New York is often considered a likely major player in the US cannabis market.
While reasonable, the state’s immense unlicensed consumption habits have some wondering if it will face problems as California has. If so, what might happen to New York’s licensed operators, including social equity license holders, a priority component of the state’s Marijuana Regulation and Taxation Act.
With New York not fully rolling out its regulations, sources across the sector feel it’s too early to predict how the state will contend with the unlicensed market. Most appear optimistic that the state will become a significant player but caution that several factors could alter the outcome.
Illicit Market Value
As New York waits for final regulations, the unlicensed market continues to perform, likely earning one to several billion in untaxed sales yearly. Juliana Whitney, CEO, and founder of Cann Strategy estimates illicit market sales to be between $1.5 and $2 billion annually.
“New York has a strong legacy market, and it will remain that way, even with the existence of licensed dispensaries,” she predicts.
Andrew Livingston, director of economics and research at Vicente Sederberg LLP, estimated the illegal market’s value at around $1.8 billion. Livingston believes the licensed market would benefit by focusing on tourist consumers while many residents remain illicit market buyers. He also recommends that the state avoid overregulating and focus on market accessibility and bringing legacy buyers to the licensed market.
“It is all about enticing consumers, many of which who are accustomed to bike messengers meeting them at their apartment or outside their building,” he said.
Some see the illicit market earning much more per year. There are some that estimate New York’s illegal sales totaled $5.1 billion in 2022. However, this figure can’t be verified. Curaleaf (OTC: CURLF) CEO Matt Darin said, “That’s a significant amount of money that could be taxed and go towards community reinvestment and public education.”
Cost, Access, and Supply All Critical
A strong legacy market and unfinished regulations are just two of the substantial remaining hurdles that cloud market outlooks. Early-stage access was critical for numerous sources, indicating that the market must avoid shortages during the launch period. In previous years, countries like Canada and Germany have faced product shortages. Domestically, Nevada, Washington state and Illinois are all significant markets to experience such an issue.
Vicente Sederberg’s Livingston said New York would have to compete with illicit access points, including park tables and food trucks. “The city will need to find a way to make cannabis more appealing to access via regulated storefronts or delivery services than it currently is,” he said.
Curaleaf’s Darin said getting to market is critical. He feels a sooner-than-later market launch would help compete with the illicit market, maximize job growth, generate revenue and seed social equity programs. He feels that the state should include craft and small farmers and existing medical operators like Curaleaf to combat supply concerns.
“Existing operators in the state have the infrastructure and resources to help launch adult-use quickly and ensure that there is ample supply of product to serve both the adult-use and medical use markets,” he said.
Jeremy Unruh, senior vice president of public and regulatory affairs for PharmaCann of New York, offered a similar opinion. He also feels that allowing existing medical players like, PharmaCann, would bring the market online sooner. “The question is whether the [CCB] will capture the lion’s share of that megamarket, or allow illicit operators to continue to dominate and proliferate in New York State,” he said.
Unruh claimed his company’s analysis found that using existing infrastructure could result in $1 billion in additional tax revenue and 10,000 more full-time jobs over the first five years.
Even if the market launches soon, results may take time to reach their full potential. “Regardless of preparation, it usually takes new markets a bit of time to stabilize the supply,” said Cann Strategy’s Whitney. She also warned that the legal market would have initial training and pricing hurdles for customers and dispensaries.
“Not many New York job candidates will have preexisting experience working in licensed cannabis business and therefore will all require adequate and accurate training,” she said.
Whitney feels employees will need to work on providing confident customer service while working within a strict regulatory space, unlike most other retail sectors.
She said that sticker shock will always impact legacy market buyers when first buying licensed products. However, Whitney expects “many will move away from the legacy market just because the new purchasing experience fits more into their usual lifestyle,” which includes a demand for convenience and lab-tested products.