(Business Insider) â New York justÂ legalized marijuanaÂ for adults over the age of 21.
The state Senate and Assembly passed theÂ billÂ late on Tuesday, and Gov. Andrew Cuomo signed the bill into law on Wednesday morning. New York is nowÂ the latest stateÂ to legalize cannabis, following in the footsteps of its neighborÂ New Jersey.
It’s the third time state legislators have tried toÂ legalize marijuana, though hang-ups over taxation, impaired driving, and social-equity provisions prevented earlier iterations from passing. Medical cannabis is already legal in New York.
Though New Yorkers aged 21 and over are now legally allowed to possess and smoke cannabis, adult-use cannabis sales won’t begin anytime soon.
Andrew Carter, an analyst at Stifel, said he expects recreational cannabis sales to begin in late 2022. Analysts from Cantor Fitzgerald and Stifel estimated that New York could become a $5 billion cannabis market by 2025.Here’s what you need to know about the law and how to investStocks to buy
Right now, there areÂ 10 medical-cannabis licensesÂ in New York. LegalizationÂ gives some benefits to companies that already operate in the state.
Of those 10 licenses, five are owned by publicly traded cannabis companies with either strong recent financial performance or deep-pocketed backers: Cresco Labs, Acreage, Columbia Care, Curaleaf, and Green Thumb Industries.
Pablo Zuanic, an analyst at Cantor Fitzgerald, said in a noteÂ earlier this monthÂ that these stocks could pop when New York legalizes.
On Wednesday, the morning Gov. Cuomo signed the bill into law, operators in New York saw an uptick. Curaleaf’s stock climbed 1.2%, Green Thumb Industries was up 9.2%, and Columbia Care was up 10.3%.
Canadian cannabis giant Canopy Growth also has anÂ option to acquireÂ a majority stake in Acreage Holdings, once it’s federally permissible to do so.
Vivien Azer, an analyst at Cowen,Â has long saidÂ that New York’s legalization would give a big boost to existing operators. She said Green Thumb Industries, Curaleaf, Cresco Labs, Columbia Care, Acreage Holdings, and Vireo are companies that would benefit.Deal mania
Some of those 10 companies â or at least their assets â could beÂ acquisition targetsÂ for cannabis companies looking to enter what’s likely to be one of the bigger cannabis markets in the US. Other states that have recently legalized adult-use cannabis have seenÂ a boom of M&A activityÂ as cannabis giants have made deals to expand their footprints.
Cannabis lawyers told Insider earlier in March that private companies and struggling multistate operators looking to sell off assets to stabilize their balance sheets are likely to be acquisition targets. The companies that fit this bill include privately held Etain Health and PharmaCann, as well as unprofitable public companies MedMen, iAnthus Capital, and Acreage. Ascend Wellness said in February that it wouldÂ take a majority stakeÂ in MedMen’s New York assets.
Major cannabis firms have already used deals to build their presence in New York over the years, in anticipation of legalization. Valley Agriceuticals wasÂ acquired by Cresco LabsÂ in August 2019, and Green Thumb Industries acquiredÂ Fiorello PharmaceuticalsÂ around the same time for $60 million.Taxation and revenue
Cannabis products will face a 13% sales tax, with 9% going to the state and 4% going to the local municipality, the bill said.
In addition, the state will levy an excise tax based on milligrams of THC â the chief psychoactive component in marijuana â meaning higher-potency cannabis products would be subject to more taxes. There will be a 0.5 cents per milligram excise tax for flower, a 0.8 cents per milligram excise tax for concentrates, and a 3 cents per milligram excise tax for edibles. This tax is expected to be paid by distributors.
Taxes from the legal cannabis industry could add up to $350 million to New York’s coffers as soon as a year after legalization, analysts from the investment bank Cowen said.Social-equity fund
Forty percent of tax revenue from cannabis sales will go toward a new fund to support economic and social-equity programs.
Another 40% will go to the state education fund, and the remaining 20% would go to drug-education programs. This is a win for Democrats who had pushed for social equity to be a component of legalization.
Cuomo’s original bill had proposed setting aside a $100 million fund for social-equity causes, while the remaining tax revenue would be earmarked for the state budget and other needs.Oversight and regulation
The law creates an Office of Cannabis Management and a Cannabis Control Board to regulate the industry. The board will have five members, three of whom will be appointed by the governor. Each legislative house will choose one member.
It’s not yet clear who would serve in these roles. But Norman Birenbaum, New York’s director of cannabis programs, and Axel Bernabe, an assistant counsel to Cuomo, have been the governor’s point people on cannabis reform and are expected to have a big hand in the state’s cannabis program moving forward.Licensing structure
The licensing system gives some advantage to incumbent companies.
Each existing license holder may be able to open four more medical shops, bringing its total number of dispensary locations to eight. Three of those medical locations may be allowed to sell cannabis for adult-use as well.
The Cannabis Control Board is expected to have the authority to “grant some or all” of the existing operators in New York’s medical market access to adult-use licenses. TheÂ 10 operatorsÂ in the state are expected to go after access to adult-use as soon as they are able. The fees these existing operators pay to enter the adult-use market could be used to help fund equity programs, the bill said.
Since all the companies in New York are vertically integrated, meaning they control every part of the supply chain from seed to storefront, the bill provides the option of a “one-time special licensing fee” to let existing operators attain an “adult-use cultivator processor, distributor retail dispensary license.”
New entrants may not be allowed to be vertically integrated, apart from “microbusinesses,” which are smaller operators who can control multiple parts of their own supply chain. The exact criteria for a microbusiness are expected to be determined by the board, executive director, and chief equity director, the bill said. The legislation said that these licenses are geared toward promoting social- and economic-equity applicants.
The bill has a goal of 50% of licenses going to equity applicants.
Analysts expect these small businesses to focus on selling cannabis, instead of growing it. That could give larger operators an opportunity to supply these shops.
“From an operating perspective, the existing MSOs look to have been given an advantaged position in the market, where their vertically integrated operations will be grandfathered in,” Azer said in a Monday note.
New York’s new adult-use market is expected to be a two-tier system where operators may either be cultivators (allowed to process and distribute their own products) or retailers (barred from cultivation). The exceptions to this may be existing medical operators wishing to transition to adult-use and microbusinesses.
New retail operators may be allowed a maximum of three dispensaries. There is not yet a cap on the total number of licenses allowed in New York. This number may be left up to the Cannabis Control Board, the bill said.Store locations
The legislation allows existing license holders to colocate medical- and recreational-marijuana shops, meaning companies that have already spent lots of money on expensive real estate for medical shops would likely have an advantage.Growing at home
New Yorkers over the age of 21 will be allowed to grow up to six cannabis plants at home, with a maximum of three mature and three immature plants per adult. Each household, no matter the number of adults, will be limited to 12 plants.On-site consumption
The state plans to set up a new license that would allow people to consume marijuana on-site at various locations. Licenses for on-site consumption are limited to three per person, and owners of these licenses may not be able to qualify for other licenses, such as cultivation or retail.
Consumption lounges must be 500 feet away from school grounds and 200 feet away from houses of worship, the bill said.Expanding New York’s existing medical-marijuana program
The bill also expands New York’s existing medical program. The list of qualifying medical conditions for medical cannabis will be expanded, along with product options. Flower products, which are not allowed under New York’s medical program, may be permitted under the expansions.
Carter, the analyst at Stifel, said in a Monday note that New York’s 10 operators are likely to enjoy a “strong first mover advantage” because of their existing operations coupled with the state’s expanded medical system. This advantage may be “further enhanced if potential competitors endure bureaucratic bottlenecks.”
This article was updated on March 31 after New York lawmakers voted in favor of the adult-use cannabis bill and Gov. Cuomo signed the bill into law.
This article was originally published by Business Insider.
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