John Schroyer
The New York nonprofit Housing Works made history on Dec. 29 last year as the first-ever licensed retailer in the state to sell legal recreational marijuana.
A week after the launch of the Manhattan shop, Green Market Report sat down with the nonprofit’s CEO, Charles King, to get his thoughts on the upcoming year, particularly amid the tumultuous rollout of the New York cannabis market and a mountain of uncertainty for hundreds of hopeful business owners.
Despite some fears that the state cannabis taxes might make the legal market a tough one in which to compete, King expressed confidence that Housing Works will be a success story, and declared unequivocally, “I have no doubt we’ll be profitable.”
Any sales numbers you might be able to share to date from the first day or the first week of sales?
What I can tell you is we opened on the 29th for a little more than three hours, and we rang up over 500 sales and had to turn 1,500 people away. We have been open every day except New Year’s Day since then. And every morning, when we’ve opened up, we’ve had a line halfway around the block, down two sides of the block. Our staff has been learning how to work faster, but we still seem to be accruing a line.
Our hope is that by the end of January, we’ll be able to offer delivery. So even if the lines persist for the next several weeks, hopefully we’ll be able to soon bring cannabis right to your door.
People haven’t really been able to have access to, you know, I think there are a lot of people who know what good quality cannabis product is. They’ve traveled to other jurisdictions that offer that. But we haven’t had that available here in New York state. And so while there have been a lot of, we’ll call them gray market shops, operating over the last year, you know, they’re selling a lot of adulterated crap. And so people are willing to pay to get top notch stuff.
What kind of feedback have you been hearing so far from customers?
We were able to only open up with six brands, between 75 and 100 different individual products. And we had obviously hoped to open with more brands; we’re bringing more brands on next week and the week after.
But one of the obstacles has been that producers have to take all of their products through state laboratory approved testing to ensure their quality. And while it’s slowed us getting the products that we want in the display cases, one of the things that it has done is guaranteed that people are going to get very high-quality cannabis of a wide range of variety that they wouldn’t be able to find anywhere else in New York State. And I think that’s been a tremendous asset.
Found a few comments on pricing, but really not very many. I think people know that you’re paying for quality, you’re paying for for the taxes, and all the rest of that goes with the regulated licensed market.
I was there hanging out in the store Thursday, I was hanging out in the store on Friday. And I did not hear a single complaint from anyone about what we were selling them, and definitely from acquaintances who purchased, I’ve gotten a lot of a lot of very, very positive feedback. I think this bodes well for for the future.
So the plan is two more stores, for the state limit of three per license, both to be located in Manhattan?
Yes, and we’re very interested in the Upper West Side. We have a thrift store that’s very successful on the Upper West Side. We think a location that attracts folk from Columbia (University) and the surrounding environments, and is also a very high traffic, dense neighborhood, would be very good for us.
Part of what we’ve been looking for, and what was the beauty of this location, was an affordable rent in what is often a very, very expensive city. We moved into a storefront, part of a string of storefronts, in the same building that had been vacant for the last four years. That allowed us to come in at a rental price that was definitely better than what we would have gotten if we’d tried to do one of the one of the more, you know, Union Square, for example. Similarly, we’re keeping our eye out for a location in central Manhattan. But obviously, finding a place that is affordable (isn’t easy).
One of the things that I think people falsely assume is that this is a very high-margin business. The reality is, we’re paying 13% sales tax, we’re paying income taxes. The federal income taxes are through the roof, because we don’t have the same deductions as your standard business, because cannabis is still a Schedule 1 drug.
So, if we really want to this to be profitable, we’ve got to build volume. That’s the only way we’re going to make it successful.
Do you have confidence that Housing Works is going to be profitable and do you see an obvious path to get there?
I have no doubt that we will be profitable. And we’re going to work this one store until we know we have the model down right.
We have 30-year history in retail from our very successful thrift stores to our used Bookstore Cafe. And while each is a slightly different model, retail is retail. And so we know the mechanics of what we need to do to make it work. We know the kind of volume we need to build to make it successful.
The question is, are we going to be hugely profitable? Or are we going to be marginally profitable?
One of the things that’s very important is completely decriminalizing cannabis at the federal level. A majority of people in the United States today can legally buy cannabis. We need to get rid of the federal prohibitions and remove it as a Schedule 1 drug, which would make it far more profitable, if we were able to take the full deductions in our federal income tax.
Any information you can share on customer demographics so far? Locals versus tourists, younger customers versus older?
We have probably not seen a lot of tourists. I think word would have to spread further. And while we’re in a heavily-trafficked area, it’s not like Times Square.
We are seeing a ton of people from the local neighborhood. You know, we’re sitting right in the heart of the nexus of the East Village and the West Village. I have people texting me, “I hope the line’s not too long,” who live like three blocks away from the store. We’re seeing people drive in from upstate.
My manager was telling me about an older woman who drove down from the mid-Hudson Valley just to do her cannabis purchase. And so, you know, I would say there’s not a particular age demographic that we’ve seen.
Given the taxes and price differences between the legal and unlicensed sides of the New York cannabis market, do you feel confident that you’ll be able to compete effectively with the unlicensed side of the industry?
There are two sides to that question. For over the last year, as we’ve seen the unlicensed market booming, the position of the mayor’s office was, “Well, people can legally consume, but they don’t have any legal place to buy, so do we really want to disrupt that and create chaos?” And I appreciate the mayor’s position on that. So I was really gratified once we were licensed to see City Hall really ramp up with the New York City Police Department, as well as the Office of Cannabis Management (OCM).
What was particularly thrilling to see was they shut down a store that was just a block away from us. So they were really focusing on putting out of business our potentially direct competitors. And I think they need to ramp that up.
The other real test in terms of what happens with our off-the-books market is how successful the state is in bringing people who made their living with illegal sales into the business. I think what we’ve seen in California, for example, is an absolute disaster. The illegal market, it still represents something like 65-70% of sales in the state of California. We can’t run a successful regulated market against that kind of competition.
The quality of the product is very important, but minimizing the incentives for people to participate in the unregulated market is just as important.
What other state-level business hurdles do you see, not just for Housing Works, but for other licensees in retail and the industry as a whole?
One of the things, obviously, there’s litigation that has prevented various parts of the state, including the borough of Brooklyn, from (having dispensary licenses awarded). Hopefully that litigation gets quickly resolved, because part of making this work is distributing the stores fairly evenly across the state.
The slowness of producers in being able to get through the laboratory process has been a barrier, both for them and for us. We need product to sell.
One other thing that’s really important is, for the higher price, not only do people expect high quality, but I think they expect a lot of variety. And so we’ve got to be able to deliver on that front, and that means having enough brands out there.
Is there anything that you would like to see the state or the OCM do differently to help companies and help nonprofits like Housing Works succeed in the long term?
I think there are smaller nonprofits who don’t necessarily have access to the same kinds of resources in the state. Creating avenues for them would be very important.
My only caveat to that is then really make sure that, both in terms of the operation of their business and in terms of their use of the profits, it’s really going to serve the communities that ought to be served. I know that another nonprofit has simply contracted out the store to a for-profit entity to run on their behalf. They’re not putting any of their trainees to work in the store, and this nonprofit is continuing to (drug) test their trainees and sanction them for cannabis use.
I think the state needs to set up rules that make sure that nonprofits are really giving back to the community.
For justice-involved people, whether it’s growers or producers or retailers, there’s just going to need to be a lot more resources. Very few of these folks could go out to a bank and get a half a million dollar line of credit, for example. But what will ultimately make the difference as to whether or not the commercial industry takes over or whether a grassroots industry really permeates the business here in New York is access to capital.
This interview has been edited for length and clarity.
