EXCLUSIVE: NY Cannabis Market Optimism Prevails Despite 'Absurd' Taxes, Illegal Operators, Lawsuits

Ever since the launch of the legal cannabis market in New York last year, the industry has been dealing with one setback after another. In March, the Coalition for Access to Regulated and Safe Cannabis (CARSC) filed a lawsuit against the OCM for allegedly violating MRTA by reserving the first 150 retail licenses for social equity applicants.

The group involved in the lawsuit includes at least four large marijuana companies, Acreage Holdings 

ACRHF, Curaleaf Holdings CURLF, Green Thumb Industries GTBIF and PharmaCann. Since March the lawsuits have piled up.

Additionally, the market has been struggling with too many illegal operators and an extremely slow rollout of retail licenses. So what's next?

How can the New York marijuana market stabilize and become the third-largest national and the fifth-largest market in the world, inquired Todd Polyniak, senior partner and head of cannabis practice at Sax LLP, and moderator at Benzinga Cannabis Capital Conference.

New York As A Brand Builder

Tahira Rehmatullah, partner and co-founder of Highlands Venture Partners, an NYC-based private investment and advisory firm, believes that the Empire State is going to be one of the best markets. Rehmatullah added that the market will not allow five massive operators, but will rather focus on people involved in a legacy market, and concentrate on brands. “Brands will continue to thrive in the market,” and some of them will be the biggest in the country and the world.

Jeffrey Finkle, CEO of The Arcview Group, a vertically integrated financial and consulting services firm, admires New York’s goal to build an industry of small businesses. However, “the execution has fallen apart,” he said, adding that “they've made it very difficult for experienced investors to fund retailers in the state of New York, because of the very rigid cost supply chain investing restrictions.”

Joe Lustberg, managing partner at Upwise Capital, a debt financing solution company for marijuana-related businesses, is very bullish on the state. According to him, it’s all about location and good capitalization. With the equity markets being very dry, Lustberg’s solution is to rely on family and friends and be ahead of the regulations.

“I think retail is really the avenue to invest in because you see a lot of these cultivators and processors struggling because they have nowhere to sell their cannabis,” Lustberg said.

Survival Of The Fittest

Lustberg highlighted that the three biggest issues in the market are: letting multi-state operators in a little early, the illicit market, and the high taxes. Having a “THC tax is absolutely absurd.”

Finkle followed up saying that the lack of enforcement, terrible tax policy and very slow approval process are the most important issues.

Rehmatullah added that the tax issue is one of the biggest problems because people have formed relationships with the illegal market. “Illicit market has really upped their game and their packaging is different. What they're putting in the market looks comparable to what you can buy in retail. It's pretty amazing to see that change.”

She explained that many consumers don’t even know the difference between illegal and legal products.

Lustberg pointed out that all marijuana being sold in illegal smoke shops in New York comes from California, so the way to stop the illegal market is to cut off that supply chain.

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Photo: Carlos Alvarez