Why New York Will Be Unlike Any Other Legal Cannabis State

A small pebble dropped in a large body of water may not affect the landscape too much, but when there’s big movement or a large stone falling, the ripple effects can be felt on every shore.

Michael Lee | Getty Images

And in the legal cannabis industry, there are few stones larger to drop than New York state.

As the Empire State ramps up to the opening of its adult-use market, the effects are being felt around the region, the nation and even the world.

“The stimulative effect on the global conversation cannot be understated,” says John Kagia, senior knowledge officer at New Frontier Data, noting not just the sheer size of the potential market — more than 20 million people live in the state — but the importance of legal cannabis in the media, financial, cultural and tourist hub that is New York City.

“Because of that we think it is going to create a spotlight on this industry at a scale we have not previously seen, but also create a kind of gravitational influence that’s going to lead a lot more jurisdictions to at least begin this conversation,” he says.

Among those jurisdictions are the neighboring states — Connecticut, Massachusetts, Pennsylvania, New Jersey and Vermont — which are all moving to create or protect their own markets, taking their cues from the sleeping giant awakening along their borders to shape their legislation. The transition is also potentially helping the nation reach a tipping point for federal legalization.

“A state that size going adult-use changes the conversation,” says John Sullivan, executive vice president of public affairs for Illinois-based multi-state operator Cresco Labs, which has operations in 10 states including Pennsylvania, Massachusetts and New York itself.

Experts also see the heavy social equity component of New York’s legalization law potentially becoming a template for future adult-use states.

“It’s a standard-bearer among states that I think other states are following,” says DeVaughn Ward, senior legislative counsel at the Marijuana Policy Project. “Connecticut certainly did.”

RELATED: What’s the State of Cannabis in the Empire State?

Inside New York

The ripples of New York’s legalization were first felt by the 10 licensed entities that are part of the state’s small and intensely regulated medical market. With notoriously high barriers to entry and a tiny patient population due to, until recently, a very strict set of conditions, the state’s medical industry is home to large operators, most of which were generally considered to be positioning for the state’s eventual move to recreational cannabis.

New York’s regulations, taking into consideration the investments already made by those companies, give them something of a running start, allowing them — and newly created microbusinesses — to be the only vertically integrated entities in the industry. The 10 existing medical marijuana companies would be allowed a total of eight dispensaries, five medical and three recreational.

Cresco, which entered the NY market in 2019, currently has a processing facility in Wallkill, about 80 miles north of New York City, and four medical dispensaries in the state. Sullivan says the company is currently evaluating locations with plans to ramp up to its full allotment of storefronts when the regulations are finally complete.

“We’ll certainly be ready to go,” he says.

According to Sullivan, the company currently employs about 100 people in the state, but expects to hire hundreds more in every aspect of the industry, from cultivation to processing to retail. To meet the needs of the expanding medical market and the anticipated recreational demand, the company is building a new cultivation facility in Ellenburg, near the Canadian border. It is also looking for communities that will not only welcome retail stores.

“Where can we make the most impact and bring the biggest change to a neighborhood?” Sullivan says.

Surrounding states

But Cresco also has operations in two of the states that border New York: rec-legal Massachusetts to the east of Albany and medical-only Pennsylvania to the south. While Sullivan does not expect much impact at the Massachusetts operation, he expects the New York effect on Pennsylvania will be a move to adult-use in order to prevent tax revenue from simply driving across the border.

“That always puts more pressure on those surrounding states not to lose the jobs or the revenue that are created when adult use comes to one of their neighbors,” Sullivan says.

Kacey Morrison, senior director of industry analytics at New Frontier, agrees, noting a “drastic effect” and pressure in Pennsylvania from a potential loss to cannabis tourists heading north or east that is causing lawmakers to speed up the process, something she predicts will only increase.

“It’s going to be expedited even further once we get New York sales started,” she says. “Pennsylvania will see a drop in its medical market I expect.”

Meredith Buettner, executive director of the nonprofit Pennsylvania Cannabis Coalition agrees, noting that 40% of Pennsylvania’s population live within a 30-minute drive of either the New York or New Jersey border.

“It certainly puts some pressure on our Legislature to pay attention to the legalization issue,” she says.

Though Ward and the MPP don’t expect Pennsylvania to legalize this year, Buettner says she has seen a “renewed effort” for adult-use since its neighbors went legal. The state’s already robust medical system includes 32 cultivation and processing facilities and close to 200 dispensaries and could transition quickly to an adult-use market, according to Buettner.

“We certainly have an advantage with infrastructure, but we can’t let ourselves get too far behind,” she says.

It’s a philosophy seemingly adopted by Connecticut, which borders New York to the east and is part of the “tri-state area” with New Jersey. Much of the small, New England state is considered part of the New York Combined Statistical Area because many residents commute to New York City for work.

Morrison says legalization was already on the radar in Connecticut, but New York’s move certainly didn’t hurt. After then-Governor Andrew Cuomo signed New York’s legalization bill on March 31, 2021, Connecticut lawmakers acted quickly. Less than three months later, on June 17, 2021, Connecticut Governor Ned Lamont signed a bill making adult-use cannabis legal in his state as well, specifically citing the competition posed by legal markets in neighboring states.

“We’re not only effectively modernizing our laws and addressing inequities, we’re keeping Connecticut economically competitive with our neighboring states,” Lamont said in a press release.

Connecticut is charging ahead faster than other states in the region, with the window for license applications opening in February and sales expected to begin before the end of the year.

RELATED: New York’s First Pot Sales Licenses Will Go to Those With Previous Marijuana Convictions

Social equity

Beyond the economic impact itself, Connecticut’s law also represents an important way in which the ripples from New York’s legalization will be felt: in addressing social equity and reparative justice.

New York’s legislation includes the goal of awarding 50% of licenses to social equity candidates and returning 80% of revenue to communities most affected by the War on Drugs.

“New York having that 50% really set a high bar and put a flag in the sand for equity measures,” says Ward.

In Connecticut, the new legislation calls for similar numbers, with 50% of licenses going to social equity applicants and up to 75% of the excise tax revenue dedicated for community reinvestment.

“I think New York has played a critical role in kind of shaping Connecticut’s legalization bill,” Ward says, but refrains from calling New York’s law a new blueprint, pointing out that medical laws in Southern states do not share the Empire State’s focus on equity.

However, in more progressive states, he thinks New York’s model will become a baseline.

Analysts at New Frontier call New York’s “robust and intentional approach” at social equity a “test case” that surrounding states will pay attention to.

“New York taking such a hard stance is helpful, but it still remains to be seen if states that follow actually implement a social equity program that is effective or if it ends up as a pretty cover that doesn’t do anything to help,” Morrison says.

“New York has a real opportunity to do this right and that will change the dynamic,” says Sullivan.

RELATED: New Report Says Less Than Half of Cannabis Businesses Are Profitable

Finance and beyond

Perhaps the single biggest ripple that can be caused by New York’s legalization comes from its status as a world financial capital and the concentration of banking and lending services in New York City.

“It shines a real spotlight on the absurdity that we don’t have the ability to bank,” says Sullivan, noting that plant-touching U.S. companies cannot be traded on American stock exchanges, while their Canadian counterparts can, something that puts American companies at a disadvantage.

“All of the major banks that are headquartered in New York, all of the capital markets, the large insurance companies, none of them can really invest in cannabis right now,” he says. He also notes that without changes in financial legislation, the state’s goal of 50% social equity licensing may be out of reach.

“That’s really hard to do when you don’t have banks to lend,” he says.

Beyond banking, Kagia notes that New York City has been the “anchor of American cultural cool for decades” and he believes that the city could usher in new, innovative parts of the industry, particularly in the social consumption area, a must for a densely packed city that will rely on “third spaces” for gathering and sharing of cannabis. The social consumption realm, largely untapped across the country so far, could be another ripple effect from New York that reverberates around the U.S. and the world for years to come.

“These are all going to be contributing elements to the very significant spotlight that is going to be placed on NY that is very unlike any other market that is legal,” Kagia says.

And though Morrison says the United States may have already reached a tipping point to federal legalization, this could certainly end all doubt.

“If we weren’t before, New York is the definite, final weight on that scale,” she says.

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