Posted December 25, 2022 at 10:53am
Two years after cannabis was legalized in New York State, the first 36 retail licenses were granted to local business owners on Nov. 20. In a few days, adults should be able to legally refuel for recreational use, as in several other US states. New York could become the second largest legal cannabis market in the world with its 20 million inhabitants, behind California. But the economic model that local authorities are trying to build is still fragile.
The fact that there hasn’t been any clearance so far may have come as a surprise to many New Yorkers, given that marijuana vapors have long swirled through the streets of the capital. Liberalization has already happened on the ground. However, the legal market will struggle to take off if players who do not comply with any regulatory constraints remain at the same time, starting with a 13% state tax on retail sales, plus excise duties indexed to the amount of THC.
The first action of the authorities after the attribution of the commercial licenses was therefore to launch the hunt for abusive sellers. In their shop or in their van, they have a storefront. More than 900 applicants have tried to obtain a licence, and some had so to speak anticipated an authorization which did not materialize. According to the New York Medical Cannabis Industry Association, nearly 40% of illicit products are contaminated with lead or bacteria such as Salmonella.
A $1.3 billion market in New York
While labeled traders are still struggling to enforce a chain of rules, find premises and finance their own actions, the priority is to suppress this illegal and dangerous trade, with revenue estimated by Cannabis Public Policy Consulting at $1.95 billion in the state in 2022.
New York Mayor Eric Adams hopes legalization in his city alone will create 19,000 to 24,000 jobs over three years, with revenues of $1.3 billion next year. For the Democrats who run the state, it’s also a social justice policy. The 175 licenses will all be awarded to people convicted of cannabis use or trafficking, their relatives or associations that support the reintegration of ex-convicts.
“Over the past 30 years, black New Yorkers have been 15 times more likely to be arrested for cannabis possession than whites. For Latinos, it’s 8 times more. Therefore, most of today’s licensees are people of color,” the state’s cannabis administration office said on Nov. 20, unveiling the top 36 applicants.
No access to bank credit
New York wants to avoid the creation of large integrated companies, from the field to the shop, and prefers to nurture small family businesses. This is why 277 separate licenses have been granted to farmers. They have to grow the hemp in the state and the dealers have to source from them.
However, new entrepreneurs face particular challenges. They can’t rely on bank credit to get them started: as several US states ban cannabis, banks would be taking on a legal risk. The Democratic majority in Congress has been trying to pass a “Safe Banking Act” to decriminalize lending, but the House’s shift to the right in January thwarts its plans. If not, in October, President Biden symbolically expunged all federal court convictions for simple marijuana possession.
The success of the New York experiment now depends on the agility of entrepreneurs, but also on that of the state, which has promised to finance the installation of “recreational dispensaries” and is slow to keep its promise. The more time passes, the more difficult it will become to compete with the black market.
