After New York marijuana regulators greenlit six of the state’s medical cannabis companies to expand into adult-use retail last week, local cultivators are viewing their entry with a mix of trepidation at increased competition and eagerness for possible opportunities.
In CCB’s draft regulations, New York’s 11 medical cannabis companies (Registered Organizations) would have had to wait until 2025 to open adult-use retail shops, but the final regulations allowed them to expand into adult-use starting Dec. 29, 2023, worrying some farmers about impending competition.
Since before a single legal New York dispensary opened its doors, local growers holding Adult-Use Conditional Cultivator (AUCC) licenses have worried over these large vertically integrated businesses competing with their smaller, less established companies.
But as this reality is coming to fruition faster than most expected, some cultivators see lucrative partnership opportunities alongside increased competitive pressures.
“I’m not against it,” said Jeremy Jimenez, CEO of Central New York AUCC company Honest Pharm CO. “As far as the MSOs coming into town and opening up; it’s going to happen regardless … it’s just more shelf space for me, and it gets my brand out there.”
That’s because the regulations, which the CCB finalized in September, also require the ROs to dedicate 50% of their shelf space to non-RO brands.
“These are the trading opportunities that New York State expects,” said Jeremy Unruh, the senior vice president of public and regulatory affairs at PharmaCann.
“On the retail side … the business opportunity is with adult-use cultivators and adult-use processors to put non-MSO products on the shelves of the Registered Organizations,” Unruh said.
At least one RO officially entered New York’s adult-use wholesale market last week, when CAURD licensee MJ Dispensary in Rochester began carrying Curaleaf’s vapes, edibles and flower products under the company’s Select and Grassroots brands.
In an email to NY Cannabis Insider, an OCM spokesperson Aaron Ghitelman pointed out that adding more retailers to the market via ROs expanding into adult-use will likely add retail opportunities for many growers and processors.
“Currently New York has over 200 different brands currently sold across the State,” Ghitelman said. “In addition to being able to wholesale to the adult use market, five [ROs] have indicated they will want to begin co-located medical and adult use sales in their first retail location.”
Lack of retail space has long plagued licensed cultivators in New York, and many have clamored for more retail opportunity. But some have expressed fear that ROs might technically meet shelf space requirements, but use tactics to promote their own products while downplaying other companies’ brands.
At a marathon state Senate hearing in late October, Sen. Gustavo Rivera asked regulators about concerns he’s heard from weed industry constituents that ROs might place their own products prominently on menus, while making small business brands hard to find. Stakeholders in the industry echoed this concern during the hearing.
Joann Kudrewicz, chair of the Cannabis Association of New York’s Cultivation Committee and CEO of cultivation company Ravens View Genetics, said that more available shelf space will probably benefit some growers. But she’s skeptical that ROs will be content to dedicate much of their space to other companies’ products for very long.
“They just won a lawsuit against the state, and who’s to say that … at some point they’re not going to push to get that down to 20 percent?” Kudrewicz asked.
But some of these concerns seem unfounded, according to Unruh. While he can’t speak to how other ROs handle their retail operations, Unruh said Pharmacann dispensaries track success based on the amount of inventory they sell, regardless if that inventory was produced by the company’s cultivation operations.
“At our dispensaries, the only thing they care about is turns of inventory, so the more turns of that inventory we do per month, the better it is for business,” Unruh said. “At our retail locations [we’re] a middle man, and it’s the consumer that decides which brands are successful.”
Jimenez, whose products are currently in about 10 dispensaries, said he was recently approached by an RO interested in carrying his products, and he’s interested in the deal. Even if the company uses tactics like selling their own products for less than his, the brand exposure will be net-positive, he said.
Honest Pharm has also seen benefits in entering into white labeling agreements. The company currently makes products sold under the Jam Master Jays cannabis brand, and Jimenez is open to more of these contracts.
But while Jimenez isn’t too worried about larger companies’ retail operations coming online sooner than expected, he is concerned by pre-existing issues in the regulations, which limit the amount of canopy and lights his company can use, while allowing large indoor growing operations for ROs.
Honest Pharm has 450,000 square feet of greenhouse space, but may only use 25,000 square feet of that due to restrictions for AUCC licensees. In addition to the canopy restrictions, he is limited to 20 grow lights and cannot grow indoors. The rules make it more difficult to grow products of consistent quality because he can’t control the environment to the same extent, Jimenez said.
“We just need to be able to level out the playing field, and make it fair for everybody, and not be tied down on lighting and square footage,” Jimenez said. “With the ROs coming in with indoor [products], it’s going to be a setback if New York State doesn’t allow me to grow indoors.”
Kudrewicz, who has previously criticized the disparity between RO and AUCC canopy restrictions, said CANY will be pushing to increase the amount of space and lighting that non-RO cultivators may use.
And while Kudrewicz doubts that shelf space at RO dispensaries or white labeling agreements will be a panacea for struggling local growers, she does think these companies entering the market could at least marginally help some of them.
“Listen, it’s cashflow, it’s revenue … it’s the opportunity to get some revenue in, and to move some of the product that hasn’t been able to move,” Kudrewicz said.