Big shakeup for New York cannabis

Plus, Republicans don’t like weed

Monday, May 13, 2024

Happy Monday.

Friday was certainly an eventful day for the New York cannabis industry, with a big shakeup at the Office of Cannabis Management.

We’ve got all you need to know. 

-JB & JR

This newsletter is 1,499 words or about an 8-minute read. 

💡What’s the big deal?

A big shakeup for New York cannabis

Flickr: @govkathyhochul

What happened: New York State Office of Cannabis Management (OCM) Executive Director Chris Alexander will leave the embattled agency in September when his term ends, after a month-long review ordered after Governor Kathy Hochul called the delayed rollout of legal cannabis in New York disastrous

The OCM’s Chief Equity Officer, Damian Fagon, will also reportedly leave the agency. He was placed on administrative leave in March over allegations that he retaliated against a cannabis business owner. 

Why it matters: It’s not news to anyone, or at least it shouldn’t be for our sharp Cultivated readers, that New York has struggled to get its cannabis industry off the ground

Expansive ideas of using cannabis as a vehicle to lift people out of poverty and help correct the decades-old harms of the War on Drugs on minority communities have crashed into the complicated realities of the rough-and-tumble world of New York politics, a challenging business environment amplified by byzantine regulations guiding the sale and use of cannabis, and a flurry of lawsuits from big cannabis companies who say it’s not the government’s job to pick and choose who gets to participate in the free market.

The result has been anything but what the original architects of the Marijuana Regulation and Taxation Act, signed into law by former Governor Andrew Cuomo in 2021, envisioned. 

In March, Hochul called the rollout a “disaster” and ordered a comprehensive, 30-day review of the state’s Office of Cannabis Management, the chief regulatory agency. 

There are still only about 120 stores open across the state — with a population of around 15 million adults — and some prospective entrepreneurs and industry insiders say the OCM has been uncommunicative at best and deliberately corrupt at worst. Those 120 or so stores are competing with thousands of unlicensed illicit sellers, who don’t pay taxes and can therefore undercut the legal sellers on price. 

But others, including former staffers, are supportive of the OCM’s mission, which has been described as “reparations-through-capitalism.” 

They say the failures have less to do with inefficiency at the OCM and more to do with the Hochul administration setting them up for failure with a lack of staff and unheeded calls for help. This thread on X from Freeman Klopott, the OCM’s former communications director, is useful insight. 

While New York has made big strides in getting dispensaries open in the last few months, and has perhaps the most diverse cannabis industry of any state with more woman and minority-owned dispensaries opening their doors on a weekly basis, it seems the writing was on the wall that a shakeup was necessary. 

What they’re saying: “Let me be clear: There are deep-seeded issues at OCM, issues that have limited its ability to fulfill its licensing role. We’re starting to fix this right now,” Hochul said during a Friday press conference announcing the results of the review. 

And: “OCM must transition its work to focus on its core mission: ensuring a functional, transparent and equitable cannabis market for New York. The perceived uniqueness of the agency’s work is a significant cultural roadblock to its willingness to adopt processes and systems that have proved successful elsewhere,” Jeannette Moy, the commissioner of the New York State Office of General Services wrote in the 31-page report outlining the OCM’s deficiencies at setting up a well-regulated legal cannabis market. 

On the other hand: Aaron Ghitelman, former OCM spokesperson, posted this on X.

What else is in the report: The report says the OCM had difficulty staffing up in the early days, underspent its budget, and basically threw out the playbook that other state agencies have used in terms of organizational structure, technology, and the other nuts-and-bolts of day-to-day operations.

Our take: We’ve written a lot about our take on the New York cannabis market, but it continues to be fascinating.

A lot of what’s outlined in the report are specific, proximate causes of market failure, like an agency being hamstrung by too-few staff, too-little spending, and a borderline nonsensical reporting structure. 

The ultimate cause of why New York cannabis hasn’t worked well so far, and why cannabis will only end up being a small part of the broader puzzle of creating social and economic equity, is in the eye of the beholder depending on your politics. 

There isn’t one correct answer here. 

Perhaps it’s the inevitable conflict between inexperienced progressive regulators trying to control the wheels of capitalism by layering on too much bureaucracy to pursue their goals, as we’ve seen with cannabis programs in California and other big Democratic states. 

Perhaps it’s the result of state-federal conflict on cannabis law, which makes starting a profitable cannabis business extremely difficult, given high taxes and few lenders willing to provide cheap capital to startups.

That puts entrepreneurs — especially those without family wealth or connections that the state was trying to help through the MRTA — into an un-winnable position in the first place, regardless of what the OCM did or didn’t do execution-wise. 

Perhaps it’s what happens, as some far-right cannabis industry folks allege, when the government gets too involved in picking and choosing winners in a new industry based on race and socio-economic status. Their argument boils down to: New York’s legalization experiment is socialism, and socialism doesn’t work in reality. 

Perhaps it was the combination of lack of enforcement on illicit sellers and the far-too-slow rollout of legal stores, that had the legal sellers competing with one hand tied behind their back from the start. 

Or, perhaps it’s just the result of a near-dysfunctional state government led by Hochul, who paid far too little attention to the specific challenges associated with legalizing cannabis and in getting an effective market up-and-running.

In reality, it could be all of the above. The road to hell is paved with good intentions, the aphorism goes. 

In my humble view, the needs and spending habits of regular consumers like myself got completely lost in the high-minded discussion of social equity and of corporations fighting (and suing) to get a piece of the profits. 

At the end of the day, none of this works without adults being able to buy and consume their products of choice legally. The edifice of social equity is built on the money that consumers spend. Think of us, too — we make this whole thing tick.  

We hope that other jurisdictions heed New York’s example. We also hope that proactive policy-making around cannabis legalization is less ideological and more evidence-based.  


🗨️ Quote of the day

“It's an absolutely horrible idea that it's gonna have a huge impact on our children. Marijuana is a dangerous drug,” Sen. Pete Ricketts (R-NE) told Ask a Pol’s Matt Laslo

Ricketts’ sentiment echoes the majority of his party. Sen. Mitch McConnell, one of the most prominent national Republicans, reportedly opposes SAFER Banking Act, a bill that would allow cannabis companies to access the banking system.

Sen. Kirsten Gillibrand, a New York Democrat, told Ask a Pol that McConnell is a key reason why SAFER was left off of the Federal Aviation Administration reauthorization bill, which is being debated by lawmakers. 

Quick hits

A new lawsuit in Minnesota alleges that home growers can sell their excess product without a license, MinnPost reports

A new survey conducted by the Florida Chamber of Commerce found that the ballot initiative to legalize cannabis has 58% support — just shy of the 60% needed to pass. 

Massachusetts state regulators are working to figure out how Martha’s Vineyard residents can easily access both consumer and medical cannabis, as the island’s only cultivation facility is set to shut this year, reports the Vineyard Gazette. Cannabis grown legally in Massachusetts can’t cross over to the island as those waters are controlled by the federal government which considers cannabis illegal.

📰 What we’re reading

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