A New York 420 frame of mind: State moves cautiously on medical marijuana

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Not long ago, college kids and knowing young adults snickered as they built subtle jokes around the current date on April 20, the international “holiday” for marijuana enthusiasts.

Today, with recreational marijuana legalized in four states and the District of Columbia while dozens more — including New York — permitting weed for medical reasons, 4/20 in 2015 is a bona fide, out-in-the-open business opportunity. For starters, McDonald’s (NYSE: MCD) started testing its all-day breakfast in San Diego today, giving the potheads a chuckle.

But this is far more than cheap jokes and a curiosity. An avalanche of startup energy and investor dollars are flowing into the cannabis biz, with one Wall Street analyst predicting it will become a $1.2 billion industry in New York state alone by 2020.

“The world has never seen a business this big that was black-market become white-market,” said Leslie Bocskor, managing partner of cannabis consulting firm Electrum Partners, in a Crain’s New York Business article exploring the high barriers to entry faced by entrepreneurs in the marijuana business.

In a report published today, Bloomberg identified 55 publicly traded companies whose businesses are primarily about marijuana, calling it an informal pot index. Despite the immense momentum the legalization movement seems to have, those stock prices still illustrate the market’s hesitancy to dive in full bore. The collective market cap has shrunk considerably since last year, as investors still seek clarity on if the federal government will relax its outright ban on marijuana.

New York’s nascent pot market will be closely watched by the entire industry and its investors, because the medical marijuana law passed last year is especially restrictive. For all the presumed demand for the drug, New York will require that all legal weed be sold in extract or pill form and only allow five companies to establish four dispensaries each. That puts millions of dollars in upfront costs on any would-be grower or dispensary.

As the Buffalo News points out, all these high costs are coming along without much guidance at all on the most important question: Price. Unlike in every other state to have legalized medical marijuana, New York will set retail prices by rule, and hasn’t done it yet.

“Without a doubt, the biggest challenge for any professional looking at this is the question on price,” pharmaceutical industry consultant Jody Miller told the News.

Defenders of the New York law say businesses might end up watching New York precisely because it is so cautious and limited. While the rules will certainly keep many startups out of the game, Crain’s reports that rules forcing New York to sell in pill or extract form will make it easier to develop standardized medical protocols around the drug, which will be necessary for any major regulatory standard to emerge.

“New York’s law is without a doubt the most narrow and restrictive, but it’s zeroing in on the science,” said Josh Stanley, a Colorado medical marijuana leader who has recently moved to New York. He predicted a “biotech revolution” in that sense.

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