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LI biz owners eager to help the recreational marijuana industry flower

Owner of LI Hydro in Islandia, Ryan Clout,

Owner of LI Hydro in Islandia, Ryan Clout, spoke to Newsday about how the legalization of marijuana in New York State could increase revenue for his indoor gardening business.  Credit: Newsday / Raychel Brightman

Long Island business owners eager to enter the cannabis market have waited years for the state to approve recreational marijuana use. But even as Albany greenlighted it, experts said they see a long rollout ahead.

Growers, processors, wholesalers and retailers across the region have begun positioning themselves to be ready when the law takes effect. Those in ancillary fields like law, real estate, construction, security and insurance also see chances to profit.

Legislators said it will take more than a year to set up a new state cannabis office, appoint members to a Cannabis Control Board and write regulations, and estimated legal sales won’t begin until September 2022.

Jessica Naissant, owner of Wake and Bake Cafe, a Valley Stream business that sells CBD, a cannabis-derived compound that isn't psychoactive, said she plans to apply for a marijuana license as soon as she's able to.

"I would love to be a full-on cannabis cafe," said Naissant, adding that she'd like her business to resemble the smoke shops and cafes in Amsterdam.

"A place you can go, [consume marijuana] and hang out with your friends all day, I think that would be really cool."

Naissant, whose nearly two-year-old store sells a wide array of locally made CBD products from tinctures to teas, said that, in terms of demand, "There's just nothing quite like marijuana."

"That's part of what makes it exciting. ... I know how high the demand is for cannabis and cannabis products. People come into my shop asking for [cannabis] all the time," she said. "My sales would skyrocket."

Gov. Andrew M. Cuomo is counting on it — his office projects legalized marijuana sales could generate about $350 million in annual tax revenue once the program is fully rolled out, with legalization eventually expected to bring in billions of dollars for the state.

Marijuana will be taxed at 13 cents on the dollar, with money allotted for schools, drug treatment and grants for minority communities long impacted by unequal enforcement of marijuana laws.

New York State's move came after New Jersey's legalization of recreational marijuana in November. Currently, 18 states have legalized it, including neighboring Massachusetts and Vermont.

Cross-state issues

On a federal level, marijuana remains illegal both medicinally and recreationally, which sometimes poses banking challenges for cannabis businesses operating in states that have legalized it.

To ease some of those difficulties, Cuomo earlier this week, joined 20 other governors in issuing a letter to Congress urging leaders to pass a bill, known as the SAFE Banking Act of 2021, that would allow states that have legalized medical or adult-use cannabis to operate safely under the national banking system. The SAFE Banking Act would also allow banks and credit unions to provide services to state-licensed, cannabis-related businesses.

At a briefing in late March, Cuomo said stopping marijuana legalization was "not an option" and pointed to the tax revenue generated by cannabis sales as a key motivation:

"It is here. ... The only question is, do we regulate it here, do we gather the revenue here? Or do we have people driving to New Jersey — it is right there — or to Massachusetts," he said.

Another incentive? Job creation. Adult-use marijuana is expected to create over 50,000 jobs across the state in agriculture, manufacturing, engineering and retail, with more than 7,300 of those on Long Island, according to a report released last month by the Long Island Association business group.

"It's definitely a very exciting and promising time for New York," Morgan Fox, of Denver-based trade group the National Cannabis Industry Association, said.

"It's an opportunity to trailblaze" in areas where other states that earlier legalized recreational marijuana "have faced shortcomings," Fox said. Other states "have been successful, but not without a string of drawbacks and mistakes along the way, some of which many of them are still grappling with."

What comes after legalization is usually messier than the lead-up, agreed Ryan Stoa, a visiting law professor at the Southern University Law Center in Baton Rouge, Louisiana, and author of "Craft Weed: Family Farming and the Future of the Marijuana Industry."

"It's an industry with a lot of stakeholders, so the process of figuring out all the details of how exactly it's going to work can be an uphill battle, riddled with challenges," Stoa said.

"The push for legalization usually tends to take center stage, with much less thought given to what it will actually look like once it happens, so you end up with a billion-dollar industry becoming legal overnight ... even with the best intentions, there's bound to be some stumbling in the dark."

Growing pains

States that were early adopters of recreational marijuana laws such as Colorado and Washington state — both legalized adult-use in 2012 — have had their share of stumbling.

In Colorado, state officials have said legalization has led to the largest illegal marijuana market the state has ever seen.

Unlicensed growers there sell pot locally but also transport marijuana to states like Texas and Florida, where recreational use is not legal and they can charge up to four times the Colorado price, bypassing state regulations such as licensing and product testing. The illicit sales also free them of a 15% excise tax imposed on suppliers or producers, and hurt legitimate businesses that can't compete with the lower prices.

And both Colorado and Washington have failed entrepreneurs of color, "who've long borne the brunt of the nation's unequal and racially biased" enforcement of marijuana laws, Aaron Barfield, a founder of Seattle-based advocacy group Black Excellence in Cannabis, said.

"We've been excluded and disenfranchised from an industry we built," he said.

"Black and brown entrepreneurs in cannabis have been regulated out. We've been denied the economic opportunities created by that regulation and haven't been afforded fair inclusion and participation in the market."

Prior to regulation, Barfield operated Prime Herbal Dispensary, an unregulated medical marijuana business that sold a range of products from cartridges to concentrates.

But once retail licenses were granted through a lottery system in 2014, "the medical dispensaries, many owned by Black people, were forced to close, and all that went away," he said.

"Just like that, and without a second thought, we were shut out," Barfield said. "It's just another example of rich, wealthy white men being empowered to monopolize an industry founded by other people. It's systemic racism at play."

Washington Gov. Jay Inslee, in an effort to diversify the industry, last April signed a bill to issue more business licenses to "qualified equity applicants," while also providing them with technical assistance to kick-start their cannabis companies.

The law also created a state Marijuana Equity Task Force and allows Washington's regulatory agency to grant forfeited, canceled, revoked or otherwise unissued marijuana business licenses to people from communities that have been disproportionately impacted by the drug war.

Barfield said he plans to apply for a license when it becomes available but said he believes politicians often use "equity" as a diversionary tactic.

"The answer is social equity, right?" he said. "They say 'let's study it for a few years and implement it later.' In the meantime, we [Black entrepreneurs] are on standby, not making any money while others fill their pockets. It's infuriating."

All eyes on New York

In New York, the economic and racial equity component was not an afterthought — it was key in passing the legislation.

Several lawmakers argued that a big chunk of the tax revenue should go to Black and Latino communities hardest hit by disparate enforcement of marijuana laws, despite the governor's initial wish to allocate a greater percent of the money to the state's general fund.

In the end, it was decided 40% of the tax revenue will be steered to those communities, and 50% of marijuana business licenses are to be issued to "social equity applicants," which include women, minorities, disabled veterans and distressed farmers.

Applicants with a marijuana-related conviction, or who are closely related to a person with a marijuana conviction, will be given priority. Additionally, people with past marijuana convictions whose actions would now be legal can get their records expunged.

Wake and Bake Cafe owner Naissant, who is Black, said she likes that the state "intends to work with minorities planning to apply for licenses" but is still concerned about whether the new law will really benefit those most hurt by drug law enforcement.

"Politicians always talk a good game, so that's the worry," she said. "I hope they really see to it that they're making things right ... that's what I most want to see."

Ashun Jackson, a Black entrepreneur who owns 10% of Hemp for Life, a new Cold Spring Harbor-based CBD business, said he agrees.

Jackson said he is anxious to see how marijuana legalization will help improve the lives of New Yorkers negatively impacted by the old drug laws and said he's wary of larger corporations "coming and swooping in."

"I hope those who've been in the business waiting for this chance don't get left behind."

The big guys

Larger companies, like the state's 10 medical cannabis operators, are also eager to enter New York's recreational cannabis market.

And when they do, it seems they'll have a leg up: Under the new law most businesses will only be allowed to hold one type of license in a move to prevent market consolidation. For example, if you have a grower license, you will not be allowed to also hold wholesaler or retailer licenses. But an exception will be made for these companies, many of them "vertically integrated" seed-to-sale operators with locations in multiple states.

These businesses will gain access to the new market by paying a one-time fee and will be limited to eight dispensaries each.

Cresco Labs, a Chicago-based company that is one of New York State's medical marijuana operators, is one such company. The business has five facilities in the state, including a medical marijuana dispensary in Huntington Station, and it operates in nine states.

The company is exploring the expansion of its footprint in New York, said Christian Ficara, vice president of government affairs, noting that though it's still too early for specific plans, Cresco is excited at the prospect of participating in the recreational market here.

"We're looking forward to collaborating with local governments and with the community," he said.

"As one of the larger cannabis companies in the country, it's important for us to make sure our presence is of benefit to the local residents of the areas we serve."

Cresco Labs is also invested in helping create "a diverse, robust and inclusive" cannabis market, he said, highlighting Cresco's Social Equity & Educational Development (SEED) program — an initiative focusing on restorative justice efforts such as criminal record expungement events and a business incubator for minorities wanting to start cannabis companies.

Finally happening

In addition to those directly involved in growing, processing and selling marijuana, a variety of businesses see an opportunity to cash in.

Ryan Clout, owner of LI Hydro, a 14-year-old garden center and hydroponics supply business in Islandia, said he's been waiting for recreational marijuana legalization for "such a long time."

"Now that it's finally happening, we're expecting to see a big boom in business," he said.

The hydroponic products he sells, Clout said, are popular among cannabis growers and often "don’t end up in New York."

Because the new law allows limited home growth — three mature and three immature plants per person, and a maximum of 12 plants per household — he said he's counting on a boost in sales from local customers.

Medical marijuana patients will be able to grow cannabis at home six months after the bill was enacted March 30. Recreational users, who must be 21 or older, will have to wait longer to try their hand at at-home cultivation — 18 months after the first legal marijuana sale.

"We're excited, our customers are excited. New York has been way behind the times in terms of legalization, and now it's time for us to finally catch up," Clout said. "It might take a bit, but the business, the sales, it's coming. ... This is what we've all been waiting for."

Cannabis Control

Under the Marijuana Regulation and Taxation Act, also known as the MRTA, the newly created Office of Cannabis Management will regulate the state's recreational and medical marijuana programs.

The Office of Cannabis Management will be overseen by a Cannabis Control Board made up of five members. Three members, including the chairperson, who must be approved by the Senate, will be appointed by the governor. The Senate and Assembly will appoint one member each.

There will also be an advisory board made up of 13 members, seven appointed by the governor and six by the legislature. The board "must have balanced statewide geographic representation and be diverse in its composition," and appointees are required to have expertise in fields relating to health, social equity and the cannabis and agricultural industries.

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