Andrew Cuomo shored up a lot of political capital for his strong leadership during the worst of New York State’s Covid-19 crisis. Indeed, fully 87 percent of New Yorkers approved of Cuomo’s response, according to a Siena College Research Institute survey.
So, how is Cuomo is going to take advantage of all those warm and fuzzy feelings among his constituents? Cannabis tech entrepreneur Howard Lee thinks now is the time to press for legalization. “My advice is, what are you waiting for?” Lee said during a free-ranging interview this week. “Many states have proven that they can do it legally, do it safely and provide a better product o their consumers.
“How many times can you generate $300 million in tax revenue on a recurring basis now that’s still growing – in less than three or four years? What is New York waiting for?”
In fact, New York needs the tax revenue badly due to its Covid losses –20,000-plus deaths and untold economic losses. So now’s the time to join the states that are legal (for both recreational and medical cannabis), which in FY 2019, according to a recent Tax Foundation report, chalked up impressive excise tax revenues.
Examples: Washington State’s revenue gain was $390 million; California’s was $390 million; and Colorado’s was $251.8 million.
The thing is to institute legalization correctly, and that means knocking out the illegal sellers, says Lee, who draws on his expertise as a former senior vice president at The Disney Company and now CEO of Seattle-based SōRSE Technology. SōRSE works with legal markets to implement its software, which helps companies to transform cannabis oil into a water-soluble emulsion for a consistent psychoactive effect and good taste in CBD- and THC-infused beverages and other edibles.
Drawing on his experience working with legal markets in multiple states, Lee shares some definitive ideas on what future legal states should be doing (and here he focuses on New York because of the hard hit it took from the virus):
· Scrap the practice of vertical integration, in which one organization handles every aspect of the supply chain from cultivation to distribution to retail.
Companies find vertical integration – which is permitted in Colorado, Massachusetts and Florida – attractive because it helps them limit competition and keep much of the margin to themselves. But the down side is that smaller businesses then find it difficult to enter the industry, exacerbating problems for lesser-funded companies, including minority-owned ones.
· Combine the legal and “gray” markets. For Lee, “gray” means the non-tax-paying medical dispensary business.
The issue, he says, is that black market sellers/distributors legally buy cannabis from medical dispensaries and then resell these products for recreational use at cheaper prices on the black market. This move incentivizes consumers to use the black market.
But by merging recreational and medical cannabis sales at the same outlets, for a unified marketplace post-legalization, legal dispensaries can help put an end to black market sellers/distributors. And the state benefits.
Combining sales is exactly what happened in Washington State, Lee says (unlike California,, which still has many unlicensed medical dispensaries); illicit buying slowed once all legal cannabis products were sold in Washington at the same price.
· Tax medical products, at least for an introductory period.
Taxing medical products equally with adult use would make sense, the entrepreneur argues, because often they’re the same products people use recreationally. And while Lee acknowledges that moving to tax the medical side of the aisle would be deeply unpopular, it could be a temporary measure; people with a true medical need could then make up the tax they have to pay by qualifying for a lower price or rebate.
“The cost of product will be less than the medical cannabis cost overall, including the cost of the tax,” Lee explains. Once the market became robust, the state could revert back to non-taxed medical cannabis.
“I don’t believe we should let people game the system with two starkly different tax structures,” because that won’t let either market, recreational or medical, grow legally nor create a truly robust industry, Lee says.
Washington State is a good example of how a robust market lowers overall prices, Lee says: Three years ago, the average kilo there cost $14,000, he says. Today it’s around $3,500 or $4,000. More points of advice from him:
· Legalize in order to advance social justice. Carrying just one ounce of marijuana in Texas gets you a mandatory six-month jail sentence. This scenario in Texas and other states hits minorities particularly hard, Lee points out.
· Respond to the Covid-19 crisis in a newly legal state by making delivery of cannabis products legal. This will ensure access for those who need these products the most for medical purposes
· Pay close attention to the quality of newly legal products. Legalization allows certain states – again, Washington State has already done this, he says – to set up software to track the sale through the recreation market. Tracking allows for resting for pesticides, chemicals and claims about a product’s strength.
“I would say that if I had to choose between the black market and the recreational market, I would pick the recreational market any day,” Lee says, “because I don’t know where the stuff is grown. You could be smoking Roundup [the weed killer] and not know it.”
So … vertical integration, gray markets, social justice: Is New York ready to start “spreading the news”?