Cantor: Speedy Marijuana Reform In New York May Crush New Jersey's Market Potential

A final deal for a bill to legalize recreational marijuana in the state of New York could be closed imminently.

The effects of this decision could greatly affect the fate of a number of large and medium-sized multi-state operators, or MSOs, within the Empire State and New Jersey.

A major variable is whether New York legalizes and regulates recreational sales before New Jersey can launch its adult-use program, which was green-lit by voters during the last presidential election.

Cuomo Pushing Through: New York Governor Andrew Cuomo has advocated for the legalization of adult-use cannabis for much of his time in office. He referred to this issue in a briefing held on Monday, noting that marijuana reform is one of the pieces of legislation that need to be completed this year.

“There have been too many young lives that have been ruined because of marijuana laws,” he said.

A public poll released on Wednesday revealed that 61% of New Yorkers support the legalization of adult-use recreational marijuana sales, although more than half of those living in New York City said they’re opposed to sales happening in their neighborhood.

Cuomo included the cannabis reform proposal in his budget request earlier this year. While the request was denied by the Senate, talks are being held to close on a new deal that will result in a legalization bill, which is expected to move to a vote from both houses next week.

Beating New Jersey To The Punch: According to Cantor Fitzgerald analyst Pablo Zuanic, a number of factors are in place for a deal to be reached by the New York executive and legislative branches before April. Closing on a deal would speed up the regulatory process once a bill is passed. This could put New York sales in place before New Jersey can issue the necessary regulation for sales to begin.

Since New Jersey legalized through a public vote, the regulatory process is slower, as stakeholders must agree on how the legal market is deployed.

Zuanic says that “the assumption remains that NJ will start rec sales by late 2021 or early 2022,” based on a series of statements from Governor Phil Murphy and Dianna Houenou, chair of the New Jersey Cannabis Regulatory Commission.

Effects On Cannabis Stocks: New York legalizing before New Jersey could mean a positive impulse for companies with operations in NY and not in NJ, most notably Cresco Labs CRLBF.

Those in the opposite position, with only New Jersey operations (like Ayr Wellness AYRWF, TerrAscend TRSSF and Verano) would experience a negative outcome, as an important part of growth projections for the New Jersey cannabis industry are based on out-of-state shoppers coming in from New York.

Companies with operations in both states would still experience a positive catalyst, says Zuanic, though to a lower extent than Cresco. These include Acreage ACRDF, Columbia Care CCHWF, Curaleaf CURLF, and Green Thumb industries GTBIF.

It is unclear whether the deal being discussed by the New York authorities would benefit existing medical license holders in the fight for an adult-use license.

Massive Growth Potential: Taking the case of adult-use legalization in Colorado as a roadmap, Zuanic estimates the growth of both markets in a four-year time frame.

Recreational sales began in the mountain state in 2014, with average yearly spending of around $270 per capita in either recreational or medical cannabis, rising to $376 in 2020.

These numbers would put the New York market at $5.3 billion by 2025, doubling New Jersey’s potential to reach $2.4 billion that same year.

Photo by Jonathan Riley on Unsplash