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There's too much weed and not enough stores in New York, and more

New York's cannabis glut, Green Thumb Industries results, Reynolds wants a cannabis expert, and interstate commerce...maybe?

Good evening,

You’ve made it to the end of Thursday, so congratulations on that.

And a hearty welcome to the 50 or so new subscribers that have joined us since Tuesday’s send.

I’m playing around with delivery times, so let me know if you like your Cultivated in the morning with a cup of coffee or after work with a beer — it’s going to take a while to generate some useable data here so your opinions help!

Alright, a lot’s happened since Tuesday so let’s get to it.

💡What’s the big deal?

What’s happening: New York State growers are sitting on nearly a billion dollars of weed, with few places to sell it, The Guardian reports.

With only a handful of legal cannabis shops open in the state, much of this valuable stash will either go to waste, or get diverted to the illicit market.

Why it matters: Like any other organic product, cannabis takes months to go from seed to consumable product. Many growers I’ve spoken with in the past few weeks say they’re wary of planting for next year unless more stores open and open quickly.

And when dried cannabis is stored for too long, the THC content, flavor, and overall quality can degrade — and not to mention, create problems with mold and other contaminants — unless it’s processed into derivative products like oils or edibles.

🌿 Jer’s take

It’s going to take a long time to iron out New York’s cannabis supply chain.

Each state functions as a de facto closed market, thanks to a pesky piece of parchment known as the Constitution.

The Constitution’s Commerce Clause gives the federal government power to regulate commerce between states, and cannabis is, of course, federally illegal.

It would certainly be a lot of easier if New York dispensaries could rely on importing cannabis from California or Oregon, where there is already so much high quality cannabis grown that the price is collapsing.

Allowing growers in those states transport their products would both help keep prices in check and allow small, social equity-aligned businesses in New York to get a head start — the primary goal of the state’s legalization plan.

Instead, every state has to build an entirely new supply chain and distribution network from the ground up. Which creates problems like the one facing the Empire State.

There’s no way to get rid of the glut without opening more stores, and opening them quickly. I’m no economist, but there’s clearly going to be pricing pressure on New York-grown cannabis, thanks to the glut.

That’s going to shrink the already slim margins that cannabis growers and dispensary owners are counting on as they spend money and resources navigating the bureaucratic hurdles in opening shop.

It’s a great way to undercut the state’s laudable goal of using cannabis to promote economic development among lower-income residents before the whole experiment even takes off.

If you like what you read, consider sharing this post. I need more eyeballs so this thing can make me money.

🗽 Spotlight on New York

What’s happening: The Office of Cannabis Management is aware that enough stores aren’t yet open, but like anything in New York, there are no easy fixes.

At a Cannabis Control Board meeting this morning, regulators said they would double the number of CAURD licenses — which allow the holders to sell cannabis — from 150 to 300.

Why it matters: As a reminder, CAURD licenses are the first batch of cannabis licenses in the state. They’re given to nonprofits or people deemed as “justice-involved,” as in those with a prior criminal conviction for cannabis themselves or a close family member.

The state has so far issued 66 licenses, and plans to review the rest of the applications in April.

It’s welcome news in jurisdictions that allow dispensaries.

But thanks to a November injunction, dispensaries aren’t yet allowed to open in certain regions of the state, including Brooklyn.

If you’re not already aware, a Michigan company, Variscite Inc, challenged the constitutionality of the CAURD license stipulation that demands applicants have a conviction in New York, otherwise known as a residency requirement.

The company’s majority owner, Kenneth Gay, has a cannabis conviction in Michigan.

His lawyers say New York’s CAURD regulations violate the Dormant Commerce Clause (DCC), which basically says the federal government is the only authority that can regulate trade between states to prevent protectionist economic policies.

Residency requirements like New York’s would ordinarily violate the DCC, but because cannabis is federally illegal, the courts seem to have no idea what to do.

I’m clearly not a lawyer, but I don’t think there’s an easy answer to this problem — and it’s far clear how the courts are going to rule on the injunction.

🌿 Jer’s take

Legal minds much sharper than mine are thinking about and writing on this.

Follow folks like the University of Maine’s Scott Bloomberg, Vanderbilt’s Robert Mikos, and Ohio State’s Shaleen Title if you want more sensible takes than mine. Or check out the paper I worked on with them this summer.

In any case, I bet this’ll make for some fun class discussions among 1Ls in 2033 when all of this is (hopefully) sorted out.

Other things happen: Brad Racino, the editor of New York Cannabis Insider and friend-of-this-newsletter, pointed out on LinkedIn today that the state has only opened 4 of the proposed 60 CAURD dispensaries that were planned to have been open by March 2023.

Beyond that, the state expected to collect $56 million in cannabis taxes by the end of March. Racino says the state collected a total of $20,000 in January. Ouch.

📉 Market moves

What’s happening: Green Thumb Industries reported fourth quarter and full-year results on Tuesday.

The company reported $1 billion in revenue for 2022, up 14% over the year prior, with $259 million in revenue for Q4 alone.

Still, the Chicago-based cannabis giant lost $51 million in the quarter, thanks to an impairment charge related to its Nevada business.

Why it matters: Green Thumb is one of the biggest players in the cannabis industry.

CEO Ben Kovler called out the federal government’s lack of action for cannabis tax reform, specifically the industry’s hated 280E tax which prevents cannabis companies from deducting regular business expenses.

“The lack of progress regarding cannabis regulation from our elected officials in Congress is mind-numbing,” Kovler said.

“The crippling tax burden continues to hurt new operators by greatly reducing their prospects for a profitable and sustainable cannabis business.”

📜 Policy moves

What happened: Lawmakers in Washington state passed a bill, SB 5069, that would allow cannabis companies to ship products across state lines (sound familiar?).

The bill would only take effect if the federal government allows interstate cannabis trade, or if the Department of Justice says they’ll tolerate it.

Why it matters: I don’t want to sound like a broken record here, so I won’t. Supply gluts are a problem, and most state cannabis markets are super inefficient.

Interstate commerce is a key mechanism to fixing that.

It would give growers access to much larger markets, help states get their industries off the ground more quickly, and control the free-falling price of wholesale cannabis.

🌿 Jer’s take

This bill will remain symbolic until the federal government decides to do something about cannabis.

If (it’s a very big if) Congress passes a bill removing cannabis from the federal list of controlled substances, then Washington’s bill is basically moot.

Regulators in California outlined a plan in January that would allow the state to sidestep the federal government and export cannabis. But even if California’s attorney general went for that, they’d still have to find a willing trading partner.

Washington’s bill wouldn’t go that far, and I’m not sure any state would think it’s a good idea to directly violate the Constitution.

💬 Let’s talk about it

It brings up a good question: Have any two states entered into their own unique trade agreements for a federally controlled substance in the past? Leave a comment if you know.

I’m also curious as to what, if any, historical corollaries we can look at to make sense of this situation.

Other things happen:

  • Texas lawmakers have filed 26 bills related to cannabis for the upcoming legislative session, CBS reports.

  • Minnesota is inching towards legalization, Marijuana Moment reports.

  • Attorney General Merrick Garland said yesterday the DOJ is still working on its review of cannabis’ federal status.

    • He expects federal cannabis policy to look something like the now-defunct Cole Memorandum, an Obama-era policy that directed the federal government to refrain from interfering with state-legal cannabis, Marijuana Moment reports.

🧪 Science & research

What’s happening: Yale is opening a new center — the Yale Center for the Science of Cannabis and Cannabinoids — dedicated to the science of cannabis, with a particular emphasis on how it affects neurodevelopment and mental health.

The center will be led by Deepak Cyril D’Souza, a Yale psychiatrist and expert in cannabis pharmacology.

Why it matters: Hawk-eyed readers of this newsletter will remember that I called for more research into how cannabis affects our bodies and brains.

I’m not suggesting that Yale’s deans read Cultivated (though it’d be pretty cool if they did), but I just might be.

More seriously, researchers are now able to study cannabis in ways they weren’t able even five or ten years ago. It’s led to an explosion of research at institutions as venerable as Yale, and more major universities will follow suit.

I’d love to see more interdisciplinary work around public health, social equity, and taxation as well as the current emphasis on mental health.

Every researcher wants to hit the holy grail of fascinating work with real-life impact, with lots of funding available. Cannabis topics increasingly fit that bill.

💬 Let’s talk about it

If you’re a professor or full-time researcher working on cannabis-related issues, I’d love to hear about what you do — from whatever field, whether it’s economics, psychiatry, public health, accounting, or law.

I’d also love to discuss any challenges or opportunities you see. Reach out to me directly or leave a comment below.

🧑‍💼 People moves and cool jobs

  • Cannabis company MariMed has named Jon Levine as full time CEO, and named Edward Gildea as board chair. Former MariMed CEO Robert Fireman died in December.

  • Tobacco giant Reynolds American is hiring for a senior manager of cannabis insights at its Winston-Salem, North Carolina headquarters. Part of the role will be to “guide product development in the cannabis space.”

    • Tobacco companies have poked around the cannabis industry before — BAT invested in German CBD company Sanity Group — but this is the first time I’ve seen a US-based firm specifically telegraph its desire to get into the cannabis industry.

📚 What I’m reading

Geoffrey Lawrence of the Reason Foundation is out with some interesting commentary around the various cannabis legalization proposals circulating statehouses this year.

I particularly like his take on social equity:

However, most social equity plans found within this year’s state legislative proposals fail to target relief toward actual victims of the drug war—those who were arrested or convicted and have borne the collateral consequences of those convictions, such as barriers to employment, higher education, or small business loans. Instead, they create loopholes that allow third parties to intercept the benefits intended for these victims.

He continues:

Such broad eligibility parameters allow social equity programs to be manipulated. Illinois offers a cautionary example. Illinois’ only operating social equity dispensary is owned by “wealthy and connected” insiders, according to the Chicago Tribune, including a retired city narcotics detective.

It’s worth your time to read through his proposals about how to improve the legislation. There are simple fixes, as Lawrence points out, like removing caps on the number of licenses and minimizing fees.

What else?

And in a weird sign of the times, the Boston Business Journal reports that a strip club in Western Massachusetts is trying to convert into a topless dispensary. This is an experience that no one has asked for, but I guess I’ll try and be open-minded about it.