Don’t overlook the supply chain: issues facing Cannabis processors
Over the past 20 years in New York, I have built companies in the middle of the supply chain (design, manufacturing, marketing, distribution).
I have been a successful business builder and a job creator. Now, I am one of the first female processors in our state and one of the few female processors and cannabis business owners in the country. I believe I have the potential to build the biggest cannabis company in New York headquartered in Stuyvesant, a rural community desperately in need of quality jobs.
When Gov. Kathy Hochul took office, one of her first actions was to show leadership and ensure that the Office of Cannabis Management was able to get fully up and running. That gave hope to countless New Yorkers about the potential of the market, and I would like to express my gratitude for the example that she has set for me and my daughter. She has made me proud to be a New Yorker.
I am writing today to ask for her help with urgent problems in the NY cannabis industry which may not ordinarily reach her desk. If these issues are not addressed, thousands of New Yorkers will lose their jobs, billions that would have been available to the state in tax revenue will dissipate, and untested cannabis will flow into illicit shops in every city, town, and village across our state.
Understandably, much of the media coverage until this point has been focused on the plight of licensed cultivators and dispensary owners. To that end, I’d like to speak to the unique role that processors fill, as the bridge between cultivators and retail dispensaries.
By law and skills, processors are the only ones with training, facilities, equipment, and staff to extract oil safely from cannabis and make safe and tested products that are worth millions to our economy. We have made massive investments to afford all this and are effectively the lynchpin of the program. New York processors need a fair chance to survive.
Here’s what the media is reporting about the NY cannabis industry:
- Only 23 dispensaries are open. NY processors have invested millions on the promise of hundreds of locations opening throughout the state to sell products and create a robust industry that, in true New York fashion, will out-innovate and outperform any cannabis market in the world
- Many estimates state that 4,000 illegal shops are open in New York.
- The state budget this year gave new enforcement powers to the OCM, but the ability to police both licensed and unlicensed locations is limited and they are overwhelmed.
What you might not be hearing:
- Only one-third of the licensed processors are actually operational right now, despite the state having licensed a full 40. This means lost sales, lost jobs, lost taxes, and a less diverse market overall.
- Licensed processors are going deeper into debt to maintain our facilities, our workforce, and our industry, while our products languish in vaults.
I helped co-found the Association of New York Cannabis Processors (ANYCP) this year to be a voice for our licensed adult-use conditional processors that have been acting in an ethical, compliant fashion. My colleagues and I will continue to speak in the coming weeks and months about additional issues that have not been widely covered, but I believe it’s important to highlight now that even a few licensed processors are making it more challenging for us to stay in business.
Having been a long-time business owner, I see some of the same deceptive practices working their way into the cannabis industry that have occurred in so many others. Primarily, I’d like to raise concern today around slotting fees and kickbacks. Though both are expressly forbidden under OCM retail guidelines, this is something I’ve witnessed along with my fellow ANYCP members.
Slotting fees occur when an operator approaches a retail outlet and promises to pay them a set amount for preferred product placement. Oftentimes this evolves into allowing for tiered pricing, and if a manufacturer isn’t willing or able to pay up, she may very well not make it into a store at all.
In these early days, when most AUCPs are extremely tight on cash and working to build brand awareness, it is extremely destructive to have a system by which a few well-capitalized groups can pay to make sure their products are front and center over everyone else.
In particular, we’ve all seen out-of-state brands situated in prime locations in New York City dispensaries. Many say these prime spots are paid for, which is against regulations, and some NY processors are unaware that these deals are happening behind their backs. But slotting fees are just one part of a complex strategy to knock New Yorkers and small businesses out of the market.
Out-of-state brands are flooding New York with cheap product – in both the legal and illegal markets – in order to get their brands seen by as many people as possible. (We call it litter, they call it branding).
They’re offering unlimited samples to budtenders. They’re offering extra long payment terms to dispensaries, who will eventually run up such big bills they can’t possibly catch up. They’re manufacturing with out-of-state raw materials that are smuggled into New York without testing, with no – or fake – COAs. They’re sponsoring NY events ... the list goes on ... all in hopes that New York operators will fail and outsiders will be able to take over. It turns my stomach to think this wonderful opportunity to create an incredible new industry in New York is being stolen from me and my fellow processors.
It’s also worth pointing out that there are New York operators in sheep’s clothing who claim to champion NY small business while hanging fellow processors out to dry.
Kickbacks in cannabis also benefit those biggest licensed entities as well. We have learned that some of our operational processors are offering huge financial incentives off of product sales in return for placement in key retail locations, as with the case of a current major Colorado brand. When these practices are combined with the large and colorful branded displays that are provided to dispensaries (which also goes against regulation), a precedent is set that licensees can pay whatever they want to receive preferential treatment.
With that in mind, I’d like to ask the governor to act on these two major issues, which do not require a legislative fix:
1. Postpone the entrance of new processors and cultivators into the adult use market.
Extremely well-funded MSOs are waiting to apply for licenses as we speak. We entered the adult-use cannabis market early because New York made a promise. We were told that 120 stores would be open by June of this year, which would fulfill the goal of putting social equity and small New York business before large interests.
More than halfway through the year, we have a fraction of that. Even if the injunction were to be lifted on Friday, it is safe to say that we will not hit 120 stores by the end of 2023. This is the main reason why only 30% of processors are operational – there is no place to sell our products. And though we are excited for full regulations to be adopted, there is no need right now for new processors or cultivators to enter this constricted market. Ensuring additional retail stores are opened through both CAURD and non-conditional applicants can help strengthen our new industry and make sure AUCCs and AUCPs can stabilize and show off our premier products.
2. Direct the OCM and Department of Tax and Finance officials to take enforcement actions toward operational licensees that are flouting the law.
We’ve seen extensive action taken to promote public health and safety, from educational campaigns on the dangers of illicit dispensaries to new emergency regulations around Delta-9 products, which despite having intoxicating effects, were being sold in gas stations and grocery stores. Now more than ever, we need to build public confidence in our legal operations by ensuring licensed players are abiding by the same rules as everyone else.
Going after cultivators, processors, and brands as a whole that are paying slotting fees and kickbacks strengthens small operations and allows for increasing product diversity that will entice New Yorkers from Buffalo to Montauk.
Lastly, I am grateful for the license that New York has granted me, and I honor that much is expected in return, including helping create a path for more women in a fair and equitable cannabis market. I’d be remiss if I didn’t take the opportunity to speak to what I personally believe is needed.
There are only a few female processors in the state and only a handful in the country. I’ve spent several years turning down deals from white males who want to own and control me, my company, my house, my future. It’s critically important that women are allowed access to a share of social equity efforts. Women in cannabis receive only about 2% of leadership roles, and 1% of investment.
New York State can do better for its women in cannabis. I have decided to champion my brand as a REAL NY female processor and brand. I am one of the few females that truly champions healthy edibles, whole plant extraction, and a culinary initiative. If I can have success, it opens the door to allow more women like me to become processors, manufactures, and creates NY female brands not controlled by men.
To help kick that door open, I would ask that the governor please introduce a program in her budget for the upcoming year that would be available to female processors and manufacturers, and to women-owned New York cannabis businesses. The leadership she has shown in this industry has been apparent from the start. I know taking these actions will create the strongest, most robust cannabis market in the world, and I am appreciative of her hard work in laying the foundation for it.
