As New York inches closer to marijuana sales, pitfalls for businesses getting involved loom large. Just ask some of the players seeking one of the licenses to grow and distribute the previously illegal drug.
Many will describe the millions of dollars worth of up-front investments needed to meet safety guidelines and other regulations in New York’s medical marijuana law, which passed last year.
One of those competing for a license is Derek Peterson, president and CEO of Terra Tech Corp., a California-based company. He answered some questions from the Albany Business Reviewabout the marketplace in New York, where up to five licenses will be awarded. State regulators plan to issue them this summer or fall.
Here is an edited version of the discussion with Peterson, who left a career on Wall Street to pursue the green rush:
Why do you want to get into New York’s market despite the regulatory hurdles?
First off, it’s probably going to be one of the largest markets, but unfortunately not under the current program. Some things have to expand – like the number of licenses from five to something greater than that.
For example, we operate a couple facilities in northern California and just in Oakland alone there are 10 retail dispensaries in a population of about 406,000.
In comparison, for Manhattan’s population you could have close to 15 medical marijuana dispensaries.
(New York’s law currently allows up to five licenses to grow and distribute medical marijuana. Each license is permitted to have up to four dispensaries, essentially where patients buy the drug. That means 20 total dispensaries in New York, though state regulators have said they would consider expanding based on patient demand.)
What are the challenges holding back New York’s cannabis industry?
One main thing is that they don’t allow for the development of marijuana flowers (Basically, New York’s law allows for selling cannabis-based oils, vapors or pills to patients.)
What’s prohibitively difficult is to have the extracted product. There aren’t that many people that have that capability. It takes the amount of equipment that you would see at a biotech or medical facility
It’s one thing to produce the flowers, and it’s a whole other ballgame to extract it. There are reports on a lot of explosions in California because of people doing those extractions using unsafe methods. We use the safe methods.
What does that mean for entrepreneurs trying to break into the industry?
Everybody is coming into the industry with a get-rich quick attitude and that’s not the case always. Because New York is limiting the return-on-investment so much with its regulations, it will probably take two to five years to make enough changes.
We’re certainly entering the market understanding that we may be operating at a loss in the short-term. Still, there will probably be enough demand to make sure there is a need for changes in the future.
The patients win; and the businesses win; and the communities win, if you can create entrepreneurial legislation, and Nevada got that right.
What are your examples of getting it wrong?
New Jersey is a great example of the opposite of that because of the regulations. A lot of the people who were issued permits haven’t opened their doors yet.
I know New York wants to baby-step into legalization, but they’ve got to balance that with creating an environment that works for business. Nevada is a great showcase fort that.
There was huge competition for licenses in Nevada, with major casinos as players, and people were willing to pay over a million dollars in application fees alone, which more than offsets the cost to the state to run the program.
How does your plan for New York affect others already here pursuing licenses?
We like to build a new team made up of local people. We have our core team, and then we like to find people in different walks of life in the local community – a broad makeup of doctors, scientists and entrepreneurs.
Still, we want to own the permits and operate them. We’re a publicly traded company and they would be stakeholders and equity holders.