Hawaii Cannabis logo

At a shuttered youth detention center, old dormitories now house the marijuana plants that town leaders hope will treat chronic economic downturn.

At Vireo Health, the company occupying part of the former Tryon Detention Center in Perth, leaders are optimistic their business can bring a much needed boost to the local economy.

“In the greater Capital Region, there’s a tremendous amount of human capital,” said Vireo CEO Ari Hoffnung.

“There’s a lot of talent.

“We want to bring back more (than the 325 jobs) that were lost (at Tryon).”

But Vireo Health and other growers in New York state’s fledgling medical marijuana industry have some hurdles of own to overcome before they can impact regional economies.

So far, Vireo has already made headlines in New York and within the quasi-legal national marijuana industry.
In September, workers at the company were the first of their kind to unionize in the state.

In March, Vireo made national noise when it challenged Google to allow medical marijuana advertisements. In New York, where vendors can’t approach doctors about their products, online advertisement would greatly improve patient access, company leaders agree. (The state Department of Health in August released a series of recommendations for expanding the program that does include “broadening the capability for registered organizations to advertise their participation in the program).

But that’s only one of the many obstacles Vireo faces. Hoffnung is confident he can deliver on his promise, and in the world of medical marijuana, business acumen matters. But state and federal rulemakers still reign supreme. Meanwhile, nine months after New York’s program opened for business, profits lag, enrollment is stagnating and financial hardships abound.

The reasons are many: Critics from the get-go decried the state-run program, which did not include treatment for intractable pain, as too stringent; about 1 percent of New York doctors have taken the four-hour course to register with the program; banks and investors are largely hesitant to throw their wallets behind the trade anywhere, let alone in New York; and, of course, marijuana still is considered the same as heroin and other hard drugs on the federal government’s scale of illegality.

Those issues are compounded by another: Business isn’t cheap. Bid-winning companies paid $200,000 to apply for the program. And that’s just for a seat at the table – the five organizations also had to have facilities shovel-ready as soon as they were selected. Add in building and maintenance, virtually no tax write-offs, the high price of contracted work, and other basic business costs, and suddenly, making a profit seems like a lofty goal, at least to start.

All told, dispensaries in the state could each spend between $15 million to $30 million in the first year, Kris Kane, co-founder of cannabis advising firm 4Front Advisors, told MarketWatch in January.

In Fulton County, Vireo “didn’t even ask” for local tax breaks, county Planning Director Jim Mraz said.
Meanwhile, many agree the 20-dispensary limit set by the state Department of Health has driven up costs of the drug and shut out rural residents.

When the department initially awarded licenses to five of the 43 program applicants, it stated it would “take into consideration whether the number of registered organizations in an area will be adequate or excessive to reasonably serve an area, including whether there is sufficient geographic distribution across the state.”

So naturally, companies mostly picked locations in robust population centers. But given the semi-secretive nature of the bid process – surveys that scored prospective vendors are hidden from the public – the five winners had no way of knowing where others might break ground.

“We were all looking at a blank map,” Hoffnung said. “(We) couldn’t know who would be selected or what decisions they would make. There was no way for us to know at the time of application that others selected locations (like Albany).”

For the 15 counties that house facilities, that’s great news – they receive 22.5 percent of the 7 percent sales tax excised by the state – but in the western and northern reaches of the state, physical and financial access is tenuous.

Currently, the New York City area is home to five dispensaries (with one more slated in Manhattan), while the state’s less-populated hubs are dotted with a majority of the program’s other facilities.

On New York’s southwestern border, patients could travel through six counties before arriving at Vireo’s Broome County dispensary, and those in Plattsburgh – the state’s northernmost facility – would need to hike some-160 miles to find the closest vendor, Etain Health, in Albany’s Warehouse District.

Asked what discretion they used in selecting the locations, the Department of Health said in an email that “the location of the current dispensaries and any new dispensaries needed to meet additional patient demand for medical marijuana throughout New York State are being looked at carefully.” (In its most recent report, the department has recommended expanding how many vendors are allowed in the program.)

Now, the hope is companies can broaden patient access via home delivery. Like all things involved in the movement and sale of a controlled substance, though, doing so will be costly and difficult. But as organizations statewide continue to operate without profit – and as one company, Bloomfield Industries, is already scouting outside funders to stave off slow death – they say they’re ready to pay up.

Fred Posinelli, spokesman for PharmaCann, said his company will gladly incur the financial burden if it means opening the market.

“Right now the issue is patient access,” he said.

The challenge is creating a “scalable and manageable” delivery system that’s also up to regulatory snuff, said PharmaCann General Counsel Jeremy Unruh.

In New York, all operations from seed to store must be conducted by the company alone. If the state chooses to allow delivery without altering other regulations, companies will need to create from scratch a delivery apparatus to haul their drugs across county lines. They can’t use the federal U.S. Postal Service; can’t advertise their services; can’t write off business costs with the Internal Revenue Service (marijuana companies sometimes pay up to 80 percent in taxes); and because banking regulations on marijuana are extremely onerous, most companies have to forego partnerships with major financial institutions, leaving much of the $5 billion traded nationally in sales last year to cash.

Assemblyman Richard Gottfried, D-Manhattan, who pushed multiple votes to ease regulation.

“It makes no sense at all to require a registered organization to own and operate every part of the process,” he said, noting that in many other industries, such a model might be subject to anti-trust laws. “You don’t buy beer from a Budweiser store,” he added.

The Department of Health also has ideas. In late August, officials recommended that the state allow nurse practitioners to recommend medical marijuana; it wants to include chronic intractable pain as a treatable ailment; and, to the dismay of current vendors, it’d like to phase in an additional five organizations over the next two years.

But there’s also an ethics issue: Practitioners “have an ethical obligation to confer with patients,” Unruh said. “…How do we do that in a delivery system?” One answer he floated: Skype.

Companies are also wary of sharing the roughly 8,000 patients enrolled in the program, and fear that an influx of competitors would be a death knell to a program still in infancy.

“We have what I regard as a micromarket that … at its current state does not lend itself to creating a sustainable business,” Hoffnung said.

Others are more direct: “It could literally cripple this program. That’s real and the economics support that,” said Posinelli.

The Department of Health disagrees: “While it is unsurprising that any business might oppose more competition in the market,” it wrote in an email Friday, “additional registered organizations will improve patient access to the program throughout New York State, and patients will also benefit from a broader range of available medical marijuana products.”

Gottfried, who also wants to remove the limit, said the issue “needs to be looked at in relation to several ideas that are on the table.” Other bills he’s proposed would eliminate regulations on intra-company business, allow marijuana use for treatment of severe or chronic pain and would permit smokable drugs, thus opening the market for new and old vendors, he said.

“Medical marijuana is not weapons-grade plutonium, and that’s how New York treats it,” he said.


News Moderator: Katelyn Baker 420 MAGAZINE ®
Full Article: New York’s Fledgling Medical Marijuana Industry Faces Hurdles
Author: Robert Downen
Contact: (518) 454-5694
Photo Credit: Lori Van Burren
Website: Times Union