What’s Changed Two Years After Legalization?

When New York released the framework for adult-use cannabis legalization two years ago, cheers could be heard from legacy and impacted communities. It was as if Madison Square Garden was full of underground and gray-market cannabis pioneers, and a standing ovation was tearing the roof off the place. The state had bravely put restorative justice at the center of its framework in ways no other state had done.

People most harmed by the war on weed would get the first chance at licenses and enough financial support from the state to go to market. New York was determined to disrupt the oligarchies and monopolies seen in many other states dominated by multi-state operators. It appeared state regulators had learned from failed frameworks in other places and were getting solid advice from experienced advisors. Many of us have been calling on leaders in California for years to absorb the legacy market with good public policy or risk having a dual market (one legal, one underground). California didn’t listen but New York seemed to get it.

Two years later and the mood is a little different. While plenty of optimism can be found, some doubts have started to take root. A few problematic patterns have emerged. And the long-term prospects may not be as optimistic as they were a couple of years ago. The whole world is watching this brave new experiment in New York and everyone is curious about the future.

In this three-part series on the New York cannabis experiment, I interviewed a number of operators and leaders in the community to learn what they’re grappling with two years into the program: Vladimir Bautista is the CEO and co-founder of the Happy Munkey brand, an internationally-known NYC lifestyle company that is synonymous with cannabis culture. Allan Gandelman is the CEO at Farmer Group, a Cortland, New York-based company. Naiomy Guerrero is the CEO of Nube NYC, a multi-generational family-owned cannabis dispensary.

What’s the legal cannabis situation like in NY right now?

Vladimir Bautista: The rollout of the social equity licenses is taking longer than was anticipated. More importantly, the proliferation of illegal dispensary stores throughout the five boroughs is stealing money from the state, as they don’t pay any taxes nor are the products they sell tested to be safe. Consumers need to shop at the four legal stores in Manhattan and the one in Queens to make sure they get the best experiences.

Allan Gandelman: The supply chain was kicked off with people like us—farmers who’ve been growing and extracting hemp cannabis for years, many of which qualify as social equity applicants in NY under the Distressed Farmer provision of the MRTA. Recently the hard part has been the slower-than-promised rollout of the dispensaries, which is causing a bottleneck in farmers being able to get their products to market.

Naiomy Guerrero: The potential in the NY market is enormous. NYC will grow into the largest cannabis market in the world, and we have the privilege of being at the forefront of the legal industry. It’s a dream come true! NY is putting equity first in the launch of its retail market, and that’s something we haven’t seen done in other states. But, of course, the rollout has been a lot slower than we all hoped, and the state has learned a lot of hard lessons about the industry and the current capital markets.

How has the Dormitory Authority (DASNY) performed its role in securing locations and building out loans for both CUARD and other equity licensees?

Bautista: DASNY, the state agency that was supposed to provide funding and help with rents, has not been successful in raising the $200 million that the governor proposed, leaving a lot of CUARD licensees struggling to find and afford a location to open their business. It definitely hasn’t delivered on its promise.

Gandelman: In theory, the role of DASNY is a good one because the idea was to have turnkey stores that would be available immediately as of December 2022, which didn’t go according to plan. The private equity fund that DASNY enlisted to raise the $150 million to fund the stores has failed and raised no money to build the stores for the CAURD program. At the same time, some of the CAURD applicants want to bring their own store and fund it themselves but DASNY/The Fund does not want to compete in the same locations so they have created “no-fly zones” for self-funded CAURD stores. This is currently causing some issues in securing a store in some of the most prime real estate in the state.

Guerrero: Again, things have been slower than everyone hoped. We were one of the first CAURD licensees in NYC and are still waiting on our location from the state, but we’re optimistic about their ability to pull all this off. And the concept is great in our opinion. It helps us avoid having to settle for predatory deals which are rampant in the industry. So many potential investors and partners in the industry start off the conversation asking for half of your business, or as much of your business as is legally possible. No discussion about the value of the company compared to the value or amount of capital they’d bring. It’s just 49 percent/51 percent, right off the bat. But if we really want to center equity, then we have to address the capital needs of equity licensees and prevent predatory investors from taking over equity licenses. The state is attempting to do that through DASNY, but the capital markets are tough and they’ve had a hard time securing locations.

What is the status of the legal, licensed supply chain today?

Bautista: One of the things that the state has done correctly was make sure there was enough product to keep the shelves stocked in all the legal dispensaries. Legal dispensaries—like Union Square Travel Agency: A Cannabis Store—are currently carrying more than 250 SKUs of New York cannabis products with a list a mile long of others looking to sell their products there.

Gandelman: The legal supply chain is very robust with 290 growers, 40 processors, 70 brands currently on the market, and 50 more brands ready to hit the shelves. There are some great outdoor flower, vapes, concentrates and edibles to choose from. The only thing currently missing from the supply chain is indoor flower, which we hope to see soon now that the state has allowed growers to put lights up in their greenhouses.

Guerrero: Wholesalers in NY are definitely in a pinch right now. There are not enough retail stores so there’s an oversupply of cannabis. The delay in store openings has had really challenging ripple effects throughout the supply chain. It seems like the only solution is to get more stores open before it’s too late.

Where do you see the program two years from now? Best and worst case?

Bautista: Two years from now, I expect to see more of the CUARD licensees open for business and successful, and these illegal pop-ups a thing of the past. Personally, I hope Happy Munkey will have stores in Manhattan and Brooklyn. My partner, Ramon Reyes, and I filed separate applications as we both qualified under CUARD and we can be larger than any MSO. NY’s approach will make it not only the epicenter of the global cannabis industry the way it is for the financial world, it will be the poster child for giving those most impacted by the failed war on drugs an equal opportunity to create successful businesses and generational wealth that have previously been unattainable for them.

Gandelman: The best-case scenario in two years would be that all 300 CAURD stores are open and there are 1000s of small and medium-sized businesses in every part of the supply chain owned by real New Yorkers working together to create a robust and sustainable market. Worst-case scenario is that the CAURD stores don’t get the help they need and the market becomes consolidated by MSOs.

Guerrero: Hopefully two years from now all the CAURD stores are up and running and doing well. We just really want to see a healthy and prosperous legal cannabis market, and we have a lot of work to do to get there. We’re certainly not there now, but I think we can get there in two years.