RegTalk: The Future Of New York City's Cannabis Market

New Yorkers might believe that legalizing cannabis sales will not impact their daily lives. More often than not the smell of cannabis is on every street in New York City. And over the last year, tacky green vans emerged that seemingly offer cannabis products for sale — but no one knows for sure! 

New York City is a huge market. The Marijuana Regulation and Taxation Act (A01617 / S01527) introduced in 2019 estimated that there are roughly 1.5 million regular marijuana users in New York with half living in New York City. The state estimates that the market for marijuana in New York is $3.1 billion. Tax revenues outside of the city are expected to be around $436 million in with an additional $336 million in tax revenue that will be generated in New York City.

So what will the commercial market look like in New York City?

New York City supported the effort to legalize adult-use cannabis in 2019. As a part of this process, the city adopted a series of resolutions that asked the state to promote small businesses and social equity. A review of these resolutions provides us with a preview of how the New York City market will be structured.

See Also: New Mexico Medical Marijuana: Upcoming Rulemaking Meeting Sets The Stage For Adult-Use Legalization

The resolutions passed by the New York City Council on March 28, 2019 requests that the state’s legislature include provisions that:

• Promote small businesses by prohibiting vertical integration. The resolution notes that other states adopted regulations that would prevent the industry from being “dominated by politically and financially powerful businesses.”
• Prioritize the allocation of retail licenses to people with prior marijuana convictions and to require cannabis businesses to hire such persons.
• Reinvest tax revenues from legal cannabis sales into communities where people of color suffered from the enforcement of cannabis prohibition and promote their participation in the industry.

New York City’s focus on small business ownership may mean that it could model the retail cannabis market using the liquor store regulations. The regulations limit a business to only one license. Liquor stores also may not sell beer, which can be sold across the city in delis and supermarkets.

A challenge that the city will face when implementing this small business regime is the commercial real estate prices. Cities across legal cannabis markets are seeing a significant increase in rent and property prices in the limited areas where retail cannabis businesses can be located. Real estate acquisition and build-out costs can be prohibitively expensive for social equity participants. We expect this to be even a bigger problem in New York City.

New York City may be forced to walk back from its dislike of well-funded industry players. Social equity participants will need capital to get through the lengthy approval process and to afford the steep cost of real estate. Right now, capital is hard to find.

New York City could look at social equity proposals that are being implemented in California that require ownership structures to provide the social equity participant with a 51% equity ownership structure. The social equity participants receive capital and help in setting up a successful business. Either way, this problem must be solved as a part of the implementation process.

Let’s just hope that the city’s regulations get rid of the tacky green weed vans.

Susan Ameel is a co-founder and partner at Global Regulatory Risk Advisors, which offers a cannabis service, THC Regs.

Photo by Javier Hasse.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.