Image: Shelley Pauls
While New York’s adult use cannabis market has gotten off to an extremely slow start, several recent developments could be consequential in the state’s effort to establish and expand legal recreational cannabis sales.
The New York Office of Cannabis Management (OCM) said this week that they’re working on a “farmers market plan” to enable licensed cannabis cultivators to sell their product, according to Green Market Report. An OCM representative told a forum last week that the raw outlines of the proposal would allow three farmers to get together with a licensed retailer to “organize events” during which cannabis products could be sold directly to consumers. Communities would have to agree to letting such events be staged and the inclusion of the retailer in such an event is to “facilitate the actual sales.”
According to OCM, last year’s harvest – reportedly about 200,000 pounds of flower and biomass – has not been sold off. Moreover, farmers have raised doubts about planting this year as OCM struggles to get retail licenses out the door and into the process of setting up businesses. Only 12 retailers are licensed and operational currently. Issues have arisen with the Dormitory Authority of the State of New York (DASNY) regarding how much money has been raised and spent, as well as concerns DASNY is competing with CAURD licensees for retail space. CAURD licensees are not bound to use DASNY and some have balked at the $1 million price tag and terms for repayment over 20 years offered by the Authority.
Additionally, after an initial public comment period, OCM introduced new rules accelerating the timeline for Registered Organizations (ROs) to participate in adult use retail. Previously ROs – New York’s existing medical cannabis operators – were to be required to wait three years before entering the adult use market, but the amended rules bring that timeline forward to December 2023. ROs will face a substantial fee of $20 million to become adult use retailers, proceeds of which will be dedicated to supporting social equity programs in the state. CAURD licensees are likely to be put out by OCM’s decision to move the RO timeline forward; the original intent of the three-year delay on ROs was to give social equity applicants an advantage, allowing them to establish a customer base and build their brands.
The New York Cannabis Control Board (CCB) voted to allow a change to the Limited Partnership Agreement (LPA) that was created to fund CAURD licensees. It appears the change in the LPA cements DASNY’s commitment to a partnership with Social Impact Ventures, the firm chosen to raise the $150 million that will round out the fund, with New York State granting the initial $50 million. DASNY told the board the funding would consist of private equity and /or debt, both of which rely on private, non-bank equity or debt investments. It is unclear whether Social Impact Ventures has raised any money for the fund to date. A DASNY spokesperson at the CCB meeting did suggest the overall downturn in cannabis prices and higher interest rates have created a difficult market for fundraising.
Finally, Marketwatch reports the Variscite lawsuit against OCM has been settled. The original lawsuit managed to block OCM from issuing licenses in five regions in the state, an order that was later pared back to just the FIngers Lakes Region. OCM, with permission from the CCB, has apparently agreed to settle the suit for an undisclosed sum and for an adult use license.
Is New York setting a bad precedent in settling? The Variscite lawsuit was predicated on the claim that awarding the first New York cannabis licenses to justice-involved individuals and non-profits with certain connections to the state itself was unlawful under the Commerce Clause of the U.S. Constitution. In subsequent reports, it was discovered Variscite – a Michigan-based company – would not have qualified for a justice-involved license in any instance. As of this writing, it is unclear how the final settlement will shake out, but the notion of granting an adult use license to a troublesome firm not located in New York may set a bad precedent, inviting other out-of-state firms to sue OCM. Multi-state operators that hold RO licenses in New York’s medical cannabis program have also sued the state under the Commerce Clause.
New York is generating headlines around standing up the state’s adult use cannabis market, raising and lowering expectations on an almost daily basis, but little has been written about cannabis prices in the state’s currently small regulated market. One source told Cannabis Benchmarks “the best of the best outdoor” is going for $1,800 per pound.
On the retail side, where there’s little competition, prices indicate fat profits for retailers at the outset of the market. Housing Works Cannabis Company, the first licensed cannabis retailer in the state, is advertising retail eighths at $40 – $55, with price related to THC content in most instances. Housing Works Cannabis Company is charging $250 – $260 per retail ounce, which is reportedly not far off from street prices in the City.
Using the anecdotal $1,800 per wholesale pound price point cited earlier, it looks like New York retail cannabis profits are running as high as 300% on eighths and over 200% on ounces. High profit margins are not unusual in states new to the adult use market where there are few retailers. New York prices will likely have to undercut the illicit market so that brands can make their mark in the state. With such a robust unlicensed market, prices in New York’s massive market are likely to fall faster than they did in other states new to adult use cannabis commerce.