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New York gets sued, Leafly cuts staffers, and more

Also: Cannabis legalization is pretty positive for society, a new study shows.

Happy Monday everybody,

Okay, okay. You all indulged me last week by reading a few thousand words about my thoughts, so today’s newsletter will be a bit shorter!

Seriously though, it’s scary putting your thoughts out into the world. I can’t tell you how much I appreciate everyone who read and reached out to tell me that some aspect of what I wrote resonated.

As an aside, I’m working on getting to a regular publishing schedule in April, so my apologies for the inconsistency here. It’s still ski season and yes, that’s sucking up a lot of my mental and physical energy at the moment…

I’m testing a early Monday morning send with this one. I want it to be your first read over a cup of coffee. Let me know if you like it.

Let’s get to it.


💡What’s the big deal?

What happened: A group of cannabis businesses are suing New York State regulators over the messy rollout of the legal market, New York Cannabis Insider’s Brad Racino reported.

The Coalition for Access to Regulated & Safe Cannabis, represented by law firm Feuerstein Kulick, filed the suit in Albany’s Supreme Court.

The Coalition includes large, publicly traded cannabis companies like Curaleaf, Green Thumb Industries, Acreage Holdings, and Pharmacann, among other smaller businesses and hopeful license applicants.

The suit names New York Cannabis Control Board chair Tremaine Wright and Office of Cannabis Management director Chris Alexander as defendants.

Why it matters: New York’s cannabis rollout has been slow, messy, and plagued with difficulty.

This specific lawsuit revolves around New York’s CAURD program, which was put in place by regulators to give early access to the recreational cannabis market to those impacted by the War on Drugs.

To get a CAURD license, the applicant, or a close family member, had to be convicted of a cannabis-related offense in the state.

Experts have called into question the legality of the program, as the residency requirements may violate the Constitution’s Dormant Commerce Clause.1 

There is already an ongoing lawsuit related specifically to residency requirements. A federal court ordered an injunction on awarding licenses to sell cannabis in multiple areas, including Brooklyn, as a result of that suit.

This new lawsuit takes issue with the fact that CAURD applicants were given access to the licensing process, and therefore the market, first. As well, the suit asks the state to immediately open the licensing process for all applicants.

At its core, the suit is about who gets access to New York’s massive cannabis-consuming population. 

The plaintiffs say New York’s cannabis regulators overstepped the intent of the MRTA, the law that legalized cannabis.

State Republicans are already playing politics with this. That, in turn, has Gov. Kathy Hochul proposing stricter enforcement on illicit sellers.

🌿 Jer’s take

New York’s cannabis rollout has so far been a mess. I’ll say it a million times.

My friends constantly ask me why they can’t yet buy weed legally. That’s a small consequence in the grand scheme of things, but it’s a hard question to answer simply.

The state’s situation is a classic case of a noble goal — using cannabis as a tool for repairing the harms of the War on Drugs — meeting economic reality.

What’s happening now is obvious to anyone who has studied the rollout of legal cannabis in Canada and in other states.

Price, speed, and product quality are paramount in order to give the legal market a shot to compete.

First, a little rundown of where we’re at.

New York legalized cannabis in March of 2021.

It took well over 18 months for the first store to open, and there are still only three legal stores in the five boroughs though more are set to open in the next few months.

There are at least four illicit dispensaries in my Brooklyn neighborhood alone. They have all the biggest brands from California in stock and they take credit cards.

It’s either because my hairline is beginning its inexorable creep upwards, or because they have lax security standards, but I’ve never had my ID checked while making a purchase. (I’ve noticed that they’ve started locking their doors to prevent the now-frequent police raids. They won’t let you in if you look like a narc).

If the goal is to capture tax revenue, erode the illicit market, and sell clean, pesticide-free products to consumers, then speed — as in, how long it takes to get stores open and get consumers purchasing legally — matters.

I should note that many researchers disagree on this point, with some saying that legal market penetration inevitably increases over time. That may be true, and it’s also important to get policy right first.

But moving too slow has dire consequences, as we can clearly see in New York.

I’d encourage you to read Robin Goldstein and Daniel Summers’ book, Can Legal Weed Win? for an economics-based take on how states can roll out effective cannabis policy. (You can also read my past interview with the authors for the key takeaways.)

New York has proven so far that slow-walking the rollout is not an effective way to stimulate a new industry, if creating jobs and economic growth is the primary goal for legalization — which, to be clear, I’m not entirely sure it is.

It is a goal, but it is not the end goal. That’s a point that the industry and its investors often miss.

All this is not to say that what New York is trying to do isn’t beneficial or thoughtful. To put my cards on the table, it’s something that I personally agree with and wanted to see done.

Why? Social justice and police reform were afterthoughts to arguments for legalization even five or ten years ago.

People talked about tax revenue for schools and about reducing teen use before they talked about racism and economic opportunity.

Now, post George Floyd, it’s perhaps the most important argument.

I’ll underscore that point, and that’s where I think New York has gotten it right: It’s absolutely critical to include social justice from the beginning. Letting CAURD applicants get the first crack at the market is a really important goal.

It’s much harder to retroactively fix policy when there’s inertia — look at California, or Canada’s situation with indigenous communities. It’s hard to layer on social justice when the policies are already written and firms are already entrenched.

But there’s a probably apocryphal Voltaire quote that’s apt, here. Never let the perfect be the enemy of the good.

The explosion of the illicit market in New York and the slow-walked legal rollout is a casualty of this.

The side effect of trying to use cannabis legalization as a tool to correct decades of racist policing and the lack of socioeconomic mobility for people of color in New York is the risk of kneecapping the legal market entirely, before it has a chance to get off the ground.

To be fair, here, I should point out that the proliferation of illicit stores could be part of a broader strategy.

Axel Bernabe, who’s leading policy at New York’s Office of Cannabis Management, told Green Market Report’s John Schroyer that brick-and-mortar stores are easier to enforce than the bike delivery services that have served New Yorkers like myself for years.

But yes, whack-a-mole is a difficult enforcement strategy. And two lawsuits in the past few months probably says what you need to know.

This isn’t altruism. It’s capitalism.

All that being said, I’m under no pretense that the latest lawsuit is altruistic.

The plaintiffs are large companies that have spent heavily to get into the New York market, either by building out their own capacity or through strategic acquisitions.

They want to make money, and they want to be able to do it now. These firms, known as registered organizations, already sell cannabis to New York’s medical market.

They have the capacity to flip a switch and start selling recreationally tomorrow. That would go a long way into reducing the illicit market share if they were allowed to do so.

It’s not a silver bullet, though. There are only 10 of these registered organizations, which have about 30 stores across the state. That’s not enough, compared to the over 1,400 or so illegal shops.

Plus, there are frequent complaints about the quality and potency of their products.

In any case, it needs to be much easier to start a cannabis business in New York.

There is already a supply glut. It’s imperative that regulators at least attempt to cut some red tape and inject more legal stores into the system.

Otherwise, there’s a huge risk of failure to launch.

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📉 Market moves

What happened: Cannabis information site Leafly cut about 40 jobs or 21% of its workforce on March 16, in conjunction with its Q4 and full-year earnings.

Why it matters: Leafly is as established as brands get in the nascent cannabis space. Its ups and downs are a bellwether for the industry — and its competitors like Weedmaps.

While the company managed to increase its revenue by 10% over 2021, operating costs skyrocketed.

Leafly is also pulling out of journalism entirely, and refocusing its content as a sales funnel in an effort to focus spending on core aspects of the business.

Senior editor Bruce Barcott, who oversaw some excellent reporting, is leaving the company as a result.

“We are experiencing times of significant change and uncertainty in the cannabis industry,” Leafly CEO Yoko Miyashita, who took over the top job in August 2020 wrote in an email that I obtained.

Other stuff happened:

🧪 Science & research

What happened: A new study published in the Journal of Economic Literature found that there’s “little evidence” to show that legalizing medical cannabis increases teen use, and that the use of alcohol among adults also declines post-legalization.

The authors could not draw firm conclusions around the effects of medical cannabis on opioid use, and how legalized recreational cannabis effects adult usage rates.

Why it matters: Gauging whether cannabis policy is successful or not comes down to first principles: Why are we legalizing cannabis and how do we measure success?

If one of the goals of legalizing cannabis is reducing teen use, then this study is further evidence that legalization is successful.

But we need more studies on the economic, social, and public health effects of legalization.

The researchers caution there are still lots of unanswered questions around crime, traffic fatalities, and the illicit market, among other things.

We’ll be getting a lot more data from new states that have legalized. It’s an exciting time to be working on this type of research.

Other stuff happened:

😎 One cool thing

One company will pay three lucky people up to $75 hour to review cannabis products and make short videos from the comfort of their homes.

Caveat: You have to live in a legal state, be over the age of 21, and be employed in the cannabis industry.

Still, it’s a dream job.

📚 What I’m reading