How to Open a Successful Cannabis Startup in New York

Higher Yields Consulting How to Open a Successful Cannabis Startup in New York

With its emphasis on social equity and opening doors for new operators, New York’s emerging adult-use cannabis program presents a great opportunity for those interested in opening up their own cannabis startup. But the existing New York cannabis market poses a distinct challenge, as well.

New York is home to one of the largest black and gray markets in the cannabis industry, making it a difficult environment for a legitimate cannabis startup to compete in. To succeed as a new cannabusiness owner in New York, you’ll need to know what you’re up against and how to make your business stand out. 

Here’s what you need to know about navigating New York’s market to open a successful cannabis startup. 

Social Equity in New York

New York is the first state to give its licensed hemp growers the first chance to apply for cannabis cultivation licenses, starting with 52 conditional adult-use cultivator licenses issued in early 2022. 

When the state’s hemp program was first rolled out in 2017, it was haphazard and quickly became saturated. Farmers poured a lot of time and money into growing hemp, only to fail. Now, many have the opportunity to switch over to cannabis cultivation and start fresh. 

On the retail side, 25 of New York’s initial 200 licenses are set aside for nonprofits — another industry first. And in a move that reflects New York’s emphasis on social equity, a vast majority of the 900-plus applicants for the remaining 175 licenses belong to minority groups or have faced previous cannabis-related convictions. 

The above licenses are dedicated to helping new operators open their cannabis startup. That said, existing medical cannabis operators have the option to either pay $5 million to enter the recreational cannabis industry as a wholesaler or pay $3 million and wait three years to enter as a direct retailer. 

Gray Market vs. Black Market

While there is a lot of opportunity to be had in opening up a cannabis startup in New York, especially for those who meet social equity requirements, there are also plenty of obstacles. 

One of these obstacles is competing with the preexisting gray and black markets, which helped pioneer the industry but exist outside of state regulations. Neither are inherently bad, but they do pose a challenge to those trying to break into the industry as new operators. 

The Gray Market

The gray market exists between the boundaries of what is and isn’t legal, and it’s where the cannabis industry itself started: with small, often unlicensed growers who ultimately helped legitimize the cannabis industry by risking their livelihoods and freedom to bring cannabis to people in pain. 

In the early days of medical cannabis, these caretakers might be allowed to serve six patients each, including themselves, and to grow one plant per patient. But to produce products like edibles or tinctures for active or nonsmoking patients, these caretakers needed to get around the six-plant limit. 

The solution? Paying other doctors to give them extended plant counts. This was technically legal, but only through a loophole that some states — like Colorado — were quick to close, and the practice crossed over into illegal territory when excess product had to be shipped out of state. 

These are the types of operations New York is trying to eliminate by opening up the legal market, but they’re also the type of operations that still exist in other states and continue to feed into New York’s black market.

The Black Market

Like the gray market, the black market has good reason to exist and has helped move the cannabis industry forward. However, it’s also very difficult for a legal cannabis startup to compete against. 

Not only is New York’s black market extremely well established, but it also tends to offer better products than the legal market — and at cheaper prices, because black-market operators don’t deal with the taxes and overhead costs that legal operators do. 

Advantages of a Legitimate Cannabis Startup 

With such well-established black and gray markets, anyone looking to open a cannabis startup in New York will need to communicate to consumers the value of shopping legally instead. The good news is that there are distinctive advantages to the legal market, even if it is more expensive. These include:

  • Testing & safety: When people buy products from an established facility that meets safety and health standards, they know what they’re putting into their bodies. Being able to prove that your products were made without the use of pesticides, carcinogens, etc. gives you an advantage over black-market sales.
  • Display: A legitimate cannabusiness can entice customers with great presentation of the products and a comfortable, welcoming environment. 
  • Education: Operating a legal cannabusiness is an opportunity to offer education alongside the products. People who don’t know anything about cannabis feel much more comfortable taking their questions to a legitimate dispensary, which helps them consume more safely. 

The black and gray markets may complicate opening a successful cannabis startup, but they don’t make it impossible to do so, especially if you know what you’re up against and can communicate your cannabusiness’s unique value.

Don’t Overlook Extraction

If you’re looking to open a cannabis startup in New York, what type of cannabusiness should you choose? While growing is a popular choice, keep in mind that cultivation alone is limiting. There’s only so much you can do with raw product. But if you add extraction to that, you can expand your output to hundreds of different products. 

Think of it this way. If you’re already building a $10 million facility, it will only cost about $500,000 more to replace one flowering room with an extraction room. With that one change, you’ve diversified your ability to enter the market, and you’re able to use and sell all of your product — even the lower-quality portions. 

With more professionals wanting to use cannabis discreetly, manufactured products like edibles or vapes are rising in popularity. A cannabis startup that offers cultivation and extraction can capitalize on both raw flower and manufactured product sales. 

New York: Ripe With Opportunity for New Growers

New York is about to have the largest set of inexperienced growers in a new market that have support from the state. That means they’ve been given a chance to succeed, but they’re also facing a huge challenge, especially when it comes to competing against the black market. 

If you’re looking to open a cannabis startup in New York, don’t assume that you’ll manage just because everyone else is as new as you are. You’ll need to rely on someone who’s familiar with highly saturated markets — black, gray, and otherwise — and can help you compete successfully. 

At HYC, we’ve been helping people navigate the cannabis industry since 2008. If you’re thinking of opening a cannabis startup in New York, reach out to us to schedule a consultation today.

Finally Moving Beyond Medical Marijuana: Minnesota Developments & Anticipations

Almost 10 years after legalizing medical marijuana, Minnesota seems poised to fully legalize recreational marijuana in the very near future. While the state’s future in cannabis is still full of uncertainty, it’s also full of unprecedented opportunities.

A bill to legalize marijuana and expunge low-level cannabis-related convictions has been in the works for the past several years. While it failed to pass the Senate in 2021, it’s now being reworked in hopes of being passed in 2023. However, Minnesota did pass new legislation legalizing hemp-derived THC edible products.

With so many recent and upcoming changes, Minnesota’s cannabis market is a uniquely challenging one to navigate. But with the right expert advice, patience, and commitment to quality, it’s also an exciting market to jump into. 

Here’s what you need to know about the developments beyond medical marijuana Minnesota is undergoing and how to prepare for the future of this tenuous market.

What Is Hemp-Derived THC? 

Hemp-derived THC, as the name suggests, comes from hemp rather than marijuana. The two types of THC are similar in molecular structure and psychoactive effect, but hemp, unlike marijuana, meets the federal requirement of containing less than 0.3% THC — meaning it’s legal to sell under federal regulation and in most states.

In addition to medical marijuana, Minnesota now allows for the sale of hemp-derived THC edible products of up to 5 mg per serving. This includes beverages, which are currently enjoying a surge in popularity. 

Still, Minnesota’s law regarding hemp-derived THC edible products is mired in controversy, and it’s left to individual cities to set their own regulations or bans on THC edibles. 

Beyond Medical Marijuana: Minnesota Demand Grows

While still only having legalized medical marijuana, Minnesota is setting the state up for a number of changes, both at the business level and potentially for future federal policy. 

Impacts on Cannabusinesses

With the new law, Minnesota-grown hemp can now be used to manufacture hemp-derived edibles. This is good news for hemp growers, who saw the price of hemp-derived CBD fall drastically prior to this bill. 

However, Betsy Morem and Mark Waller, CPAs and co-founders of Morem & Waller, note that it takes significantly more manufacturing power to produce hemp-derived THC than it does to grow cannabis products.

As a result, Morem explains, “Some people have been having to look outside of Minnesota to get their products manufactured, which raises an issue in itself.” While the demand for these products is increasing, without the proper infrastructure, there’s a long wait time to get THC products manufactured and on the shelves. 

Impacts on Federal Policy

The big problem with people looking outside the state to source raw materials is, of course, that transporting these materials across state lines is illegal under federal law. 

“I see the hemp bill that’s passed and what’s happening in the marketplace as an example of creatively finding ways to continue to raise the issue of legal cannabis in general,” Waller says. “From the public-opinion side of things, it’s really increased the level of interest in the state and pushed the conversation forward quite a bit.”

Whether the increasing demand will pressure the federal government to change their policy and fully legalize cannabis remains to be seen, but it’s not impossible.

Unique Opportunities & Risks in Minnesota

As Waller points out, the hemp-derived bill doesn’t have much precedent, so there’s a lot of uncertainty surrounding it. For example, since hemp isn’t classified as a Schedule 1 drug, the standard tax guidelines may not apply to hemp-derived THC, at least for now. 

With so many products and regulations being introduced for the first time, a lot remains to be settled in terms of legislation. To avoid potential issues, Morem recommends tracking hemp-derived THC sales separately, even once it becomes legal to sell cannabis-derived THC products. 

Still, as the state shifts toward full legalization instead of only allowing medical marijuana, Minnesota offers a unique opportunity for new cannabusiness owners — despite the risks that come with all this uncertainty. 

Prioritize Quality

The key to getting a leg up in the emerging Minnesota cannabis market is to be flexible and take it slow. Since legislation is still in flux, be prepared to adapt when new compliance guidelines are rolled out. If at all possible, hire people who really understand the industry and can help you anticipate such changes. 

Now is the time to start making connections in the community and determine what your business can bring to the market, whether it be a unique idea or product or just something that you do exceptionally well. 

“There just isn’t a lot of quality assurance with the hemp-derived THC products that are out there right now,” Morem says. “The better and safer products that we can have out there, the more people will accept cannabis in the state.”

Whether it be for recreational or medical marijuana, Minnesota — and any market, really — needs cannabusiness owners who genuinely care about quality and safety. 

Be a Voice for Positive Change

Since legalizing medical marijuana, Minnesota has seen — and continues to see — uncertainty as well as growth. As you step into this new territory, keep in mind that regulations and attitudes alike are subject to change — and that can be a very good thing. 

“There’s plenty of room for everybody,” Morem says, “but your heart and intentions have to be in the right place for it to be a good industry for you.” You have the opportunity to influence your community for the better and help move the cannabis industry forward.

For more industry insights and guidance on navigating this ever-changing industry, connect with us on Facebook and LinkedIn.