New York Jumpstarts Legal Weed Sales Via Delivery Despite GOP Opposition, Experts Warn About High Prices

New York's illegal market for recreational marijuana is thriving, even though the much-anticipated launch of legal sales is just around the corner.

The state's cannabis delivery services received guidance last week and are poised to kick off operations, even ahead of the launch of first sales in storefronts, reported Marijuana Moment.

Under the guidelines, licensees whose storefronts are built by the Dormitory Authority of the State of New York (DASNY) will be permitted to conduct deliveries out of a warehouse location to adults 21 and older. Moreover, consumers can only place prepaid orders by phone or online.

"CAURD Licensees will be able to receive approval from the Office of Cannabis Management to begin delivery to customers, jumpstarting sales of New York cannabis products with a model that will help them compete while providing options to licensee-entrepreneurs as they build new adult-use cannabis businesses," said New York's Office of Cannabis Management (OCM).

The move follows OCM's issuance of the "Guidance for Adult-Use Dispensaries," a series of regulations for Conditional Adult-Use Retails Dispensary (CAURD) licensees and applicants in October.

GOP Opposition Still Strong

While Cantor Fitzgerald's Pablo Zuanic is of the opinion that the delivery will kick off later this month and the first shops to open their doors in the first quarter of 2023, many state and city officials are still firmly against it.

"I'm not in favor of the legalization of marijuana at all," NYC council member Vickie Paladino said in an interview on CBS New York. She added that marijuana cannot be compared to alcohol.

"If you're driving and you're intoxicated, a police officer pulls you over… then you get certain tests done on the spot and you're either taken in or your car is taken away," Paladino said Sunday on "The Point with Marcia Kramer."

What's The Role Of MSOs?

Either way, New York regulators greenlighted the first 36 for conditional adult-use retail dispensary licenses in November. Meanwhile, multi-state cannabis operators (MSOs) already selling medical marijuana in New York expressed concerns earlier this year that in order to sell cannabis outside of a medical program, they would need to pay a fee of $20 million. To that end, some operators, like Ascend Wellness Holdings, Inc. AAWH AAWH, have already ditched plans to buy New York operations.

However, Zuanic said on Monday that MSOs will now be required to pay a lower initiation fee.

"According to our panelists, the MSO will need to pay a $5 million one-time initiation fee," the analyst said following a recently hosted key opinion leader call on New York's recreational marijuana market. "A separate fee will be revenue based, taking a fee of 2% on gross revenues. Fees will also include an additional fee for bulk dispensing of $3 million per collocated dispensary and might include a couple of other licensing fees."

Currently, MSOs are not allowed to supply the recreational market using their medical capacity or to boost it. They are obliged to wait at least three years to enter the recreational market in New York.

"Sooner or later, we think the state will either accelerate the number of licenses awarded (this creates a risk of oversupply) and/or open the door to the current medical operators (mostly owned by MSOs)," Zuanic said.

High Prices Might Lead To A 'Disaster'

Another element to be factored in the calculation is the product's price, according to a new paper authored by a pair of tax attorneys.

The paper, first reported by Green Market Report, revealed that prices of legal adult-use marijuana would likely be at least twice as much as cannabis currently sold by unlicensed dealers and smoke shops.

According to a white paper, New Yorkers would have to pay $75.53 for a legal eighth of cannabis flower with 30% THC. Moreover, the tax burden that comes hand-in-hand with a legal market would affect small-scale operators the most.

"It just creates a scenario where small businesses, women- and minority-owned businesses, really struggle to compete," said Jason Klimek, a tax lawyer and one of the two authors of the paper. Klimek chairs the tax committee for the New York State Bar Association's cannabis law section. "This will lead to a consolidation in the industry, either through acquisition or the failure of small companies to compete and outlast larger operators."

James Mann, the paper's other author, warned about the shortcomings of the California market, comparing it to the looming crisis on New York's horizon.

"It's going to be a disaster," Mann said, referring to the fact that the illicit cannabis market would continue to thrive and grow because consumers seem to be leaning toward buying less expensive products to counteract inflation.

"I see New York state basically seeking to replicate the entire set of conditions that have made the California market untenable for honest cannabis businesspeople," Mann said.

Photo: Courtesy of geralt and Kindel Media by Pixabay