So that means we could end up in the U.S. Supreme Court.”

Lowell acknowledged, however, the outlook is bleak for Michigan’s MMJ businesses if MILegalize ultimately fails: Continued uncertainty, and possibly more raids by law enforcement, for at least another couple of years.

“Uncertainty for the next two years will be around, regardless if legislation gets passed. It’ll take that long to sort out all the things that have been proposed,” Lowell said, adding that he has “no faith” that the legislature would pass any “reasonable” regulations anyway.

The worst-case scenario is that MILegalize will return in 2018 with another legalization measure, Lowell said. If that happens, the campaign will have to find a wealthy backer – like tech billionaire Sean Parker in California or attorney John Morgan in Florida. Otherwise, it’s doubtful the group could collect the necessary number of signatures in less than 180 days.

“That’s something we’d have to have in place before we got started,” Lowell said.

John Schroyer can be reached at johns@mjbizdaily.com