This article has been updated to include further comment from New York’s Office of Cannabis Management.
Alex Bernabe, the chief of staff and senior policy director of the New York Office of Cannabis Management, faced tough questions from the investing community at this week’s MJ Unpacked conference at the New York Hilton.
While Bernabe started out by noting the positives in the New York market, the audience was primarily focused on the TPI, or true party of interest, rule that addresses investors with out-of-state investments.
The stated goal of TPI in the state’s proposed cannabis regulations was to protect in-state operators by keeping outside money from taking over. Many New York investors already had invested in other states with legalized cannabis. meaning they were effectively shut out of the New York market due to TPI. Some of these other investments aren’t easily unwound.
Look the Other Way
For example, Jeff Finkle of Arcview Group has a very small interest in a California and Massachusetts operation.
“I understand that I am not able to invest in a CAURD license holder because I have cultivation interests, very small minority interests out of state,” Finkle said to Bernabe. He noted he would like to invest in them but felt he couldn’t do so.
However, instead of a clear answer, Bernabe reviewed the two-tier system created by the legislation based on the existing alcohol program of mom-and-pop liquor stores.
Yet, another audience member noted, setting up a small liquor store requires a vastly different amount of money than a cannabis dispensary. Investors aren’t necessarily needed to help open a liquor store, but are needed for dispensary owners. Bernabe responded that investors that have outside investments could still participate in New York cannabis, just not at the retail level.
However, Bernabe also acknowledged that the TPI could incentivize some operators to create complex structures that would circumvent the rules. Finkle repeated his question and Bernabe conceded that the OCM would likely “look the other way” with regard to TPI and the need for capital for CAURD applicants. Finkle repeated that answer.
Aaron Ghitelman from the OCM said in a statement, “To be clear, Conditional Adult Use Retail Dispensary licensees, like all retailers, are subject to the same rules around True Parties of Interest that all New York Cannabis licensees are subject to.”
As Bernabe defended the alcohol-based structure for cannabis, he explained it originated in 1933. The audience literally groaned with the understanding that in 2023, the cannabis program was based on a decision from 90 years prior.
“If we’re looking for guidance for business and regulatory structures in 1933 to today, we’re probably not going to get there,” one audience member said. “I think it’s probably best to talk to investors today.”
He went on to tell Bernabe that New York is essentially a market that is “uninvestable,” complaining that the OCM did not understand how these companies get capitalized.
However, Bernabe continued to push back against the criticisms that the New York proposed rules will foster an uncompetitive market. He also insisted that the OCM has brought in people from the investing world to address concerns from the investing community.
The OCM’s next meeting is May 11 and at that time, the regulations will be reintroduced for final public comment.
Operators See Green
Active operators are seeing a positive trajectory, according to Bernabe. Specifically, nonprofit dispensary operated by Housing Works had a run rate of almost $500,000 a week since it opened its doors.
“We’re talking about a $20 million-plus dollar business,” Bernabe said. “The appetite for legal cannabis products in New York seems to be unlimited. They have been very well received.”
He said he couldn’t speak of other stores’ figures, but he did say that any retailer with a brand presence and some marketing appears to be doing well. He also noted that Housing Works has increased its product offering since opening.
Bernabe also suggested that more landlords monetize their relationships with dispensary owners and perhaps take some of the profits.
The OCM chief also discussed the tactic of using evictions against landlords for unlicensed operations.