For better or worse, New York continues to operate “their way” while most can see the apparent problems, illegal storefronts, and the problems behind the scenes continuing to cause internal turmoil.
After speaking with Jesse Campoamor on our podcast, The Dime, and listening to Allan and Kaelan on Rena’s podcast, Cannabis Investing, I left with more questions than answers. (P.S. Subscribe to Rena’s podcast. She’s the best in the game.)
For example, what is the goal of the adult-use market?
If we polled everyone involved, what is an adult-use market’s #1 most important goal?
Is it to give those harmed by the war on drugs a first-mover advantage?
Is it to create an on-ramp for legacy operators to the licensed market?
Is it to minimize the gray market, which is exploding across the city today?
Is it something else?
Or is it a combination of everything?
NY has taken a stark approach to be not necessarily anti-MSO, but let’s be honest. Its current position of keeping MSO out will ultimately hurt the consumer. New York will have many problems, with a massive shortage of products over the next 12-18 months being a large one. Everyone agrees we will have a shortage, and yet we aren’t taking steps to solve it.
Let’s say, even for a short period, why not let them (MSO’s) cover the supply shortage even for the near term? Does that support all the parties involved in the legal market?
New York wants to allow those harmed by the war on drugs to go first to have a first-mover advantage.
But by slowly rolling out the legal market with limited dispensaries, the gray market will continue to thrive, minimizing said advantage.
Why would your everyday consumer travel across the city to wait in line to pay for a “meh”-quality product at a way higher price rather than going into their local gray market store?
Here’s the answer: Most Won’t.
In addition to the shortage of supply, limiting licenses is an issue. Limited licenses are what angers everyone in other states. A fair, unbiased, and accurate scoring system to determine who wins and who doesn’t is beyond me. Can this exist reasonably?
One aspect of NY that I have yet to see publicized is price gauging.
With limited vendors and limited supply and demand off the charts, will NY enforce pricing caps on the cost of products to protect the initial licenses? Shouldn’t the cultivators be allowed to set the price of their product based on what the market can bear? Or are we interested in artificially dictating all aspects of the supply chain?
“But Bryan, look what’s happening in Oklahoma.”
Oklahoma has tons of cannabis operators, which has quickly saturated the market, leading to the price plummeting. Sadly, this is a business, and participation trophies will not be given out. Operating in a highly regulated market with high start-up costs is an unfortunate reality. Starting a business in any industry has the potential for failure.
Stabilization will take time but limiting early participants and not allowing current operators to partake only hurts one party in the short term: the consumer. If you want to keep MSOs out because you don’t want them to control the market, do it in a way that the consumer doesn’t suffer at the expense of such.
Here are 3 easy ways to do this:
- Disallow vertical.
- Keep them from owning multiple dispensaries.
- Open up licenses.
In the same attempt to help some, I am petrified that they have given them a false sense of reality.
Here’s Jesse’s quote which speaks to this:
“I think in the method of trying to protect some of the smaller guys, I think we might have inadvertently harmed them in the process. [——….] One of them had to sell 49% of their license to get out, to be operational.”
Operating in cannabis is extremely, extremely challenging. The current conditions will evolve as more stores open up, making these operating conditions more variable.
How you make prudent financial decisions with endless unknowns is beyond me.
How New York will determine fairly which 35 organizations deserve to go first seems nearly impossible to also avoid a massive lawsuit awaiting. New York is home to ~8.5 million people; it seems impossible that there will be no bias or self-selecting interest in being able to rank a wide range of individuals.
At the end of the day, the plan is nice in theory but littered with issues, and all of these are at the expense of the consumer.
The consumer should decide, just like the market should decide on pricing and stabilization of supply and demand.
If you have any questions or comments, I can be reached at [email protected]
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