New York’s medical Cannabis program crumbling under financial pressure and patient exodus
On paper, the numbers don’t look so good.
Just two years ago, there were 40 medical weed shops operating in New York. Now there are 31 — despite the 2021 MRTA legislation that set a goal of 80.
Of the 10 original companies licensed to operate medical marijuana dispensaries in New York, nine remain (MedMen has since gone belly up and left the state; Hudson Health Extracts, the 11th RO to enter the market, has yet to open). And revenues have steadily declined as the patient load has shrunk and the number of dispensaries has diminished.
On top of that, the medical patient load, according to the Office of Cannabis Management, is cratering. As of Aug. 1, the number of registered patients stood slightly above 108,000, down from its peak of about 150,000 in 2019 — three years after the medical dispensaries first went into operation.
NY Cannabis Insider previously reported significant drops in revenue for the ROs (registered operators), according to data collected by HEADSET, a leading global cannabis analytics firm.
So given this bleak landscape, NY Cannabis Insider reached out to industry representatives, two of whom agreed to interviews.
Jeremy Unruh, senior vice president and general counsel of PharmaCann — one of the four registered operators that have gone completely vertical, and as of June 29 were allowed to sell recreational cannabis products at one of their original store locations – did not mince words when asked about the outlook for coming years.
“If the state doesn’t do something to bolster this sector, it will degrade into nothing,” Unruh said, adding that “this kind of business is not sustainable” under current conditions.
When the medical dispensary program began in 2016, companies were allowed four store locations.
NYCANNA LLC (Acreage), which operates in New York as The Botanist, still manages three medical marijuana locations (Buffalo, Middletown and Farmingdale), but was forced to temporarily close its Queens dispensary because of shrinking sales and competition from the illicit market.
NYCANNA does have a wholesale operation in East Syracuse, which helps the revenue flow to “some extent,” said Executive VP and General Counsel Corey Sheahan.
But it’s still a difficult landscape, made even tougher by NYCANNA’s inability to go completely vertical and sell recreational cannabis due to the $20 million licensing fee required by OCM.
“It’s a lot of money,” Sheahan said. “We don’t have the financial capacity to pay the $5 million to open a co-located store. The fee is really a challenge to us.”
(The $5 million fee was the first tranche required by OCM — to be followed by another $10 million due by the end of 2024).
PharmaCann was able to cough up the $5 million initial payment and the added revenue from its one co-located store in Albany has “mitigated” the losses felt overall, Unruh noted.
The $20 million fee “was conceived at a time when the leadership at OCM was different,” Unruh maintained. “It was conjured up at a time when there was not a lot of positive sentiment in the legislature or the OCM as to the incumbent medical operators.”
“The fee was dropped into the statute” and was supposed “to be used for social equity programming,” Unruh continued.
But “from what we can tell, those funds have not been used for social equity programming and the amount of the fee seems” somewhat absurd “because half of the ROs can’t pay it. It’s prohibitive.”
In its 2023 “Survey Report,” OCM noted that as a result of the declining medical patient load related to legalized adult-use, “to preserve and support the program,” it was “imperative for regulators to understand the challenges of participating in the program so that better policy may be developed and implemented.”
OCM did not respond to requests for comment by publication.
Except for minimal changes made in eligibility requirements, the state has made no improvements to its medical cannabis program, experts say.
At the time, the $20 million licensing fee for medical operators to go fully vertical was seen as a way of giving CAURD holders and small independent retailers a leg up against the well-financed MSOs running the medical dispensaries.
“People would think we have deep pockets,” Unruh quipped, “but the truth is there’s not a lot of capital in the cannabis space right now, not in any space right now, especially in cannabis where things are far more expensive than they look at first blush.”
The bottom line, he said, is that there’s “not a lot left over after we pay employees, transport products to dispensaries with high overhead and not many patients walking in the door.”
