Debra Borchardt
The new proposed adult-use cannabis regulations from New York’s Office of Cannabis Management have been met with cheers by some medical operators in the state, primarily due to a provision that would allow them to enter the market this year instead of having to wait until 2025.
The companies that hold medical cannabis licenses, referred to as “registered organizations,” have invested millions into the program, while also losing millions of dollars. They were pinning their hopes on being the first in line to receive adult-use licenses.
Instead, the OCM did a last-minute pivot and pushed justice applicants to the front of the line. The medical operators were told they would need to wait another three years before entering the adult-use market.
This prompted potential acquisitions to fall apart as some investment professionals warned against entering the New York market. It also put most of these companies in a financial bind.
At the same time, the New York adult-use program has been plagued with delays and complaints, while the unlicensed market has grown uncontrollably.
$20 Million Fees
The revised regulations accelerate the operators’ timeline to enter the market and would allow for one co-located store by year-end and the second and third co-located stores after June 29, 2024.
Despite the good news, it won’t be cheap. The medical operators would have to pay:
- $5 million at the time of licensure.
- $5 million within 180 days of opening the second store.
- $5 million when $100 million in revenue is achieved.
- $5 million when $200 million in revenue is achieved.
The OCM plans to use the fees collected to support social equity applicants.
Operators Respond
“Rapidly opening more licensed dispensaries is the most immediate way to encourage a thriving, adult-use market in New York. The adjustments to the proposed waiting period will provide an opportunity to co-locate an adult-use dispensary before the end of this year and give consumers access to safe, high-quality cannabis,” said Mike Totzke, COO and interim CEO of RIV Capital (OTC: CNPOF).
“While we continue to review the updated regulation package, we believe the revised draft regulations are more reflective of the Marijuana Regulation & Taxation Act’s vision and the diverse and prominent cannabis market New York is set to become,” Totzke continued.
Riv owns Etain, one of the 10 ROs in New York. The company said it believes it will be able to begin selling into the wholesale adult-use market by the end of the year.
“The proposed regulations are a positive step in expanding consumer access to the regulated medical and adult use market,” Brian Herrington, vice president, external affairs with Scott’s Miracle-Gro (NYSE: SMG) said. “While we’re still reviewing the updates, we applaud the Board and OCM staff for making substantive changes to remove stumbling blocks to access.
“That’s a win for New Yorkers and when you combine this with recent enforcement efforts against illicit cannabis sales, New York is moving to unlock what will one day be one of the largest regulated cannabis markets in the world,” Herrington said.
While the new rules would quickly create additional stores by the end of the year, it may not be quick enough to make use of already harvested cannabis – a key challenge for many existing New York cannabis farmers that said they were “on the brink of collapse.”
It will also pit the small farmers against the medical operators that have larger operations.
NYMCIA Pushes Back On The Fee
The New York Medical Cannabis Association (NYMCIA) also issued the following statement:
“The proposal overly complicates a simple transition and prevents Registered Organizations (ROs) from strengthening the medical cannabis market while supporting the adult-use rollout. Meanwhile, as a handful of legal dispensaries compete with thousands of illicit market pop-up dispensaries, product cultivated by conditional growers sits spoiling on shelves.
We believe that the proposed $20 million licensing fee for each medical cannabis provider to enter the adult-use market is illegal and subject to legal challenge. It was clearly designed to eliminate vertical integration for medical and adult-use product and is simply not economical. Under this illogical model, medical providers would be responsible for an initial $5 million fee when regulations are final, but well before any licenses are awarded.
Equally frustrating is OCM’s lack of justification of the fee with any actionable social and economic equity programs or plans. Instead, these regulations and the long-awaited Social & Economic Equity Plan published this week reiterate the MRTA mandates without additional clarifying details.”
