Posted Dec 25 2022 at 10:53Updated Dec 26. 2022 at 10:20
Two years after the legalization of cannabis in New York State, the first 36 retailer licenses were granted to local entrepreneurs on November 20. In a few days, adults should be able to supply themselves legally for recreational use, as in several other American 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 the local authorities are trying to build is still fragile.
The fact that there has been no clearance so far may have come as a surprise to many New Yorkers, as marijuana vapors have long swirled around the streets of the capital. Liberalization has already taken place on the ground. However, the legal market will find it difficult to take off if there remain at the same time players who do not comply with any regulatory constraint, starting with a state tax of 13% on retail sales, plus excise duties indexed to the amount of THC.
The first action of the authorities after the attribution of commercial licenses was therefore to launch the hunt for illegal sellers. In their shop or their van, they have a storefront. More than 900 applicants tried to obtain a license, and some had so to speak anticipated an authorization which did not occur. According to the New York Medical Cannabis Industry Association, nearly 40% of illicit products are contaminated with lead or bacteria like salmonella.
A $1.3 billion market in New York
While labeled merchants are still struggling to apply a chain of rules, find premises and finance their stock, the priority is to suppress this illegal and dangerous trade, with revenues estimated by Cannabis Public Policy Consulting at 1.95 billion dollars in the state in 2022.
New York Mayor Eric Adams hopes that legalization in his city alone will create 19,000 to 24,000 jobs in three years, with sales of $1.3 billion next year. For the Democrats who govern the state, it is also a policy of social justice. 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-prisoners.
“Over the past 30 years, black New Yorkers have been 15 times more likely to be arrested for cannabis possession than white people. For Latinos, it’s 8 times more. Therefore, the majority of today’s licensees are people of color,” the state’s cannabis management office said Nov. 20, unveiling the first 36 nominees.
No access to bank credit
New York wants to avoid the creation of large integrated companies, from the field to the store, and prefers to hatch small family businesses. This is why 277 separate licenses were granted to farmers. They have to grow the hemp in the state and the retailers have to source from them.
However, new entrepreneurs face particular difficulties. They cannot count on bank credit to get started: as several American states prohibit cannabis, the banks would take a legal risk. The Democratic majority in Congress tried to pass a “Safe banking act” to decriminalize loans, but the swing to the right of the House in January foils its plans. Failing that, in October, President Biden symbolically erased all federal court convictions for simple possession of marijuana.
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.
