HURDLES

“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.

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

e 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. e rst round, which is so far only partially completed, will award 175 retail permits, including 150 for “justice-involved” individuals and an additional 25 for nonpro ts.

e 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 rms.

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 support each other and be able to have each others’ products. e 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. ere’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.

Other obstacles

e New York cannabis law has additional hurdles baked into it, such as the THC-based potency tax and the 13% excise tax, which some observers say could undermine the entire legal market because gray market cannabis is far cheaper. at’s just one legislative priority that CANY is dedicated to changing during the upcoming legislative session in Albany.

“ e illicit market has always had cheaper cannabis. e people who really go to dispensaries are tourists, super-wealthy people and people who just don’t know better,” Joe Lustberg, managing partner at Upwise Capital, said.

Hopeful retailers are also faced with a tougher fundraising landscape, because in November the OCM issued draft rules that prevent companies from selling equity stakes to anyone who owns a piece of any cannabis company anywhere in the world.

ough the rule is meant to keep larger companies from taking over smaller businesses, some industry insiders say it may become an Achilles heel for small startups, because capital requirement estimates range from several hundred thousand dollars to $1.5 million.

“A lot of companies face this Catch-22. You need to have your supply chain in order to attract investors, but you need money to develop your supply chain. And it’s the same with licensing and investment,” said attorney Lauren Rudick.

BY THE NUMBERS 13%

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.

“ at is not good, because the only way we can level the playing eld is for the smaller players like myself … to be able to at plan, however, has gone sideways. After DASNY failed to secure locations quickly for the 36 retailers who won licenses in November, the OCM pivoted in December and told licensees they would be allowed to nd their own retail storefronts. e pivot could pit licensees against DASNY, because under state law, retail cannabis shops cannot be located within 1,000 feet of one another.

One of the biggest capital hurdles is real estate, said David Feder, an attorney with Weed Law. at’s because originally the OCM required retail applicants to go through the Dormitory Authority of the State of New York, which is in charge of a special multimillion-dollar fund dedicated to prepping retail sites on behalf of the rst 150 retailers.

“So now there’s a major race to put your ag down,” Feder said. “ e main question in play is, will it happen fast enough so that these licensees are not boxed out from otherwise ideal locations?” ere are still a host of unanswered questions about how the legal cannabis market will even work, seeing as regulators have authorized marijuana delivery but haven’t given clear guidelines on how it’ll be governed. ere are also questions about enforcement against unlicensed sellers, rules for consumption lounges and plenty more.

Stakeholders still bullish

Despite the myriad reasons for pessimism in New York, many insist that cannabis companies in the Empire State are poised to do well.

“I am very optimistic about this market,” said Happy Munkey’s Bautista. “It’s far from perfect, but the reality is, it’s the rst state I’ve seen that lets smaller players like myself get a rst-mover advantage.”

Lustberg echoed that and said he believes the New York market will be a booming success, as long as regulators carefully limit the number of permits—retail or otherwise—that are issued.

“I see the [New Jersey] dispensaries doing millions of dollars a month—out the gate doing $1.5 million a month in really good locations, seeing upwards of 500 to 2,500 customers a week,” Lustberg said. “ e fact that it’s happening in Hackensack, New Jersey, makes me think that a