The New York State Office of Cannabis Management (OCM) has a very complex task in writing regulations, licensing, and overseeing a new industry. However, a perceived lack of public engagement is not helping the OCM. In the aftermath of several apparent licensing and regulation-writing delays, would-be business owners and other stakeholders are unnerved by the Agency’s opacity. Equity and social justice applicants are concerned about OCM not fulfilling promises of help in the form of grants and real estate. The delay in licensing due to lawsuits has small growers concerned about inventories and whether to plant cannabis this year, as last year’s crop is not yet sold.
On a broader view, the fees and taxes associated with licensing and licensed businesses are considered prohibitive. The regulations about who can and will be licensed to sell cannabis are also a bone of contention, with medical vendors locked out of the market even as social equity applicants are delayed in starting up due to lack of funds promised by the State. As well, there has been little communication on OCM enforcement efforts against illegal cannabis retail shops, especially in and around population centers. It is feared that the illegal businesses will compress price to the extent that the expenses associated with opening a licensed cannabis business in the state will be hard to recoup.
It is understood that OCM has a massive remit including: writing regulations for licensing, production, distribution, and sales of legal adult use cannabis; plus issuing licenses across the supply chain, which includes vetting each applicant and making sure they have complied with all regulations and requirements. Additionally, the Agency is expected to enforce the state’s regulations by investigating and penalizing those that break them. OCM has prioritized promoting social equity as part of its mandate to oversee the newly legalized adult use cannabis industry. OCM will need to hire hundreds of people to fulfill its mandate of “establishing a comprehensive framework” for New York’s legal cannabis industry, which “promotes public health and safety standards and promotes equity and social justice” at the same time.
Other states have distributed these responsibilities across existing agencies – health and regulatory agencies for instance – while New York has located all responsibility for a new industry in a new agency. OCM needs to be as transparent as possible while fulfilling these monumental tasks; transparency encourages accountability and supports a public trust in government, making government intentions and progress clear to the public and to business interests that will be overseen by the agency.
To help sort out how OCM is dealing with standing up a new legal industry where a robust illicit industry has been in operation for decades, Cannabis Benchmarks spoke with John Kagia, OCM Policy Director. With ten years of private sector cannabis industry experience under his belt, Kagia has hit the ground running.
Kagia pushed back hard on the notion OCM’s public engagement was less than it should be, citing community outreach across the state, with OCM members holding meetings in each of the designated licensing areas on a number of occasions over the past year. Kagia said OCM has “very robust public engagement” and that the Agency is “very committed to public engagement.”
He also pushed back strongly against the notion that delays in writing regulations are holding up licensing. Kagia noted the Agency is scrupulous about following SAPA – the State Administrative Procedures Act – which outlines how agencies promulgate rules that will guide the Agency in whatever realm it is operating. The shorthand version of SAPA is – write the rules, put them out for public comment, review the public comments, and, if necessary, make changes and put them out for public comment again before adopting the final version. All of this amounts to a very time-consuming process.
Kagia was firm in emphasizing, “we have not changed the timeline on our regulations, we’re just following the state guidelines on how rules are developed.” He said they’ve received over 3,000 public comments, which have been vetted and will be put out for further public comment at the May 11 OCM Board meeting. Overall, Kagia’s position is that there have not been delays in rulemaking (or resulting delays in licensing) as OCM is simply adhering to the state’s policies and procedures, which are extensive and take time.
Regarding social equity licensee funding Kagia was clear that it is not the purview of OCM and that the Dormitory Authority of New York State (DASNY) houses the state-mandated funding effort.
On the market activity that has taken place, Kagia is pleased with what he’s seen so far. In 2022, over 200,000 pounds of cannabis was produced in the state. When asked about current inventory, he said he was not sure how much inventory is available, but is certain the demand is there for the product. Regarding 2023 inventory, he doesn’t think there’s an inventory build as yet given the original licensed growers were prohibited from cultivating indoors. That’s not to say there isn’t some amount of “mixed light” or greenhouse growing, but again there are no production or inventory numbers yet for this year. Ultimately, Kagia is not concerned about supply for 2023; he’s confident there will be inventory with OCM looking to expand the number of cultivation licenses as retail demand dictates.
Kagia acknowledged the dearth of retail – only eight licensed stores are open in the state thus far – but said OCM is keen to open retail and predicts good consumer demand based on what he’s seen. ”We licensed 160 retailers so far and we are going to issue upwards of 300 retail licenses,” he pointed out. He was relentlessly optimistic about supply and demand, saying “we are going to see very robust retail activation this spring; we will have licensed 300 retailers going into summer.” However, “the number open by the end of summer” will depend on many factors, including whether they have their own location or are seeking help from the state to obtain retail space.
Speaking more broadly about the market, Kagia said “one of the lessons we can learn from other states is what we tell our consumers; start low and go slow.” He noted what OCM has observed in West Coast markets is if you ramp up capacity too quickly it leads to cratering wholesale prices. He said OCM “is monitoring the roll-out of licenses to avoid destabilization of the supply chain.”
“OCM’s task is enormously challenging in a market the size of New York and with customers that are so sophisticated,” stated Kagia, but his long term expectation is for the state’s newest industry to be an enormous success both here and abroad.
From a wider perspective, he sees opt-out programs across the country as a way of rolling out legalization where rules don’t “come from on high,” giving communities choices about what businesses, if any, are located in their towns. On state-based versus federal legalization, Kagia said while state-based legalization may be suboptimal, until there is improvement in banking and taxation the performance of state-legal cannabis industries is “extraordinary.” He cited the $30 billion in nationwide retail sales in 2022 as a reflection of the success of the cannabis industry despite the lack of reasonably priced financing and more efficient business taxation. In fact, Kagia thinks $30 billion in retail is the “tip of the iceberg.”