Connecticut hemp farmers have been locked out of the adult use cannabis market, which could take a bite out of the state’s inaugural adult use supply.
As Connecticut rolled out its legal adult use market, cultivation licenses were specifically directed toward social equity applicants able to secure a $3 million licensing fee from a financial backer. This metric alone resulted in just 16 winners of provisional licenses, but hemp farmers in the state say they are a better bet when it comes to establishing the state’s adult use cannabis supplies.
“I believe our current hemp farming community should be grandfathered into having licenses, much as the medical marijuana facilities were,” said Brant Smith, a hemp farmer with a 70,000 square foot facility in Cheshire, Conn. “We are both growing cannabis and it would enable Connecticut to have product available for the population in a much faster time frame.”
Connecticut’s adult cannabis law requires the state to maintain a baseline of cannabis supply for its 50,415 registered medical cannabis patients. This means that although medical cultivators got first crack at the adult use market, their output is limited.
“The way they’re rolling this out, the only ones that will be able to produce are licensed for medical marijuana, and they obviously have to continue to provide product to the medical marijuana community,” said Smith.
Smith operates a 70,000 square foot outdoor facility that he said would be relatively easy to retrofit for adult use cannabis cultivation. In essence, there are hemp farmers willing and able to grow adult use cannabis to support market demands, despite the lack of regulatory opportunity.
Smith was also skeptical that the current slate of cultivators approved for social equity. Despite the licenses, financial backing is increasingly becoming more difficult to acquire as more state’s legalize and existing markets stabilize.
“I’m going to guess half of them don’t even get off the ground because they can’t get the financing,” said Smith.
Aside from financing, Smith warned that supply chain woes will further slow down the establishment of a reliable cannabis cultivation supply chain.
“I’ve been waiting on motors for eight months from the Netherlands. The supply chain continues to be broken,” said Smith. “In my estimation. [Cultivation license holders] are not going to be able to produce any time in the near future.”
In contrast, the State of New York opted to prioritize hemp farmers for opportunities in cannabis cultivation.
New York Governor Kathy Hochul signed a cannabis bill into law in February that allowed existing hemp farmers to apply for cannabis cultivation licenses. The licenses allow for an acre of outdoor grow space, or 25,000 square feet in a greenhouse.
New York’s move has been viewed as a boon for hemp growers, as well as a positive move to ensure New York has a steady supply of cannabis as its adult use market rolls out.
“We were concerned that outdoor cultivators were going to get left out,” said Dan Livingston, executive director of the Cannabis Association of New York.
Up until just a few months ago CANY was known as the New York Cannabis Growers and Processors Association. Aside from promoting legal adult use cannabis, the organization was a long time proponent of hemp farmers. The name change came as New York’s market continues to grow just as the organization sought to represent every aspect of the growing cannabis supply chain.
Those worries about hemp farmers being left out have since been assuaged, given that hemp farmers did eventually get an early start to cultivation in New York’s emerging adult use cannabis market, but growing cannabis is one thing. Processing or selling it is another.
“I think there’s a little bit of concern about how long it’s taken to connect the other part of the supply chain,” said Livingston. “We ended up with hemp growers and processors being first movers and only movers, which is problematic. The whole supply chain isn’t connected. If there’s no retail, it really makes it difficult to get investment dollars.”
Livingston said that it has been a good year for outdoor cultivation, but without a clear pathway to process or directly sell flower, the cannabis has to be placed into storage.
Some hemp farmers, such as Luis Vega, who runs WEPA Farms in New Haven, Connecticut, attempted to enter the market as a cultivator.
Connecticut limited its cultivator licenses to social equity applicants, provided they could get the financial backing required to pay a $3 million licensing fee. Along with the stiff fees, aspiring cultivators had to also provide proof that individuals who qualified for social equity status would need to show that they held at least a 65% ownership in the company, despite the source of its $3 million financing.
Vega was informed by the Social Equity Council (SEC) in July that his application failed to properly define the ownership shares in his company.
Vega sued the state on August 3, alleging that the state improperly disqualified WEPA Farms, operating under the name Nautilus Botanicals, failed to obtain social equity status as a licensed cultivator.
“Nautilus is aggrieved because the SEC misread its application documents and failed to consider the totality of documentation evidencing ownership and control, thereby erroneously denying Nautilus SEA [Social Equity Applicant] status and causing it to lose a substantial amount of money, time, business opportunities, investments, and competitive advantages,” said the complaint. “Specifically, the SEC misread Nautilus’s Operating Agreement and erroneously failed to consider the SEA’s role as Chief Executive Officer and his possession of 65% of the ownership and voting interests in Nautilus.”
In any case, Connecticut is likely to face a supply problem early on, while New York looks for a method to move the flower that was grown in anticipation of its own market.