Will New York’s adult-use marijuana retailers open by year’s end?

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Image of workers at PharmaCann's manufacturing facility in Hamptonburgh, New York

Workers at PharmaCann's marijuana manufacturing facility in Hamptonburgh, New York

Despite assurances from the governor and regulators as well as progress on retail lease negotiations, New York marijuana industry officials and experts are increasingly concerned the state’s billion-dollar adult-use market won’t launch by year’s end.

The uncertainty has left many applicants and businesses in a standstill, killing most of the buzz surrounding the launch of an expected robust marketplace.

“A lot of the excitement died down actually because of how long it’s taken,” said David Pejovic, a New York cannabis attorney who specializes in regulatory issues and compliance.

“People are losing their initiative for what’s going on.”

Several issues are clouding the retail outlook and launch:

  • Adult-use regulatory policies and operational procedures, including product testing, have yet to be finalized.
  • Regulators are still vetting more than 900 conditional adult-use retail dispensary (CARD) applicants, who are the first in line to open stores. These applicants have been affected by the government’s war on drugs.
  • The Office of Cannabis Management (OCM), the state’s chief marijuana regulator, hasn’t announced an approved applicant among the first batch of 150 retailers.
  • The Dormitory Authority of the State of New York (DASNY), which is overseeing property leasing and facility construction for CARD applicants, has yet to disclose an approved, state-funded retail location.
  • Some cultivators already have begun harvesting cannabis, but they don’t know what to do with it given the regulatory uncertainty and the lack of an operational testing lab.
  • A thriving illicit market continues to pose a major competitive threat to the emerging legal adult-use industry.

The launch of the state’s recreational marijuana market is being watched closely for a variety of reasons.

Beyond its sheer size, recreational sales in the nation’s financial hub could serve as a boon for cannabis banking, spur interest in private-investment circles and Wall Street, provide a template for social and economic equity as well as boost innovation for products, brands and packaging.

New York adult-use retailers are projected to generate $1 billion-$1.2 billion in sales next year, growing to $2.2 billion-$2.7 billion by 2026, according to the 2022 MJBiz Factbook.

The state’s restricted medical marijuana market, which was limited to only infused, nonsmokable products until last year, is expected to bring in $220 million-$270 million this year, increasing to $320 million-$390 million by 2026.

New York state of mind

Gov. Kathy Hochul told New York reporters earlier this month the state is “on track” to open 20 adult-use stores this year.

She said roughly 20 retail outlets per month will be added to the market.

State regulators reiterated that message to MJBizDaily.

“There has been no change in our expectation that sales will begin before the end of 2022,” OCM spokesperson Trivette Knowles said.

The agency is reviewing 903 CARD applicants, the state’s version of social equity.

Applicants face a high bar to entry and must meet the following criteria for approval:

  • A conviction for a marijuana-related offense or having an immediate family member or dependent convicted of an MJ-related offense.
  • Ownership of a business or a 10% controlling interest in a company for at least two years. An individual also must prove that the business was profitable during the two-year period.

“Regulations for the remainder of the market are expected before the end of this year with additional licensing opportunities opening in the first half of 2023, as has been expected since OCM got its start in the fall of 2021,” Knowles said.

Fund update, real estate developments

Robert DiPisa, co-chair of the Cannabis Law Group at New Jersey-based Cole Schotz, is helping New York clients try to secure retail locations in one of the priciest markets in the country.

Like other stakeholders, he wants more regulatory transparency, particularly related to the social equity cannabis fund announced in late June.

The fund is managed by Social Equity Impact Ventures, a joint venture led by NBA star Chris Webber, cannabis entrepreneur Lavetta Willis and an affiliated firm of Siebert Williams Shank, a minority- and women-owned investment bank.

The planned $200 million fund, which will support as many as 150 CARD licensees with construction and startup costs, will pool $50 million from adult-use licensing fees and revenue as well as “up to $150 million from the private sector,” according to a June announcement.

“Even if it was fully funded at $200 million, I’d still have concerns as to whether that number is going to be enough,” DiPisa said.

“I’m also curious as to how much of a fingerprint these CARD license holders are going to have on their retail location.”

Design and construction firms were supposed to be announced in July.

“It’s my understanding that no store has begun a build-out yet,” said Pejovic, the cannabis attorney.

The Dormitory Authority told MJBizDaily that fund managers recently received final approval to start signing leases, contracting with design-build teams and bringing locations up to code.

“DASNY, acting as agent of the fund, has been searching for sites to be potential dispensaries throughout the state and is currently in active discussions with well over 50 property owners,” spokesperson Jeffrey Gordon said.

Lingering doubts persist

Industry executive Jeremy Unruh expects the state to release adult-use regulations and quality-assurance protocols, such as lab testing, sometime next month, followed by a public comment period and likely revisions.

That timetable would put manufacturers in a time crunch, not only to get products to market but also to get them approved, according to Unruh, senior vice president of public and regulatory affairs at PharmaCann, a multistate operator with a manufacturing plant in New York’s Hudson Valley.

Cultivators also face a dilemma amid harvest season, beyond testing.

“You’ve got a bunch of cultivators that have a bunch of products that they don’t know what to do with yet because that next step on the supply chain really hasn’t been opened,” Unruh said.

“There’s no rules for how they can sell that stuff to conditional processors, and there’s no rules for how conditional processors can make that into a vape pen. And there’s no labs yet that are ready to take those products.”

The OCM’s Knowles told MJBizDaily that more than 250 licensed family farmers are harvesting product for retail sales under the state’s Seeding Opportunity Initiative, which prioritizes local farmers, entrepreneurs and those convicted of marijuana-related offenses.

Chicago-based PharmaCann has four medical marijuana dispensaries in New York and is awaiting regulations to dictate their expansion into recreational sales.

The state limits ownership to three adult-use stores in an effort to level the playing field for smaller operators.

“Our real opportunity is likely going to be more of a manufacturer and supplier than an actual retailer,” said Unruh, who has doubts the state can meet its goal.

“The state has a tall order to get 20 conditional adult-use retail dispensaries open and operational before the end of the year,” he added. “I suspect that they will do everything in their power to be able to lay claim to that victory.”

Pejovic is worried delays will stymie access to the legal market, particularly as New York’s underground market thrives, evident by the proliferation of illicit consumption lounges, speakeasies and pop-up delivery trucks throughout the city.

“I think that’s going to weed out the people that weren’t really truly committed,” Pejovic said.

“But, at the same time, I think it’s also weeding out competent operators that just can’t afford to hold on.”

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