New York’s 280 conditionally licensed recreational cannabis farmers received a notice right after Christmas from state regulators, informing them they would be required to choose one of four cultivation plans for the coming year – and that they only had a few weeks to make that decision.

The initial notice gave farmers until Jan. 13 to make a selection between growing entirely outdoors for the 2023 season, growing entirely indoors in a greenhouse, or two possible combination options of both outdoor and indoor, a major policy shift from what growers had previously understood they’d be allowed to do this year, several growers said.

After the Cannabis Association of New York (CANY) and several members who are licensed cultivators complained to the state’s Office of Cannabis Management (OCM) about the deadline, the timeline was extended, but only to Feb. 1.

The situation has many growers feeling boxed into a choice they don’t want to make and without full knowledge of the possible ramifications for their own fledgling businesses. The state still only has two retailers open and operating, and most of the legal farmers have yet to even sell any of their crops from this past fall.

“It appears to be locking us in to uninformed decisions, possibly for the next couple of years, and that’s really what has the growers concerned,” said Tim Moshier, the owner of B30 Farm in Fulton. “We haven’t been able to get our stuff to market yet and find out what sells and what doesn’t.”

Moshier pointed out that early last year, state regulators told industry stakeholders that the plan was to have multiple dispensaries open by the end of 2022, but only one – Housing Works in Manhattan – actually launched. That has nearly all of the licensed farmers still waiting to sell the vast majority of their harvests.

The new letter, Moshier said, is “one more straw on the camel’s back” for a lot of growers.

“A lot of growers thought we’d have product in dispensaries a month or two ago, according to the OCM’s original plan. That didn’t happen. People are getting cash-strapped now,” he said.

It’s also unclear whether farmers will be permanently locked into whatever choice they make, or if regulators will allow them the flexibility to, say, add a greenhouse to an outdoor-only grow down the line at some point or transition into a vertically integrated microbusiness.

Those are both changes that several farmers have been seriously contemplating.

“We all had the idea we’d be in the place where we’re at until 2024, and then we’d be able to at least make an educated decision based on the market conditions and based on a good perspective of what our place can really be here to be successful,” said Brittany Carbone, the CEO of Tricolla Farms in Berkshire and a board member of CANY, which represents about 80 of the state-licensed farmers.

“To make that decision now is just very hasty,” Carbone said. “For a vast majority, it’s a very difficult decision to make at such an uncertain time.”

The Options

The four choices growers were given are:

• Outdoor, which includes up 43,560 square feet of outdoor canopy.
• Greenhouse/mixed light with no more than 20 lights, which includes 25,000 square feet of canopy.
• Outdoor and greenhouse/mixed light with no more than 20 lights, which allows for both indoor and outdoor cultivation, with a cap of 20,000 square feet of greenhouse canopy and 30,000 square feet of total canopy.
• Outdoor and greenhouse/mixed light with no restriction on the number of grow lights, with a cap of 12,000 square feet of outdoor canopy and 6,250 square feet in a greenhouse.

“This form is required to be submitted by all (adult use conditional cultivators) that wish to cultivate in the 2023 season,” the letter from the OCM to growers reads.

The letter also includes a provision that any grower who signs and submits the form recognizes that the “selected and approved cultivation tier on this form will transition with conditional licensees as their approved tier for full licensure,” which suggests that whatever choice the growers all make will become their long-term place in the New York cannabis supply chain.

“The more indoor you’re allowed to have, then the less outdoor. It’s strange, and there’s no guidance for it,” said Tess Interlicchia, CEO and owner of Grateful Valley Farm in Corning.

The Problems

Interlicchia said it feels as though the OCM is putting more restrictions on small distressed farms like hers, instead of giving them ways to be competitive, even though the New York market has been specifically designed to bolster small businesses. The 280 conditional cultivation licenses, for instance, were all given to licensed hemp farmers, with larger multistate operators being forced to largely sit on the sidelines until late 2025.

But once bigger companies can enter the market, Interlicchia said, the choice she and other farmers are being forced to make this coming week could come back to haunt them.

“It feels like we’re being set up to fail, to be honest, because none of us have tens of millions of dollars to throw up a greenhouse right away to be able to compete with the MSO’s,” said Interlicchia, who added she’s still struggling with which of the four options to choose. “It’s nerve wracking. It’s kind of scary.”

OCM spokespeople did not respond to multiple requests for comment on the policy shift, and the reason for the notice remains unclear.

“I would love to know” why the OCM sent out the notice, Interlicchia said. “They have sent out plenty of surveys. They could have just done that, instead of being like, ‘This is firm and you must do this by that date.'”

Carbone said she believes the policy shift is an attempt by the OCM to both get a better handle on overseeing the statewide supply chain and to address a prior CANY complaint that 20 lights for a greenhouse is too few lamps for indoor growers to be truly effective.

“They did provide a pathway for people to utilize more lights, to extend that season and greenhouse production,” Carbone noted. “It’s something that’s needed. But once again, it’s a lack of clarity, and communication not being as dynamic as we’d like it to be. It’s causing a lot of frustration for growers.”

“There are definitely people who are like, ‘F*** yeah, like, I have the greenhouse, I’m filling it out with lights.’ They’re ready to go. And that’s awesome, we need that,” Carbone said, but characterized that as a minority of farmers.

Moshier said he’s still hopeful that regulators will want to work with the farmers instead of being hard-nosed about the situation, but he added that the fundamental issue is a lack of communication.

“I think there’s a 50/50 chance they may extend the (Feb. 1) deadline again, and maybe come back with some more clarification,” Moshier said. “Hopefully they’ll allow us a little more latitude. I don’t know what’s driving the OCM, to need this information this early in the season.”

The post New York Forcing Cannabis Farmers to Choose Business Model appeared first on Green Market Report.

This story was written in partnership with Crain’s New York, the trusted voice of the New York business community. 

One of the most controversial aspects of New York’s new recreational cannabis market is its tax system, which some have worried will undermine licensed businesses by driving consumers to cheaper underground dealers.

A white paper published in December by a pair of New York tax attorneys, just weeks before the formal start of recreational marijuana sales on Dec. 29, warned of that very possibility. It predicted—and was proven accurate after sales launched—that a legal eighth of cannabis flower in New York with 30% THC would cost about $75.

Prices at Housing Works—the first state-sanctioned cannabis retailer in the five boroughs—proved to be not far below that, with prices fluctuating because taxes are based on THC potency. According to the nonprofit’s online menu, an eighth of cannabis flower ranges in price and potency from 19% THC for $40 to 27% for $60. With the 13% excise tax added, out-the-door prices would be between $45 and $68, respectively.

But if customers remain price-sensitive, as data from other mature recreational marijuana markets suggest, then they’ll broadly be willing to pay only as much as 10% to 15% above prices on the unregulated market, according to the paper, authored by attorneys Jason Klimek and James Mann.

By contrast, unlicensed street vendors in New York City last month were peddling cannabis eighths for between $10 and $45, Green Market Report found.

Combine that with overall lax enforcement to date against the underground market, and the situation has the potential to undercut state-licensed retailers—particularly smaller and less-capitalized businesses—before they can truly get off the ground, Klimek and Mann asserted.

Charles King, the CEO of Housing Works, said in early January that he doesn’t think the situation is that dire, and companies such as his will be able to survive as long as they stick to a solid retail business plan and tap the immense tourism market.

“I think people know that you’re paying for quality, you’re paying for the taxes and all the rest of what goes with the regulated, licensed market,” King said.

Still, there will have to be more of a focus on enforcement against illicit competition by state authorities, King said.

It’s a big undertaking, as many illicit operators already have brand recognition by offering legally produced but illegally shipped cannabis from California and Oregon, such as the famed SoCal brand Jungle Boys. That’s one brand name New York City resident Joe Lustberg, managing partner at Upwise Capital, said he ran into recently at a smoke shop.

“For some cannabis operator who’s competing with the smoke shop next door [that is] able to sell California eighths for $30 [and] that’s better weed than what they’re selling at Housing Works, it’s tough,” Lustberg said.

The tax structure also might be altered by the Legislature, because making the system more business-friendly is a top priority of industry interests in Albany, including for the Cannabis Association of New York.

“I do feel confident that the state is very much aware of the issue with the potency tax and, at the very least, open to reform,” said Brittany Carbone, a board member of CANY and a cannabis farmer upstate. “It’s been well proven that more reasonable tax structures actually result in higher rates of purchase in legal dispensaries, which results in a net positive win for the state, in terms of tax revenues.”

Even if the tax structure doesn’t change, cannabis attorney Lauren Rudick said, the THC-based potency tax will probably encourage the creation and sale of a more diverse range of cannabinoid products that don’t rely only on THC to please consumers. And that could be just what the burgeoning industry needs: more product variety.

By the Numbers:

$68

Highest price, with taxes added, for an eighth of cannabis with 27% THC sold at Housing Works

$10

Lowest price for an eight of cannabis bought on the street

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This story was written in partnership with Crain’s New York, the trusted voice of the New York business community. 

The New York state cannabis market is projected to be one of the biggest in the world, with some industry estimates forecasting sales to surpass $2 billion within just a few years. But the slow rollout and uncertain regulations—after all, the rules are still in draft form—leave many wondering if a large chunk of sales will continue going to unlicensed dealers.

On top of that, the state’s unclear timeline for when licenses will be issued and storefronts will be fully operational as well as concerns about how much consumers will be willing to spend once potency and excise taxes are baked in, among other hurdles, have given some stakeholders pause about how successful smaller players will be in the market.

“This is a very optimistic time, but the business owner in me is very stressed out every single day on how I’m actually going to make this work,” said Brittany Carbone, a board member of the Cannabis Association of New York and the CEO of Tricolla Farms, near Ithaca. “There could be thousands of millionaires rather than a few billionaires created through the New York market, and the first step is getting more people licensed.”

Cultivation licenses were the first to be issued, but they were restricted to existing hemp farmers who could convert to growing marijuana to supply product rich in THC, the chemical that provides users with the sensation of being high, when the adult-use market launched.

There’s a long way to go, however. As of early January, the New York Office of Cannabis Management had awarded 354 conditional licenses, made up of 279 growers, 39 processors and 36 retailers, on top of the 10 registered organizations, or ROs, that are allowed to sell medical cannabis.

That includes 26 new adult-use retail licenses for four of New York City’s boroughs and Long Island. (Brooklyn was one of five regions where licensing has been delayed by litigation.) Each of those licensees can open three stores.

In addition, Manhattan, Queens, the Bronx, Brooklyn and Staten Island are already home to eight medical dispensaries, including three in Brooklyn.

It’s not clear when authorities will grant more permits; 903 applications were filed for the first round of retail licenses alone last year, so timing is a major question mark.

Not only that, but the sheer price difference between the first legal retailer in New York thus far Manhattan’s — Housing Works — and the enormous number of unlicensed dealers have some fearing that many companies won’t survive.

“It is an uphill battle, but again, it’s always an uphill battle when you don’t have massive capital, no matter what industry you’re in. But when you throw in the illicit market side, it makes it even harder,” attorney Jason Klimek, a member of the New York Bar Association’s cannabis law section, said when asked how he thinks the market—which is centered on small mom-and-pop businesses—will perform.

The most immediate obstacle for many New York cannabis hopefuls is getting licensed and operational, but the timeline on that front is painfully unclear.

The state has no limit on the number of business permits it will award—in theory—but regulators have been painstakingly slow on that front, particularly for retailers. The first round, which is so far only partially completed, will award 175 retail permits, including 150 for “justice-involved” individuals and an additional 25 for nonprofits.

The longer those retailers have to wait, the closer they’ll get to the three-year deadline, at the end of 2025, when the 10 multistate operator ROs will be allowed to fully enter the recreational cannabis side of the market. For now those behemoths are relegated to wholesaling cannabis products to licensed adult-use firms.

Most industry observers agree that the 10 will likely start dominating quickly because they’ve got an edge that no other retailer will have: vertical integration, their own in-house supply chains and branded product lines.

All the other retailers are prohibited from building such infrastructure or even having their own brands—another complaint of some license hopefuls.

“That is not good, because the only way we can level the playing field is for the smaller players like myself … to be able to support each other and be able to have each others’ products. The way the regulations are set up, I don’t think we could do that,” said Vladimir Bautista, CEO of New York City–based cannabis lifestyle brand Happy Munkey, one of the contenders for a retail license.

There’s even more uncertainty about the licensing rollout because of ongoing litigation that has held up at least 18 retail licenses thus far and has the potential to delay the permitting even more.

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