New York’s first cannabis dispensary applications can be submitted this Thursday, Aug. 25. Applicants and cannabis attorneys I spoke to this week were excited, but admitted there are still a lot of questions that need to be answered before the program can be deemed any kind of success.
New York’s tangle of problems grows from the fact that the State of New York is taking on social equity assistance in a major way. Not only is the state giving justice-involved applicants first crack at obtaining new dispensary licenses, it’s also planning to subsidize most of their start up process.
Complicating matters even more, the state is restricting who can sell to the new CAURD (Conditional Adult-Use Retail Dispensary) licensees, limiting their supply to hemp farmers and processors recently awarded conditional cultivation and processor permits. That might create some supply problems down the line.
Finally, the state has created a very specific group of people allowed to apply for the CAURD licenses: People arrested or charged in New York State with specific cannabis offenses that have experience running a successful business for two or more years. Right off the bat, that’s eliminated a large number of potential applicants.
“As we know, most small businesses are not profitable or show a loss. The business itself may be profitable, but for tax purposes they show a loss,” said Osbert Orduña, an application hopeful from Long Island I’ve been talking to for almost a year.
Orduña, a Marine vet and CBD shop owner on Long Island who grew up in a disproportionately impacted area, knows quite a few people who’ve been pinched for cannabis at some point or another. But finding those with a record and a successful business record, is not easy. And then there’s the fact that justice wasn’t always evenly applied.
“If you were charged with loitering or disorderly conduct that doesn’t count,” says Orduña, talking about people who don’t qualify because their cannabis possession was deliberately overlooked – maybe a blessing at the time. “Because the cop didn’t want to voucher the two ounces of weed, people are [now] being left out in the cold.”
And like many CBD shop owners, he’s been hoping the state would allow him to transition to selling cannabis. I visited with Orduña and another CBD shop owner Dave Baulinka last March, Baulinka warned me when I visited his shop last March that state inspectors are constantly checking his store out to make sure he isn’t selling THC.
“We’re the ones getting checked out, while illegal dispensaries in the Bronx are having events every night,” he said.
Still though, New York is a big state, so regulators were always going to find people who fit the criteria, like Jeremy Rivera, who served time for selling weed. Then, when he got out of prison in 2018, he obtained a permit as a construction safety inspector. He runs a small consulting business doing inspections for the city of New York, which in the eyes of regulators, counts as a small business.
Now, he’s partnered with Alessandro Cattone, who was also once arrested for cannabis, but now runs a New York City deli he inherited.
“Al and I are childhood friends, we grew up together,” said Rivera. “When I was being a knucklehead, he was working at his father’s deli..When I got home from my last prison stint in 2018 and I changed my life, Al was there every step of the way.”
Because the state will provide a turn-key dispensary, built out and ready to go, Rivera and Cattone believe they’ll need between $250,000 and $350,000 of working capital, a range I’ve heard from other New York applicants. It’s a stunningly low number, compared to the start up costs new dispensary licensees have needed in other states, a number usually closer to $1.5 million, which would include property acquisition and build out.
Rivera and some other applicants tell me they expect to save money on inventory outlay too.
“As a social equity applicant, a lot of the cultivators we have are willing to do 20% down, and hold the remaining balance for 60 days,” boasted Rivera, who says he’s signed four letters of intent with cultivators already. “They’re with the program. The culture is very good that way.”
However, New York farmers I’m talking to are warning there might not be enough supply to satisfy 200 new dispensaries in 2023, and that the quality of the first grows won’t be good enough for flower.
“Oil will far outweigh flower,” Eric Carbone, a cannabis farmer based in Tioga County, told me last week. “Some outdoor growers will produce high quality flower but in my opinion this will be an extract year.”
Also, Carbone warned that it’ll be hard for farmers to promise high quality flower to CARD licensees, since, “Any flower produced will be harvested September to October and will most likely be four to five months old by the time the first few dispensaries open.”
The state also has yet to define exactly how outdoor product will be tested for adult use. Indoor cannabis that’s been grown for medical use has a much higher standard than outdoor, which is hard to shield from biological influences like mold and insects.
Farmers like Seth Jacobs from Argyle, NY, are wary of what the rules may look like.
“Different states have handled their flower markets differently. Massachusetts’ biological testing is so strict that little outdoor passes. California used a more realistic testing model, and created a flourishing outdoor market, until the entire market crashed out there due to other factors,” warned Jacobs.
Meanwhile, downstream, Rivera says he’s concerned there won’t be enough processors and testers to get the product to him.
“New York state doesn’t have enough processors and testers to test the product. I think the bigger problem [will be] moving the product through the supply chain,” said Rivera.
Bigger than what? Well, that’s what kind of product Rivera and others will have to sell in the first place. As Jacobs and Carbone indicated, they and most other farmers are focusing on growing for extract. It’s not a surprising move, since almost every cultivator will tell you that your first cannabis crop – even if you’ve been growing hemp – will disappoint you in yield and quality.
So, if the main source of cannabis for CAURD licensees will be outdoor farmers, most of what they’ll have to sell will be extract products – and maybe some flower here and there. That means CAURD licensees will be competing at a disadvantage with the few dozen existing dispensaries owned by Registered Operators (who are mostly MSO-owned) – and the legacy market.
This doesn’t concern Wei Hu, a cannabis attorney and partner in a license application team, who says the first stores will be serving people who want to pay a premium to avoid the legacy market and won’t quibble over what’s for sale.
“We’re not thinking about trying to compete with the legacy market. We’re thinking about tourists, bankers, doctors, who will all pay a premium to not be in the legacy market,” Hu told me.
Still unaddressed are the many, many questions left open because of how state regulators are subsidizing the CAURD licensees by creating a soup-to-nuts solution.
New York’s form of social equity has been to take care of as many start up concerns as possible, including finding and building a location, and providing everything needed, down to security hardware, the POS (Point of Sale) system and CRM (Customer Relationship Management) software. That last item is the one that makes me the most curious, since almost every dispensary owner has a different mix of POS and CRM solutions, largely chosen to suit their work-style.
The way the dispensaries are getting financed and built is also fascinating. Regulators plan to build 200 locations and fund it through the Social Equity Cannabis Investment Fund, managed by NBA All-Star Chris Webber, with a target of raising $200 million. From what I can see, the program is supposed to operate like a Real Estate Investment Trust (REIT). Working on behalf of the fund, the state builds the facilities, then collects rent, which is turned over to the Investment Fund as income to pay back investors.
And that brings us to a series of big unanswered questions the state has yet to answer:
- How much rent will CAURD licensees have to pay?
- Will license winners have to take locations offered by the state, or can they choose and build their own?
- Will the state have enough locations?
- There’s likely to be a lottery for locations. Does that mean the state will force New York City based-applicants to take locations in the Finger Lakes?
- When will dispensaries be ready for occupancy?
That last point really resonated with Rivera, who works in construction and knows a thing or two about builder’s supply chains. Will dispensaries open before the November election, when Gov. Kathy Hochul, up for reelection, has been visibly pushing for legalized adult use cannabis in New York?
“I don’t think it’s feasible,” bemoaned Rivera. “Just lead times and material times, I don’t think they’ll do the build out in the time they say they’ll do it in. Without them having procured or started yet, that’s where my faith dwindles on the process…I’m thinking second or third quarter of 2023. That’s what’s feasible.”
Meanwhile, New York waits to kick off adult use sales, as the underground market continues to boom. Back in March, when I visited CBD shop owner Baulinka on Long Island, he was expecting to submit his application for a cannabis dispensary license later that year. Plenty of people ask for it, have you ever considered selling delta-9 THC? I asked him.
“Not us,” he told me. “But you can go across the street to the gas station. They have it.”