Interested Parties in New York MMJ Market Face Significant Barriers to Entry

On July 7 New York Governor Andrew Cuomo signed the Compassionate Care Act into law; making the state the 23rd to allow marijuana for therapeutic use.

Cuomo has called the state’s approach, which bans smoking of the plant, “the smartest” of any state. The legislation allows for the drug to be ingested via edibles and oil vaporization.

The state’s plan leaves many of the details to the commissioner of the Department of Health and the language of the law offers many specifics about how the nascent industry will be run. The industry is expected to be up and running in 18 months.

The state will permit five companies to open four dispensaries each throughout the state with each location required to be backed by a $2 million bond. The measure also imposes a 7 percent excise tax on every sale.

Certainly the bigger industry players – such as Gaia, who testified during a hearing on the proposal – won’t have trouble coming up with the $10 million bond requirements for five location, the lawyers to help guide them through the rules, and the management team to get them started in the state. However, navigating the unchartered waters in New York might be a tough task for companies and individuals who are looking to get into the market.

Jason Pinsky, THCEO of Cannastract and a Brooklyn, New York native likens the medical marijuana industry to the early days of the technology industry – where his entrepreneurial career started. He says the early tech companies were born in garages; with their founders using their own funds to start the companies and that many of the pioneering medical marijuana companies were started in a similar fashion. He explains, though, that the industry has already changed and that increased regulations in states who have recently adopted medical marijuana are making it harder for individuals and startups to enter the market.

“The money required by [New York] is on a different scale than it has been historically,” Pinsky said. “It’s going to be an interesting climate as far as raising capital … It’s going to be a lot harder to demonstrate that you’ve got what it takes to pull $10 million plus in funding together in what will be a $100 million company to start.”

The law itself has a variety of hurdles that potential business owners will have to overcome, according to Pinksy. He says that because the law allows the program to be shut down by either the Department of Health or the superintendent of the State Police, many investors will be wary of investing into New York “cannabusinesses” because if the program is squashed they will not see a return on the investment. Pinky suggests that parties interested in becoming a manufacturer in New York partner with an established company – likely from Colorado – because they have the most experience navigating the business and understand the supply and demand issues that will surely plague the early days of the industry.

“You have to have a lot of things in place,” Pinksy said. “You have to have lab testing agreements in place; you have to have a labor peace agreement in place.”

Potential cannabusiness owners in the state will also have to be prepared to shell out more than just the money related to the production of the plants. If the bill stays an oil and edibles only measure – which is likely – business owners will also have to buy equipment for turning their raw plants into a product legal under the rules.


Photo Credit: Eva Abreu

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