Poor liquidity and lack of banking reform will likely continue to limit institutional investor involvement in MSOs, regardless of bank policies, according to one analyst.
Shortly after former New York Governor Andrew Cuomo signed the Marijuana Regulation & Taxation Act (MRTA) legalizing adult-use cannabis on March 31, 2021, legislators created the Office of Cannabis Management (OCM) governed by a Cannabis Control Board (CCB) to oversee and implement the law.
Finally, after six months of inaction (and Gov. Cuomo resigning), the signing of the MRTA took place on September 1 under the state’s new Governor Kathy Hochul who duly appointed a chairperson for the NY Cannabis Control Board (CCB) and an Executive Director of the Office of Cannabis Management (OCM).
Seemingly all good news for the industry, however, adult-use cannabis sales are nowhere near to becoming a reality.
New Chiefs in Town
Once the State Senate confirmed Gov Hochul’s nominee to chair the CCB, former Brooklyn assembly member Tremaine Wright, as well as her nominee for executive director of the OCM, Christopher Alexander, the hope was that the long-awaited legal cannabis industry, on track to be one of the largest in the country, would finally get underway.
Patience is a virtue.
Adult-use cannabis sales will not likely start until the first half of 2023, at the earliest, predicts Cantor Fitzerald’s Pablo Zuanic.
Several questions “remain in the air,” such as the possible legal challenges to the proposed hybrid “two-tier” system and whether there will be cultivation caps established by municipalities and counties, allowing only one multi-state operator (MSO) to open a cannabis shop in towns.
According to Zuanic,“poor liquidity and lack of banking reform will likely continue to limit institutional investor involvement in MSOs, regardless of bank policies.”
With the MSOs ETF down 19% over the past three months (S&P500 +7%), and federal level action on the CAOA (Cannabis Administration Opportunity Act) unlikely until mid-2022,” Zuanic said that, for now, “state-level news will likely be the main catalyst for the group.”
Key Questions For The Near Term
As of today, is not clear how many retail licenses will be issued and if there will be a cap on the number of stores allowed to be set up and, naturally, how these issues will impact current dispensary economics. There is also the question of dispensaries being permitted to sell cannabis flower and whether home delivery service will be allowed.
Cultivation: It is also not clear if there will be a cap on cultivation and, if so, how to expand capacity.
Another important set of questions has to do with industry access and market participation as in who will have priority in the licensing process. And, Zuanic pointed out that one wonders what the cost of doing cannabis business in New York is going to be.
According to the current rules regarding medical marijuana, those with newly issued cultivation/production licenses will not be allowed to own distribution/retail licenses. However, incumbent medical licensees will be allowed to own both retail and production licenses, which Zuanic warns could well end up being “a sticking point that may lead to lawsuits and delay the program’s start.”