Excerpted from Gothamist By Amina Srna

As New York’s legislature struggles to reach a consensus on how to legalize recreational marijuana, some lawmakers are also seeking to expand the state’s existing medical marijuana program, which is one of the most restrictive in the country.

Senator Diane Savino and Assemblyman Richard Gottfried are co-sponsoring a new bill that would allow companies currently registered to grow and distribute medical cannabis products to increase the number of their dispensaries.

“So, we need to double the number of dispensaries minimally. We need to add more registered organizations,” Senator Savino recently said on the FAQ NYC podcast. “We need to eliminate conditions as a requirement and leave that up to doctors and patients. We need to lift the restriction on smoking.”

A more relaxed medical marijuana system in New York might make the path to full legalization easier. But in states like California, which went from a lenient medical market to a highly taxed and regulated system in 2018, sales of illicit marijuana are vastly undercutting legal weed, and the revenue state lawmakers were expecting to rake in.
According to GreenEdge, a company that tracks cannabis sales, California sold $2.51 billion of legal, recreational weed in 2018, half a billion dollars less than the prior year when only medical cannabis was available.

“California had a very loosely regulated medical-only market, by far the biggest in the country, $3 billion, and then on January 1st it went to completely regulated and licensed,” said Tom Adams, managing director and principal analyst at the cannabis data firm BDS Analytics. “The industry is laboring under the enormous tax and regulatory load that is causing price to be higher than they are on the illicit market.”

California’s taxes include a 15 percent levy on purchases, a cultivation tax of $9.25 per dry-weight ounce of cannabis flowers, and $2.75 per dry-weight ounce of cannabis leaves, and localities can charge their own tax. Medical cannabis products are exempt from some sales and use taxes with a valid Medical Marijuana Identification card.

“People are coming into stores very excited about edibles and concentrates, and they notice right away the prices are much higher than they are from their illicit dealers,” said Adams.

Governor Andrew Cuomo’s proposal to fully legalize marijuana is similar to the California model, and would levy three taxes at various points in the supply chain: a 20 percent state tax on cannabis when it’s sold from wholesaler to retailer, a cultivation tax of $1 per dry weight gram of cannabis flowers and $0.25 per dry weight gram of cannabis trim, and 2 percent would go to the county where the dispensary is located.

According to BDS Analytics, the tri-state region could create a combined market for legal cannabis exceeding $5 billion by 2022, making it second only to California, the current world leader in marijuana. But this assumes that legal marijuana in New York would be able to compete with the illicit market.

New York’s current “medical marijuana” system is a bit of a misnomer because neither doctors nor certified practitioners prescribe marijuana. Instead, they certify patients who then typically work with a dispensary to decide what the best treatment is for them. The existing law only permits qualified patients to have a 30-day supply of non-smokable cannabis-infused products such as tinctures.

“In addition, no insurance company covers marijuana either, it’s a cash only business, and you can’t use your credit card—all of this has federal oversight,” according to Dr. Chinazo Cunningham, a physician and professor of medicine at Albert Einstein College of Medicine and Montefiore Health System, who is on the governor’s advisory board for legal cannabis. “It’s sort of created this shadow market.”

This current shadow market would only stand to get bigger. Under Governor Andrew Cuomo’s Cannabis Regulation and Taxation Act, the current medical marijuana dispensaries would be grandfathered into recreational legalization and would continue to provide medicinal cannabis services.

The startup costs of medical marijuana dispensaries in New York are hefty. Companies pay $210,000 for the licensing registration. Once approved, they have 6 months to build out their facilities. Due to the currently imposed vertical structure, dispensaries have to grow all their weed, sell it, and do everything in between.

As a result, some of the medical marijuana dispensaries in New York State are the biggest lobbyists in the marijuana industry nationwide. According to campaign finance documents, six of the 10 companies that currently sell medical marijuana in New York State gave $155,510 to Governor Cuomo’s campaign between January 2017 and November 2018.
“Cuomo’s proposal, by giving a leg up to existing medical cannabis companies, we’re talking about industry giants like Acreage Holdings, Curaleaf, MedMen, these are companies that would get the mover and shaker advantage in New York,” said Alyson Martin, co-founder of the digital publication Cannabis Wire.

“There’s basically a mad dash by some larger companies to acquire as strong of a foothold as possible as states legalize and they’re spending hundreds of millions of dollars to do so,” said Martin.

Last year, the California-based MedMen opened a store and obtained a license on Manhattan’s Fifth Avenue for $26.5 million — that’s not including the price of the lease. MedMen CEO Andrew Modlin personally donated $25,000 to Governor Cuomo, giving an additional $65,000 through the MedMen Opportunity Fund.

Despite the support for legalization, time is running out for both Cuomo’s proposal and the bill to loosen restrictions on medical cannabis in New York, as the state legislative session ends in June.

“We want medical marijuana to get to genuinely sick people, not use the system as a backdoor for commercialization because advocates don’t have the votes for legalization,” Dr. Kevin Sabet, an opponent of legalization and the president of Smart Approaches to Marijuana said. “This tactic on the part of Big Marijuana’s backers in the legislature is further proof, this is about industry profits, not helping people.”