The wait is over and the race is on as New York has finally begun accepting medical marijuana applications from businesses. Thousands are expected to apply by the May 29 deadline, but only five will be accepted. While the mainstream media focuses on the novelty of medical marijuana in New York, many within the industry are questioning whether or not the program will be able to succeed under the state’s strict regulatory framework.
The most apparent issue facing potential applicants is the steep price it costs to apply. Applicants must be ready to fork over a $10,000 non-refundable application fee and a $200,000 registration fee. For those lucky enough to get a license, they will have to pay that $200,000 registration fee every two years.
Even if each dispensary does well, the prohibitively high cost of registration will be like an albatross wrapped around the neck of every entrepreneur that operates in New York. This condition will be aggravated by the fact that all of this will have to be paid in cash at some point, as marijuana businesses often lack access to basic banking services.
Once the state hands out licenses to the five lucky applicants chosen, each business will own and operate four dispensaries each, totaling 20 dispensaries for New York, or approximately one dispensary per one million people. For a little context, Denver alone has 390 dispensaries for its approximately 650,000 residents.
To make things even more difficult, the dispensaries in question will have to be located all across the state, but they cannot be located in neighboring or nearby counties. Even if business owners are able to find a suitable location, they will still need to get local approval in order to operate.
Assuming that the state reviews and awards licenses in a timely manner, cultivators will have until January 5, 2016, to have a sellable product. As we creep closer to the back half of the year, it seems unlikely that industry members will be able to meet such a short deadline. If someone happens to sue over the licensing process, like in Illinois, then you can kiss all hopes of meeting that deadline goodbye.
Bearing all of this in mind, you might be wondering why anyone would actually want to participate in such a restrictive process. Most investors are as skittish as a deer, so why would people be lining up to apply? The answer is that they are not interested in short-term gains; they are in it for the long run.
“The license is not valuable because of its short term cash flow. It’s valuable because it’s a long term asset,” Adam Bierman of MedMen told Forbes. “Most people that get these five licenses will figure out how to stay in power thereafter.” Operating in New York right now is nowhere near profitable; however, with marijuana legalization becoming more of an inevitability, it will be in the future.