Get ready for the Northeast to become cannabis country

The Northeast is poised to transform the U.S. cannabis industry — and make New York City the nation’s weed capital.

New York, New Jersey and Connecticut — with a combined population of 33 million — are scrambling to open recreational markets in the coming months. Millions of other East Coast residents in neighboring states will suddenly find themselves within an easy drive of legal weed.

After years of taking a back seat to the West Coast, many industry observers believe that New York City will become the center of the cannabis industry. And the city's outsized influence could be the long-sought catalyst for federal leaders to pursue a national legalization approach.

“New York is going to be Amsterdam on steroids,” said Jeanne Sullivan, a longtime New York-based cannabis investor, citing the tens of millions of tourists who flock to the city every year.

Despite the liberal leanings of East Coast states, the region has lagged on cannabis because many do not allow citizens to place initiatives on the ballot. Most states that have liberalized their cannabis laws have done so through voter-led efforts.

But last year, New York and Connecticut passed legalization legislation, while New Jersey lawmakers approved a legal cannabis framework, carrying out a 2020 ballot measure allowing adult use.

Though the federal government continues to classify marijuana as an illegal drug with no medical uses, there are now 18 states nationwide that have embraced recreational legalization, representing nearly half the country’s population. Another 19 have enacted comprehensive medical programs.

Even staunchly conservative states like South Dakota and Mississippi have passed legalization referendums in recent years as statehouses drive the action without Washington's help. The burgeoning industry took in $25 billion last year, with sales slated to top $40 billion by 2025.

Now, cannabis companies across the nation see the potentially multibillion-dollar tri-state market as a new engine of growth. Earlier this month, multistate operator Verano Holdings scooped up a New York license by acquiring Goodness Growth for $413 million. And two multistate operators — Ascend Wellness and MedMen — are locked in a contentious legal battle over a deal to acquire a New York license.

"Never before have I seen this great mass of new people that haven't invested in cannabis [before] that are now looking" to enter the sector, Sullivan said, noting that New York City is the center of the finance, fashion and advertising sectors. "All those [industries] are already thinking of great ways to play."

Garden State gets the jump

Before a single recreational-use shop opens in Manhattan, Northeast customers will likely flock to weed stores in the Garden State. New Jersey is poised to launch cannabis sales to anyone at least 21 years old well before its neighboring states.

Though the state blew a Feb. 22 deadline for launching its adult-use marketplace, Gov. Phil Murphy recently said that medical dispensaries could start selling to recreational customers “within weeks.”

That almost certainly means New Jersey will get a jump on seizing market share — and initial tax revenue from recreational sales. Upstate New Yorkers, for instance, have long crossed the border into Massachusetts to buy cannabis. Soon, city residents could stream across the Hudson River to shop at dispensaries.

Cannabis Regulatory Commission Executive Director Jeff Brown described the cannabis market as operating on two “tracks” — existing medical operators looking to phase in recreational sales, and brand new recreational businesses entering the industry. Retail applications for new dispensaries are slated to open in mid-March.

One big concern still weighs on regulators: Will there be enough product and access to continue serving medical customers who rely on cannabis for treatment?

“There are some [medical dispensaries] that are still very crowded,” said Brown. “We hear it at every commission meeting we have. There's generally at least one patient who's talking about having to wait in lines at dispensaries to get served. Protecting patients is paramount in launching this market.”

Medical dispensaries insist they can supply both customer bases and have been adamant about starting recreational sales as soon as possible. Applications for new dispensaries are expected to begin in mid-March.

Another major focus for state regulators as the industry opens up: making sure people who were disproportionately targeted by past criminal enforcement are able to benefit from the fledgling industry.

Despite these lingering concerns, New Jersey is far ahead of New York. Nearly a year after Albany lawmakers legalized adult-use cannabis, New York is still months away from launching what will likely become the country’s second-largest recreational marijuana market, behind only California.

New York Office of Cannabis Management Executive Director Chris Alexander said the state could begin licensing activities by the end of the year, several months behind the original expected start date.

New York cannabis leaders say they’re not concerned by the competition posed by New Jersey and Connecticut. Instead, they’re focused on fulfilling the law's social equity goals, which was a major focus of lawmakers in crafting the bill.

“I’m not paying any mind to anybody. We have too much work to do here,” Alexander said. “I don’t feel any pressure from the other states moving. I think it’s great that those markets are getting off the ground, but we have to just focus on what we have to do here.”

$3 million licensing fee

Connecticut regulators also say they’re focused on the importance of meeting social equity goals, rather than launching the market as soon as possible.

The state Department of Consumer Protection opened applications for two types of licenses this month and will issue them through a lottery. State officials say that launching the adult-use market by the end of 2022 is a realistic possibility.

“I’m not competing with other states,” said Connecticut DCP Commissioner Michelle Seagull. “We want to do it right. We want to make sure the social equity goals that are really embedded throughout the legislation … have an opportunity to really play out the way the statute intends.”

Aspiring cannabis growers in Connecticut are dreaming about the day that they’ll be able to sell their crops to dispensaries in New York City. Until then, some entrepreneurs are locating their businesses along the highways that ferry commuters to New York City and Boston, said Luis Vega, the founder of a Connecticut hemp farm who is preparing to apply for an adult-use cultivation license.

Vega and Jason Ortiz, both longtime cannabis advocates in the state, are planning to apply for a type of social equity cultivator license that comes with a hefty $3 million price tag. Even as they move forward, both criticized such a high-cost barrier for a license geared toward disadvantaged communities.

But Andrea Comer, deputy commissioner for the DPC and chair of the Social Equity Council, said there’s a reason: “Some of that money is going to go back to be reinvested in communities, which I think is hugely important.”