At $ 1 billion expected in its first year, New York’s legal cannabis market is synonymous with business
Despite being 1000 miles from new York on a business trip to Tampa, Claire Moloney could hardly contain her enthusiasm for the news that struck last Wednesday: Governor Andrew Cuomo on March 31 signed a bill that legalized recreational marijuana use – making New York the 15th state in the country to do so.
“We knew New York was only a matter of time,” says Moloney, East Coast regional director of New York-based cannabis wholesale startup LeafLink. “It’s so exciting for us that that day is finally here.”
The new law, the Marihuana Regulation and Taxation Act, provides a framework for a state-wide adult-use industry that could quickly become one of the world’s largest – an exciting prospect for legions of companies poised to expand their businesses in the state. Retail sales could begin as early as spring 2022.
Moloney, for his part, plans to partner with cannabis companies in other states, helping them enter the New York market while expanding the size of LeafLink’s wholesale network. “There will be a lot of really exciting entrepreneurial energy in New York from day one,” she says. “You can smell it already. There are already a lot of emails coming and going about who is trying to get a license. [or] want to partner together. “
The first year of legal market sales could generate at least $ 1 billion in sales, the two say published studies and internal projections of cannabis companies, with the potential to reach $ 4 billion by the end of the decade. Legalization is also expected to support tens of thousands of jobs, as well as a significant new tax revenue stream for the state, which is a particularly welcome development for the region’s economic recovery after Covid. The Cuomo administration estimates it collects at least $ 300 million in cannabis sales taxes per year.
Notably, the bill’s “social equity” clause creates significant opportunities for small business owners and future founders. He recommends that 50% of cannabis licenses – which will be awarded by a soon-to-be formed Cannabis Control Board and Cannabis Management Board – will go to minority or women-owned businesses, struggling farmers or to disabled veterans. . The clause aims to support entrepreneurs in communities historically targeted by state and federal drug laws. Functionally, this could prevent the big cannabis companies from immediately taking too much market share – possibly by helping local mom-pop stores compete with the behemoths.
Yet major questions remain around access to capital, the timing of the maturation of the new industry, and the viability of state support for small businesses over time. The answers will be crucial for any entrepreneur wishing to join the fray.
The big capital question.
The main challenge for every startup founder is access to capital. In the cannabis industry, this challenge is compounded: As cannabis remains illegal at the federal level, federally insured banks and credit unions cannot grant loans to cannabis companies.
The need for capital is driving some startups to turn to venture capital financing, or they may be looking for a buyer or going public in Canada. This fundraising path reinforces a familiar consequence to many under-represented founders, says Hillary Peckham, co-founder and COO of Brewster, the New York-based medical cannabis start-up Etain: White male VCs have tendency to fund businesses run by other white males.
This obstacle could soon be alleviated by the social equity clause of the law. “As a result of the War on Drugs, entire communities have been stripped of generational wealth,” says Morgan Fox, spokesperson for the National Cannabis Industry Association, based in Washington, DC. “There are a lot, a lot of people out there who don’t have access to angel investors, financial networks or venture capitalists.”
New York law advises its new Office of Cannabis Management to establish state-guaranteed loans at low interest rates for cannabis companies. The details of this program are not yet clear, and the success will likely be judged by the number of startups that remained active a few years after entering the market: many cannabis startups are acquired after the founders suffered acute financial pain. of their first fiscal seasons, Peckham notes. .
“It’s really hard to make money in this industry, let alone break even,” she said.
Supply and demand.
For existing cannabis companies in New York City, the new law presents both an opportunity and a challenge: if they want to keep their medical licenses, they will only be able to sell adult-use products at three retail outlets.
Curaleaf is the world’s largest cannabis company by annual revenue, making a record $ 626.6 million last year selling medical and adult cannabis in 23 states. It will offer inventory for adult use in up to three stores, said Northeast Regional President Patrik Jonsson, while joining the wholesale market to sell products in stores owned by other retailers.
“We might only have eight stores in New York, but there will be 800 stores in New York and only 20 or 30 producers,” Jonsson says. “The ultimate goal is to have Curaleaf and our other brands available in most of these stores.”
For now, those numbers are fuzzy estimates, given the unclear timing of the New York market launch to the public and the uncertainty over how many cannabis licenses New York will issue. Jonsson predicts that consumers will be able to start buying in the second quarter of 2022. Peckham d’Etain says 2023 is much more likely because the product takes time to develop – and you can’t rush nature.
Whatever the timetable, they all agree: once the New York market hits, demand will far exceed supply for years to come. “This is Prohibition 2.0,” says Ben Kovler, founder and CEO of Chicago-based Green Thumb Industries, referring to the thousands of people who flocked to Times Square to celebrate the end of alcohol prohibition in 1933. “History rhymes. The same is happening. to reproduce. “