Ban on vertical integration considered as solution to diversity in New York’s cannabis industry

New York state is moving closer to legalizing recreational marijuana. If it does, it will create a new marketplace. State and local lawmakers are considering ways to make sure that small business-owners, especially people of color, will be able to compete with large corporations. Moira Warburton explores one proposed solution.

SOUND 1: Music, chatter (play until end of PHAN 2)

WARBURTON 1: Steven Phan is a small business owner. Come Back Daily, a small dispensary in Tribeca.

PHAN 1: My name is Steven Phan, I’m one of the founders here at the shop.

WARBURTON 2: If you noticed Phan sounds relaxed, it’s because he just drank a CBD-infused orange-flavoured tincture. CBD is a non-psychoactive element of the marijuana plant. That it means it won’t get you high. The store has whitewashed walls, with racks filled with lollipops, essential oils, and tea.

SOUND 2: kettle boiling, tea being made

WARBURTON 3: Phan opened the store last fall. He’s concerned about competition from big businesses.

PHAN 2: It would be challenging. … They have unlimited money, pretty much. I don’t have that.

WARBURTON 4: The legal marijuana market in New York state is projected to be worth over $3 billion dollars. Lawmakers are trying to figure out how to make sure small businesses like Phan’s, as well as people of color, are included in the benefits. One fix suggested by a New York City Council committee? A ban on vertical integration. Andi Novick, co-founder of the New York Small Farm Alliance of Cannabis Growers, explains the process.

NOVICK 1: Ok, so. Vertical integration means that one company can control it from seed to… there’s a saying for that.

WARBURTON 5: That saying is “seed to sell,”

NOVICK 2: From the growing to the processing to the producing into whatever product, the selling – all of that is controlled by one company.

WARBURTON 6: You can’t ban big companies. But you can put limits on them. Figuring out how to do that has got local lawmakers concerned.

NOVICK 3: When vertical integration has been permitted in states, you see a few corporations getting bigger and bigger, controlling everything.

WARBURTON 7: In Colorado and Washington, that meant that small businesses suffered. In Washington state, which allows vertical integration, retail prices of legal cannabis dropped from $35 a gram to $7.50 (seven dollars and fifty cents) in just a few years. The lower revenue devastated small companies.

Matt Karnes is founder of GreenWave Advisors, a financial research firm in the cannabis industry. He says, there’s an economic incentive to vertical integration. There’s a benefit to having all elements of the process under one roof.

KARNES 1: You also have access and gain intelligence on your customers. That lends itself to the research and development and innovation, and really getting a better sense of what the customer wants.

WARBURTON 8: Without that integration,

KARNES 2: The left hand might not necessarily know what the right hand is doing.

WARBURTON 9: But black lawmakers in Albany (AHL-buh-nee) say the benefits aren’t worth it. Vertically integrated companies require a lot of capital to start. The lawmakers want to ensure the market stays favourable to small businesses, which tend to be more accessible to people of colour. Dasheeda Dawson is president of Flora Buffalo, a cannabis tech company. She’d like to see the industry include more leaders like her, a woman of colour.

DAWSON 1: The reality is that it’s abysmal in terms of the percentage. Last time I was having a conversation I believe we were quoting one percent as ownership.

WARBURTON 10: She says, even the fact that the black lawmakers’ concerns are being taken seriously marks a big change from earlier legalization efforts. States like California didn’t. They had to implement inclusivity measures retroactively.

DAWSON 2: It wasn’t until New York and New Jersey came into play that we’ve been talking about day one equity in the legalized market.

WARBURTON 11: Still, Dawson and Andi Novick, from the Small Farm Alliance, agree that some vertical integration is fine, as long as room is left for small businesses and people of colour to succeed.

NOVICK 4: We’re just saying, you can’t do everything. You can’t get that large. It’s more to level the playing field, actually.

WARBURTON 12: Governor Cuomo has committed to legalizing recreational cannabis in New York by June.

Moira Warburton, Columbia Radio News.

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