The HVADC Cultivator
HVADC Leads Statewide Dialog on
Future of New York Cannabis Industry
On April 20, Hudson Valley AgriBusiness Development Corporation (HVADC) Executive Director, Todd Erling hosted a New York State Economic Development Council (NYSEDC) webinar for an audience of economic development leaders and stakeholders from across the state. Titled “Growing New York’s Economy: What the New Cannabis Bill Means For Your Community,” the virtual event provided important information and industry-shaping guidance on how the legalization of recreational cannabis is about to unfurl economic opportunity across every region of the state.
In March, New York State officially legalized cannabis and recreational marijuana with the Marijuana Regulation and Taxation Act (MRTA). This new law is projected to create a $4.2 billion industry by 2025, in one of the nation’s largest markets. The legislation is emphatic that the new cannabis industry must be diversified throughout all communities and provide socially and racially equitable opportunities for all New Yorkers from black and brown urban communities to upstate rural family farms, many of which have been passed over time and time again. With federal legalization a future inevitability, Erling emphasized that this is an unprecedented moment that will require “all hands on deck” to make sure New York is positioned to be the economic and moral leader in this huge emerging market.
Sharing the virtual stage with Erling were, Daniel Ahouse, President of Stockade Strategies LLC.; Kaelan Castetter, Chief Executive Officer of Castetter Sustainability Group; and John Gilstrap, CEO of Awaken Space. All three have been immersed in the policy specifics of MRTA and are working closely with cannabis entrepreneurs great and small looking to break into the New York market.
Erling began the event by recognizing NYSEDC for acknowledging the need for forums such as the April 20 event. “It really is a sign of the maturation and the potential for not only cannabis but also for agriculture, local food, and craft beverage,” Erling began. “We are starting to see a lot of common denominators here and New York is leading the pack, especially on the east coast. I feel very optimistic that we will have the opportunity to do with cannabis what has been done with artisanal craft beverage even better and even more so.”
MRTA is a holistic bill and an effort that goes beyond typical regulation seen in other states, Erling said. It addresses licensing for every step of the process from seed to retail but it also includes mandates around social inclusion, diversity and equity. Moving forward, economic funding opportunities, like grants, will take these issues in to consideration.
“The common denominator is to provide populations that have felt out of touch, with economic opportunity, jobs, education, and fiscal revenue to be able to better their communities,” Erling continued. “There is the opportunity for this to have benefit on the neighborhood level as well as urban communities, and all the way through the rural communities upstate that have felt forgotten at times. This is truly a measure for everyone from Buffalo to the tip of Long Island - Manhattan to the Canadian border. It’s a dynamic landscape.”
Erling pointed to five major themes in MRTA’s language that entrepreneurs and business leaders will need to keep in mind when attempting to navigate the ecosystem in which the state is molding the cannabis marketplace:
The state will, in part, be directly addressing cannabis regulation as a criminal justice reform issue. This notion was foundational for the bill getting passed through the legislature and it will remain central to state’s thinking on the issue moving forward.
There is a strong focus on building in opportunity for small family businesses and individual communities, not just large corporations. Single businesses will not be allowed to control every aspect of the supply chain vertically. Smaller businesses of many types will be able to compete in four discreet sectors: Cultivation, Processing, Transportation/Distribution, and Retail.
The state wants to make sure there are some “circuit breakers” and safety nets built into the industry so that there is always an opportunity for small businesses and communities to use the cannabis tax revenue for community reinvestment and social good.
Protecting young people and providing comprehensive education to consumers is vital. Regulations will be put in place to insure safety, honesty and transparency as is currently done with food safety and any other product taken into the body.
There will be advertising and marketing restrictions to truly insure legal cannabis is only made available to adults over 21 years old.
The new law still has many aspects that have yet to be clarified and the new NYS Office of Cannabis Management has yet to get up and running, however, there are significant ways for communities to opt-in and support businesses that want to take advantage of this economic opportunity now.
Setting the Tone for Opportunity
It’s important, Erling expressed to the audience, for development leaders to set a tone within their communities that is in tune with the unique characteristics of their economic environment. For instance, a New York town adjacent to Great Barrington Massachusetts, where there are currently thriving recreational dispensaries, has different market opportunities then a community on the border with Pennsylvania where there is little movement on legalization. There will be options for communities to “opt-out” of recreational cannabis but leaders should stress to municipalities that this includes opting out of significant new revenue streams.
Kaelan Castetter is the Vice President and Co-Founder of the New York Cannabis Growers and Processers Association. In that capacity he has been representing professionals in the cannabis industry for the past three years and worked on the refinement and passage of the New York laws regulating the cultivation and processing of hemp and products containing CBD (the non-psychoactive, therapeutic chemical in cannabis).
“Working closely on the hemp law and MRTA, and the compromise between the two, we feel that the version that just passed is pretty close to the best version and one of the best pieces of legislation for legalizing adult use cannabis in the country,” Castetter said. “There are multiple opportunities throughout the supply chain for small businesses and entrepreneurs, including licenses for things like nurseries, on-premises consumption and at home delivery. There is also the ability for special use permits to allow entrepreneurs to find their niche.”
“The cap and prevention of vertical integration built into MRTA is unique,” he continued. “New York is going to prevent the consolidation and monopolization that we have seen in other states. It’s going to come down to regulation and the state needs to be intentional about lowering the barrier of entry and the cost to be involved in market place.”
Regulations, Castetter impressed, need to make things safe for consumers but not price out operators.
The NY Cannabis Industry Will Emphasizes Equity
John Gilstrap then outlined how the bill has been crafted to support social equity and racial justice, in urban and rural communities. He said his experience in and around the medical cannabis industry has made him confident that the industry’s success will hinge on grass roots organizations and small businesses.
“We have to find a way to create an inclusive and economically equitable program that is to help black and brown communities, small farms, family farms, Asian communities and other underrepresented people get a shot at becoming economically viable in this industry,” Gilstrap said. “If New York is going to reach this $4 billion revenue mark in 2025, we have to have everybody working on all cylinders around the industry.”
Talking directly to the audience of state economic leaders Gilsrtap said pointedly that this initiative of inclusivity has to be foremost in their planning moving forward. Taking a free-market competition-based approach within a municipality will result in a loss of opportunities.
“I think states like Colorado and Washington are regretting that they didn’t focus on this early on because there are huge pockets of dislocation in their economy where folks are not involved in the marketplace,” Gilstrap continued. “Sure they generate a lot of revenue but it’s not spread evenly around the economy’s in the state and that’s something we really have to be careful about watching.”
A Big Industry of Small Business
As a government affairs consulting operation, Daniel Ahouse’s company, Stockade Strategies, has worked with a diverse group of businesses and stakeholders as they plot out their entry into the New York market and the Hudson Valley specifically.
“My experience in the Hudson Valley has been with multistate operators who are mature companies and have worked in states that have already legalized,” he said. “They are interested in entering the New York market as probably one of the most, if not the most, attractive markets in the country.”
While Ahouse is working with major players he is also consulting with startups looking to find capital, including farmers who just want to outdoor grow cannabis as a strategic supplement to sure up their business model. He says building a community hub of symbiotic small businesses is a more attainable goal with more beneficial outcomes, than courting a large corporation.
“For people that are new to the cannabis industry, trying to wrap your brains around what this actually looks like can be hard,” he continued. “This really needs to be viewed as a manufacturing operation that has synergies with an agriculture lifestyle, as well as the social equity side.”
Ahouse also brought up that the industry requires high tech equipment, and the players that will soon be vying for market space are sophisticated businesses that will be creating good job opportunities in engineering manufacturing, laboratory science as well other high-income careers.
The higher-grade product will come from higher-tech environments such as greenhouses and indoor growing operations. This changes the idea about where an agricultural operation could be located. Community leaders could be identifying underutilized industrial buildings and warehouses that can be retrofitted. Because of the large financial yield per plant, indoor grow operations do not necessarily require a large footprint.
“We have this extraordinary opportunity to build an industry from the ground up,” Ahouse said, “When do we have a chance to do that? If we do this the right way, building a diverse industry that maximizes opportunities to synergize with our communities, there is a way to maximize the benefits for everyone we just need to be working off of the same script.”
A New Economy Requires New Support Mechanisms
“The opportunity to be innovative and creative here is really off the scale,” Gilstrap said. “Colorado has been at this for years and last year made $2.5 billion, but Colorado’s population is five million people. Brooklyn and Queens have five million people. The industry in New York can be much more diverse with the types of businesses, and racial and ethnic makeup.”
“We should also think about how we get cooperative incubators going,” he continued. “There’s an opportunity to create centers of influence and market hubs here where different regions can create competition for who can create the best hub for this industry - maybe connect it to universities, SUNY, create workforce development. There are lots of ways to support social equity without disadvantaging the larger players in the sector.”
There are not just opportunities for the growth of businesses that interact directly with cannabis products. Support professionals like law firms, accountants and marketing companies will see many new clients. There is also a great deal of potential for the integration of renewable energy in the sector.
Erling added that in other states it has become very difficult for cannabis related businesses to bank, get insured or access other professional services. Development officials need to press on leadership from the state level to dismantle this roadblock but they will also need their community to step up and embrace the opportunity and create some of their own solution as well.
Cannabis consumers are one of the most coveted demographics out there and the same is true for their work force, which, according to Castetter, has been shown to be educated, community oriented and concerned about the environment. Embracing the industry means more than just tax incentives, it also requires dropping the stigmatization of the industry’s work force and customers.
Setting New York Apart
Currently MRTA states that a business must grow in New York to sell in New York but that could change with federal legalization. Erling warned that we could see cross state cannabis sales within five years. So, New York’s industry needs to aggressively move forward and empower businesses now so Empire State businesses are ready to lead the country and the world in this industry, once it’s legal nationally.
Ahouse said that nurseries and research and development operations are areas where there is an opportunity to make unique strains and new products that will let New York gain a foothold atop the market.
“In anticipation of federal expansion we have got to be asking ourselves, when that happens, how will New York be able to differentiate ourselves from the rest of the states?” Erling said. “A lot of the focus of that question from the legislative leaders and the governor has been on making sure New York has premium quality product, so that when states like Kentucky, for instance (who have a rich agricultural history in tobacco) start to enter the industry, they might be able to produce at higher scale and at a cheaper price point but their quality isn’t going to be able to match up with what New York can produce, if we do this the right way now. That’s with research and development into strains with our seed and nursery providers.”
How to Prepare Today
With the first permits not becoming available for another 9-18 months what can development leaders do now to prepare their communities for the opportunities ahead? Castetter says the first thing is messaging. “Getting out in front as business professionals and talking to entrepreneurs throughout the state to make it clear that your municipality is open for business is key,” he said. “Also with municipal opt-outs coming up we can help municipal officials understand what they would be missing out on.”
Ahouse added that bringing together stakeholders ASAP will make a difference. “Not just farmers and growers but also utility companies, and science research facilities,” he said. “Bring them to the table and start thinking about what these opportunities really are. Local nonprofits, churches, everyone - start convening these groups immediately. A lot of stakeholders will have to be involved early so we can hit the ground running when the rules and regulations are in place in 6-18 months.”
“I’ve been working in economic and community development with HVADC for 14 years,” Erling said, as he concluded the event. “This is one of those unique opportunities and moments in time where, statewide, we can benefit a struggling multi-generation dairy farm and at the same time some inner-city communities. But with that, we need to understand that this industry needs to actually look like what New York looks like and that’s different for each community.”