Medical marijuana rms left warming the bench

BY ADAM JACKSON, GREEN MARKET REPORT

When New York gave the sale and use of medical marijuana the green light, o cially permitting it in 2014, the rms that vied for a spot as one of the state’s 10 vertically licensed operators envisioned the true golden ticket to be early entry into the eventual recreational cannabis retail market.

at expectation was ampli ed when the state passed the Marijuana Regulation and Taxation Act in 2021. Investment dollars poured in, and medical licenses traded at high valuations on the secondary market, bolstered by the idea that those who bought in early would be able to capitalize on both adult-use and medical retail sales, cultivation and manufacturing.

However, under draft regulations released in November, those companies will have to wait at least three years from the o cial launch date of adult-use sales just to apply for a recreational retail permit. Final rules have yet to be published.

“ ey were hit with a bait and switch by the state regulators,” said Tom Adams, principal analyst and CEO of Global Go. “You know, ‘Come to our state and help apply your expertise and your capital to building out this incredibly limited medical-only market that you’re clearly not going to make any money at anywhere in New York.’ ” e proposed rules, however, also established a two-tier system that prohibits growers and manufacturers from participating on the retail side—and vice versa. at means those same players who helped establish the medical cannabis industry “got sort of the back of the hand from regulators” and now must accept that they cannot implement the business models they’ve used in other states, Adams said. ose who invested in medical operations in New York early on expected, if not “the rst bite at the apple ... at least a rst bite at the same time as the other licensees for some of these retail adult-use licenses,” said Brandon Kurtzman, a partner at cannabis law rm Vicente Sederberg.

So the multistate operators came.

Both Adams and Kurtzman said the pivot now is to develop product brands through the cultivation and manufacturing side to sell to retailers and social consumption lounges.

Boxed in e $138.9 million write-down Torontobased RIV Capital took after its acquisition of New York’s Etain, one of the 10 local medical cannabis license holders, illustrates the conundrum. RIV Capital agreed to pay $212 million in cash and $35 million in stock for the small, women-led medical cannabis company. e price paid for Etain was so troubling to RIV Capital’s largest shareholder, JW Asset Management, that the rm asked for a special meeting of shareholders to replace ve of the seven directors on RIV’s board.

But instead of being able to capitalize on its existing business structure, Etain has been forced into a single channel. With heavy investment already sunk into cultivation, the company appears to be boxed into being a grower—the less lucrative side of the cannabis business.

In New York, Adams said, having a brand on store shelves “is probably more valuable than anything else” an operator can do, as there is not much real brand dominance yet among the plethora of cannabis companies out there.

Despite the rms seemingly being last in line, nothing is completely set in stone.

“It’ll be very interesting to see what happens with these draft regulations, see what the comments look like and if there’s going to be any compromise between what they put out [and] what [medical operators] are looking for in this market,” Kurtzman noted.

“ e goal here is to provide access to consumers,” he added. “I think you do that by allowing new licensees but also allowing the existing licensees to participate, because that’s more or less what you told them they were going to be able to do in the law.” ■