Based on extrapolation of illegal street sales, the New York marijuana market is between $1.7 billion and $3.5 billion, a study determined.

, Rockland/Westchester Journal News
Published 6:00 a.m. ET April 22, 2019 | Updated 11:15 a.m. ET April 22, 2019
Originally Posted to Lohud

New York’s recreational marijuana battle sits on the front line of a generational war over American cannabis laws. As debate heats up, USA TODAY Network New York is compiling answers to key questions about legalized cannabis.

As New York considers legalizing marijuana for recreational use, it faces a raft or problems that includes mismanaged marijuana harvests, pot-pricing cliffs and banking challenges.

From overzealous marijuana producers collapsing prices to banks fearing federal government crackdowns on pot business, the legal cannabis marketplace in states across the country has faced severe growing pains.

Concerns about legal marijuana’s financial regulation have some lawmakers, including Gov. Andrew Cuomo in New York, pushing reforms to keep pace with one of the fastest-growing segments of the American economy.

Some cited how U.S. medical and recreational marijuana sales are expected to reach tens of billions of dollars in coming years, despite fiscal hurdles driving some cannabis players into Canada’s legal marijuana investment rush.

What follows is an analysis of New York’s cannabis economics based on government data and the USA TODAY Network’s ongoing investigation of the issue.

Pricing pot

Authorities in New York looked to street drug dealers for guidance on pricing recreational marijuana as part of the push towards legalization.

In a state-sanctioned study of the issue, officials based fiscal estimates for legal marijuana, in part, on reviews of illegal pot sales in New York, where dealers charged about $270 per ounce for medium quality strains and $340 per ounce for high quality.

Further, New Yorkers buy about 6.5 to 10.2 million ounces per year, which means the state’s marijuana market is between $1.7 billion and $3.5 billion, the study asserted.

After accounting for potential markups, the drug dealers’ pot prices proved key to Cuomo’s plan to collect about $300 million in tax revenue per year if marijuana is legalized.

The pot study, however, also broadly conceded other states already permitting legal weed have struggled with pricing volatility, noting New York should set prices accordingly to limit risks.

Yet the gritty details in states like Colorado and Oregon underscored pitfalls of legal marijuana economics, such as drastic price cuts threatening legal weed businesses, missed tax collection estimates and thriving black markets, according to USA TODAY Network.

Oversupply and demand

Experts described legal marijuana pricing stumbles as an ongoing attempt to define a historically shadowy marketplace.

In Colorado, for instance, the average price of marijuana bud dipped to $864 per pound last year, having fallen from a peak of about $2,000 in 2015. It dropped as the highly competitive initial rush to sell legal weed overestimated demand and misjudged entrenched street dealers, USA TODAY network reported.

“Retail marijuana is a relatively new, maturing market with a lot of early entrants and resultant over-production,” said Steve Ackerman, who owns a Colorado dispensary, Organic Alternatives.

“Downward pressure on prices will drive the less efficient players out of the market and prices will stabilize,” he added.

Yet while prices dropped and endangered some businesses, marijuana tax collections steadily climbed in Colorado despite missing early estimates. The annual total for taxes, licenses and fees related to legal marijuana hit about $267 million last year from $68 million in 2014, Colorado records show.

In Oregon, a similar over-production pricing curve helped destabilize the fledgling industry. Regulators last year temporary halted new marijuana business applications amid outcries over unstable prices, illegal sales to minors under 21 and legal pot being smuggled onto the black market.

In New York, Cuomo’s cannabis legislation would leave recreational pot pricing up to retailers, but it influences them through taxes and business licensing tied to government regulation of the cannabis industry from seed to sale.

Medical marijuana lessons

New York’s first-hand legal marijuana experience is limited to its medical cannabis program, which struggled for years to attract and retain patients in part due to high prices.

One reason is insurance companies largely refused to cover medical marijuana, citing federal prohibitions and leaving some to pay hundreds of dollars per month for cannabis-based drugs to treat serious illnesses like cancer and epilepsy.

The situation got so bad that Cuomo directed regulators to formally remind health insurers of their obligations under state law.

A public notice in 2017 explained insurers cannot deny coverage because a doctor may provide medical marijuana certification during an otherwise covered office visit, removing some cost barriers.

But patients still pay out-of-pocket for the drugs that are illegal under federal law, which makes it unaffordable for some as prices reflect the costly production involved in meeting medical quality standards.

Reforms that expanded the list of eligible illnesses, including chronic pain, and medical professionals allowed to certify users, however, have grown the patient pool to about 100,000. 

Cannabis banking

Cuomo has also urged banks and credit unions to accept medical marijuana companies and hemp growers dealing in the non-psychoactive cannabis cousin.

He vowed last year that state financial regulators wouldn’t punish anyone involved in the financial deals, despite the threat of federal interference.

 

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