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Medical marijuana producer hopes to expand into recreational market

Medical marijuana producer hopes to expand into recreational market

Push for a legal adult high comes as medicinal production remains unprofitable
Medical marijuana producer hopes to expand into recreational market
Financials are improving for medical marijuana companies in New York, but they still haven’t achieved profitability.
Photographer: Stock images

ALBANY — Three years after marijuana extracts became legally available in New York for medicinal purposes, legal recreational use of marijuana appears to be on the fast track.

Gov. Andrew Cuomo has announced it as one of his priorities for the legislative session this winter, and with both houses of the Legislature now controlled by fellow Democrats, New York has a chance to become the 11th state to legalize recreational marijuana use by adults.

Four medical marijuana production facilities and three dispensaries -- operated by multiple companies -- are open now or are under construction in the greater Capital Region. At least one of those companies is eager to expand from therapeutic to recreational products, though the path to expansion would be determined by whatever legislation is passed.

Vireo Health of New York, which operates a dispensary in Colonie and a production facility in Fulton County, is ready to step up production, CEO Ari Hoffnung said.

“First off, we are delighted with the governor’s leadership on this issue and certainly support adult-use legislation in New York,” Hoffnung said.

His hope is that recreational use is legalized and that the wording of the law supports a “substantial investment” by Vireo in Fulton County and elsewhere. That investment won’t come until the law is passed.

“We’re monitoring this issue very closely,” Hoffnung said. “The devil is in the details."

He added: “We want to be able to leverage and build upon existing infrastructure investments in Fulton County and beyond.”

Vireo built a high-tech indoor farm and processing lab at a juvenile detention camp-turned-industrial park outside Johnstown. It measures 40,000 square feet, or just shy of an acre. Vireo has 19 adjoining acres for potential use.

Hoffnung said the financials are improving for Vireo and many other medical marijuana companies in New York state, but they still haven’t achieved profitability, and their operations required significant startup investments.

As of Wednesday, there were 85,791 New Yorkers -- out of 19.54 million total residents in the state -- who were certified to buy medical marijuana. New York's medical marijuana rules also limit medical marijuana to extracts — not the plant itself.

As a result, producers incur the cost of growing large crops and processing the plants into a much smaller amount of finished product. The extract is more expensive, as a result.

“You need a tremendous amount of plant matter to produce a small amount of extract,” Hoffnung said.

The ideal scenario for producers, he said, is to be able to sell “dry flower” — dried plant matter — for recreational use. The more cost-effective product would also directly compete with the illicit marijuana sold illegally statewide.

Part of the goal of legalizing recreational marijuana is to undercut the illegal marijuana market, which can expose both buyers and sellers to danger, and which sometimes results in the sale of substandard or contaminated product.

ENFORCING THE LAW

If marijuana is legalized in New York state, it will be a sea change not just for recreational buyers and sellers but for the men and women whose job it is to arrest them.

“Obviously, it’s something that’s going to drastically affect the way law enforcement operates on many levels,” said Montgomery County Sheriff Jeffery Smith.

Even the four-legged members of the Sheriff’s Office will need to change the way they operate:

“Dogs in service right now will not be able to be used for drug searches,” Smith said, explaining that they are trained to sniff out marijuana. If they detect marijuana and their handler also finds heroin, a defense attorney might be able to challenge a heroin arrest for lack of probable cause, he said. “It’s up for interpretation.”

Smith has been in law enforcement for 30 years, including a stint as a Drug Abuse Resistance Education officer, teaching schoolchildren that marijuana use is a gateway to addiction to stronger drugs.

It would be difficult to accept that it's suddenly safe and OK, Smith said, but he added that laws change all the time, and police have to change with them. 

“We’re learning as well,” he said.

Smith’s greatest concern is an increase in driving under the influence of marijuana, which has been a bigger problem in Colorado since that state legalized recreational use in January 2014, he said. 

(There are mixed data on this: A Colorado Department of Transportation study of fatal crashes in that state found that, in recent years, there have been more of all types; fewer involving drivers with illegally high levels of marijuana’s intoxicating ingredient in their blood; more involving drivers with lesser levels of the ingredient; and more with a cocktail of marijuana and one or more other drugs in the driver's blood. Colorado officials also noted there aren’t enough years of data to establish a trend.)

Officers are trained to look for signs of marijuana use, Smith said, but there is no breath test like the one used to estimate blood alcohol levels.

“We would probably need what’s called a DRE, a drug recognition expert,” Smith said. If the DRE is called to the scene and concludes a driver is under the influence of marijuana, an order for a blood sample would be obtained, then a lab test performed — all of which carries a cost in time and money.

If recreational marijuana is legalized in New York state, Smith said, he hopes users will not mix it with vehicles or other machinery.

“Obey those laws specifically because that's what’s going to make [the law] work or not work,” he advised.

PARTY OPPOSITION

Legal recreational use of marijuana likely would have been a remote prospect in New York state, had Republicans retained control of the state Senate.

In the wake of the November election, which put control of state government entirely in Democratic Party's hands, Cuomo in December issued a 20-point progressive agenda he called a “Declaration of Independence” from federal government — or more bluntly, a rejection of the policies of President Donald Trump.

Marijuana was next-to-last on the list, but it attracted a lot of attention. 

Cuomo repeated the call for legalized adult recreational marijuana at his inauguration on Tuesday.

“I think it’s very likely it’s going to happen,” said Assemblyman Phil Steck, D-Colonie, on Friday. “I strongly support the legalization of marijuana.”

He bases his support on the lesser impact that marijuana has on the body, compared with stronger drugs such as heroin. He is also taking into consideration the lasting impact a minor marijuana arrest has on a young adult’s life and the high cost of law enforcement related to marijuana.

On the other side of the aisle, state Sen. George Amedore, R-Rotterdam, said he opposes legalization.

“I have a lot of concerns over this,” Amedore said. “Marijuana is a Schedule I drug on the federal registry. It’s a gateway drug. It leads to addiction, and we already face an epidemic with opioids.”

Amedore bases his opposition on several factors: promotion of smoking; increased driving under the influence; negative impact on New York’s struggling young medical marijuana industry (he does support medical uses of the drug); and inflated hopes about sales tax revenue.

But Amedore thinks legal recreational marijuana will be a reality soon in New York state.

“There’s one-party rule now in Albany, and you’re going to have it happen, no question.”

Another supporter of medical marijuana, state Sen. James Tedisco, R-Glenville, also has a list of reasons he opposes legal recreational use. Secondhand smoke, he said, impairs children’s mental development in a state that spends so much to educate them, and he thinks legalization would be tacit encouragement for youths to start using marijuana. He is also concerned about a rise in traffic accidents.

“The financial gain will never outweigh the social and physical pain,” Tedisco said of legalization. “Wouldn’t it be wiser for New York state to take a wait-and-see approach by evaluating how legalization impacts other states who are going through this process right now, before stumbling into something that could negatively impact many of our citizens?”

Steck noted it is impossible now to say what details will be in the final legislation: Cuomo, the Assembly and the Senate will all need to agree on it, and there may be some negotiation and compromise. Sitting on the Assembly’s Committee on Health, Steck does expect to have some role in, or at least insight into, how it comes together.

Steck said he would support allowing limited home cultivation of marijuana and would advocate for vacating the past convictions of minor marijuana offenders who were not involved in trafficking. He noted New York may not see the $248 million to $647 million sales tax windfall a Department of Health study predicted, just as California did not see the tax gains it expected, because illegal marijuana dealers didn’t all go out of business in the wake of legalization.

He thinks one demand that has been made in New York — that financial benefits of legalized recreational marijuana flow to underprivileged communities that have suffered disproportionate impact from enforcement of marijuana laws — should be handled carefully.

“When I’m talking about trying to help communities, I like broad-based approaches,” Steck said. He noted there is a concentration of liquor stores in many poor neighborhoods, and he said such places wouldn’t necessarily benefit from having a bunch of new marijuana businesses opening nearby.

MEDICAL MARIJUANA

Meanwhile, this past week was the third anniversary of the legalization of medical marijuana in New York state.

It got off to a slow start here, with few practitioners able to certify patients to buy marijuana extracts and nowhere for patients in many counties to buy the products. 

Gov. Cuomo himself was opposed to medical marijuana, then softened his stance on it while remaining opposed to legal recreational use. He embraced legalization of recreational marijuana while facing a primary challenge for re-election last year.

Vireo Health of New York CEO Ari Hoffnung diplomatically avoided criticism: “The medical program in New York has been growing at a steady rate and is going in the right direction,” he said.

Hoffnung said his parent company — which also has medical marijuana operations in Maryland, Minnesota and Pennsylvania — entered the New York market specifically to provide medical products, not to set the stage for future expansion into recreational products, a goal he now hopes to achieve.

But he has not turned a profit with medical marijuana, and Vireo isn’t alone in this.

Massachusetts-based Curaleaf, which operates in a dozen states, cut the ribbon on its fourth New York state dispensary on Friday. Financial disclosures for investors show Curaleaf's revenues in the first three months of 2018 grew strongly over the same period of 2017.

Hoffnung’s expectation is that recreational sales will create economies of scale that will reduce costs and thereby boost popularity of medical marijuana extracts. A crippled illegal marijuana trade would complete the trifecta.

Here are some statistics on medical marijuana use in New York state compiled by the state Department of Health:

  • From Dec. 23, 2015, to June 30, 2018, a total of 98,101 New Yorkers became certified to buy marijuana extracts, though more than a third of those were canceled or expired during that period.
  • Most certified patients were older adults: 0.33 percent were younger than 6; 0.38 percent were 6 to 12; 0.46 percent were ages 13-17; 42.4 percent were 18 to 50; and 56.4 percent were 51 or older.
  • Pain was the reason 72.9 percent of patients sought marijuana; muscle spasms 12.7 percent; nausea 5.4 percent; seizures 3.03 percent; PTSD, 3.14 percent; and wasting syndrome 2.7 percent.
  • Not everyone sticks with marijuana as a treatment option: As of June 2018, only 66.5 percent of those receiving it were returning patients.
  • Physicians have determined that 5.1 percent of certified patients, or 5,026, were terminally ill as of June 30; the great bulk of them (4,276) were afflicted with cancer.
  • As of Jan. 2, 2019, there were 2,115 practitioners registered to certify patients for medical marijuana and 85,791 certified patients statewide. That was a significant increase from 1,723 and 61,198 just six months earlier.
  • Albany County is the medical marijuana hotspot in the greater Capital Region, with 26 practitioners/938 patients. Other county tallies: Fulton 4/129; Montgomery 1/128; Rensselaer 5/511; Saratoga 16/784; Schenectady 9/501; and Schoharie 2/157. 
  • Orange County is New York state’s leading area for medical marijuana production, with four facilities. In the greater Capital Region, there is one growth/manufacturing operation each in Albany, Fulton and Warren counties and a fourth planned in Schenectady County.
  • Capital Region residents' only local options for medical marijuana are dispensaries in Albany and Colonie. The next-closest dispensary is in Kingston, though one is scheduled to open this year in Halfmoon.
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