The State of Cannabis in the Northeast | Legislation | Hudson Valley | Chronogram Magazine

The State of Cannabis in the Northeast
Thomas Winstanley, VP of Marketing for Theory Wellness, at Theory's Bridgewater, Massachusetts location.

In late February, I spoke with Thomas Winstanley, VP of marketing for Theory Wellness, a privately held, medical and recreational cannabis brand with locations in Maine and Massachusetts. Its Great Barrington location, which opened for recreational sales in January, 2019, was the first adult-use dispensary in the Berkshires. We spoke about the state of the marijuana ecosystem in Massachusetts, the ongoing rollout of marijuana legalization in New York, and what repercussions federal legalization might have on craft cannabis.

Brian K. Mahoney: Did you see the cease-and-desist letter that the Office of Cannabis Management [OCM] sent out to a couple dozen businesses in New York telling them to stop directly selling or indirectly selling marijuana through gifting?

Thomas Winstanley: This OCM letter is crazy. I'm just pulling this up now.

BKM: What's crazy about it to you?

TW: Well, I think I've been hearing a lot over the last couple of months, especially with the legalization in New York. We've heard that a lot of black market activity has accelerated in some of these markets that are now moving towards legalization, and especially in New York State. I've heard personally from friends, but we've also seen a little slump in business towards the end of last year as we transitioned into 2022. What we're basically hearing is that there are a lot of very clever ways of operating in the black market around being a brick-and-mortar existing in New York and in the city, in particular.

We were wondering what was going to happen with the crackdown, and I know that Mayor de Blasio had, before he left office, when legalization occurred, was that he was actually pulling his NYPD officers off of prosecuting low-level cannabis offenses. So, obviously, that creates a pathway for more activity, but we were curious about how this was going to start to manifest with people interpreting the new policies in the state. So I'm really excited to see New York is really moving forward on this, but they still have a very, very long way to go, as I'm sure you're well aware.

BKM: We had profiled some folks recently who are aspiring to be in the cannabis industry. In the reporting of that story, our writer had this conversation with a couple of women who made cannabis edibles. And they’re already out there selling them now. They thought nothing of just telling him that, "Yeah, we're selling them," that they were already in business. It was clear that it seems that people realize that the law enforcement isn't there and that there's not an appetite, particularly, for it in law enforcement at the moment, so why hide it? In the last couple of weeks, I've seen things as far ranging as a tee-shirt shop that sells tee-shirts for $100, but then you get a gift that includes cannabis and NFTs that came with a cannabis perk.

TW: Particularly, when you start to look at regulations where gifting cannabis is allowed, there is some interpretation of, "If you buy something from me and I gift you something else," where do you draw the line and how do you interpret that? I say this by comparison of the Massachusetts market, which has some of the toughest regulations in the country around cannabis sales and distribution. It's very interesting to see how all of this starts to manifest in the interpretation and in these gaps between rolling out legal cannabis and preparing for legal cannabis, both from a recreational standpoint, as well as a medical standpoint too.

BKM: It was interesting to me that on the medical front, New York recently loosened up restrictions around getting a medical marijuana card. Basically anyone can get one now with a doctor’s note.

TW: I had run the numbers probably about a year ago, and I think the medical program in New York before legalization was growing at about a five to 10 percent rate annually, which is significant. But now that they're opening it up, I'm wondering is New York State going to consider adding more retail licenses? Are they going to open up more cultivation licenses, because one thing that is a possible future in New York is that let's just say recreational does open in 2023? I think right now, there's maybe five to 10 cultivators in the state. When you look at the scale at which we're going to have adult use coming into the New York market—which has the potential to be the second-largest market in the country—you're going to have a very large imbalance of product if you basically start to approve manufacturers and cultivators at the same time you approve retail. You're going to have this massive lack of product.

[On February 22, Gov. Hochul signed a bill to provide provisional marijuana cultivator and processor licenses for existing hemp businesses, which should alleviate some of the supply side issues.]

When you have the mix of adult use cannabis coming into the market without more medical providers, without more cultivators, you're going to have a very similar issue where supply does not meet the demand, prices are going to skyrocket, and people are going to go back to the black market, because there's just simply not enough product. By contrast, New Jersey, which is on a very similar pathway in a lot of ways, just opened up additional licenses for medical providers in New Jersey to prepare for that eventuality, where again, when rec comes online, there's a much stronger infrastructure. In Massachusetts, is that we had a very robust medical program before transitioning into adult use. New York's medical program is not nearly as mature as the Massachusetts market was with a much more limited pool of cultivators and product supply.

BKM: Theory has both a medical and an adult-use side of its business. What is the distinction that Massachusetts makes between medical and adult-use?

TW: The major differences from medical customer in Massachusetts versus a rec customer is, one, in Massachusetts, you have to have a medical cannabis card, which is no surprise; two, you actually have access to higher quality products. An adult use customer can purchase up to 28 grams per day. For a medical customer, you can actually purchase up to 10 ounces, so that's 280 grams per cycle with your card. Then, the biggest thing, I think, for a lot of medical customers is that you do not 20% sales tax on your products.

You get deals and discounts as well, which are not offered on the recreational side. So again, we're talking about, these are folks who are dealing with adverse conditions, medical conditions that need these products to help increase a better quality of life. That spectrum obviously, shifts depending on the patient, but at the end of the day, there's easier access to these products. You don't have to wait in line. If you see something on a recreational menu that you want as a medical patient, it dispensary has to transfer it to you. The perks are there to make a better quality of life for a patient. Doing deals and discounts is always just a really nice thing as any consumer, but we cannot offer that on the rec side.

The rec customers are paying that full price, plus the 20 percent on an already somewhat expensive product when you look by comparison to the West Coast in California or Washington State where the cost of cannabis has really come down over the years, just because of oversupply and supply overarching demand. We're still not there on the East Coast yet, but it'll come. But I think again, with New York, that imbalance is going to be very, very explicit, I think, in the early days.

BKM: On the federal level, the SAFE Banking Act passed in the House, though it doesn't look destined to do much more than that. What do you think of the bill? (According to the bill’s main sponsor, Rep. Ed Perlmutter of Colorado, it “seeks to harmonize federal and state law by prohibiting federal regulators from taking punitive measures against depository institutions that provide banking services to legitimate cannabis-related businesses and ancillary businesses.”)

TW: The SAFE Banking Act is interesting. I don't think it solves all of the challenges of the industry. I think one thing that we talk a lot about internally is federal legalization is, ultimately, going to be a good thing. However, I don't think there's any one silver bullet that's going to solve the entire cannabis complexity that is out there. There are much more meaningful steps that we can take to get to a place where legalization is going to have a better chance of being successful. What I mean by that very specifically are things like keeping it a Class One substance. Does it need to be a Class One substance that then comes with heavier levied arrests and with incarcerations?

There are states that have some level of legal cannabis that should be moving forward with mass expungement, and these are of smaller steps towards building that future of equitable cannabis that we all want, and we're not quite there yet. What I always talk with my team about, and we talk internally about is federal legalization is going to come and the day is going to happen, but that shouldn't stop us from taking smaller, more progressive states to give a better chance of legalization succeeding in a way that it needs to. For us, that definition is equality for folks to get into the industry, access to capital to be able to start a business, getting people out of jail for cannabis-related crimes, making sure that those folks have their records sealed so they can get the jobs that they need to become a part of this industry.

These, in comparison, these are the things that we need to address to create a more equitable solution to cannabis. I don't think you can have national cannabis legalization work without having these fundamental pieces ironed out, and there's nothing that says we can't iron out those pieces in advance of a larger federal legalization. To boot, we're already seeing a very, very large consolidation of the industry today. We are seeing a lot of smaller companies get bought out, sold and merged with much larger holding companies, and this is the best path forward that we have today. Ultimately, it's going to be very challenging to prevent a homogenized cannabis industry where there are a handful of brands that are for the most part running the show, and a lot of those massive operations, they may not have the social equity front of mind. They may not be taking some of these larger provisions in terms of people are still in jail from cannabis while others are making millions. There is an inherent imbalance in that.

BKM: You had said to me when we last spoke that maybe for now, letting states stand up their own markets, because of the federal illegality, is not a bad idea. Not allowing interstate transactions prevents massive consolidation and allows an almost hothouse-like environment for smaller operations.

TW: Yes, and that's really, really something that we're very curious about and we think is interesting. So if states are starting to make the decisions and they're putting in equity provisions and protocols to prevent massive consolidation, there's a really good opportunity for a lot of independent private entrepreneurs to actually get some traction in the market before the market is carved out, and to do so gives a lot of private entrepreneurs the shot at becoming a part of the industry.

I think the Pew Research had released numbers where it was like 60% of Americans now support some form of legal cannabis. We know the eventuality is coming, so let's make sure that we're taking the incremental steps now at a social level to build that equitable future before we say, "Okay, well let's just legalize it and see what happens," because that does become a very, very different proposition where money will drive forward the industry. I think that's going to isolate a lot of smaller players who simply can't compete at a much larger scale. Look at what Amazon has done with bookstores, it’s a tale as old as time.

BKM: What’s happening on the product side at Theory that our readers should know about?

TW: We launched the [infused-seltzer] brand Hi5 back in March of last year. We're in our first year of it. We sold over a million cans in Massachusetts in the first nine months, which was really fantastic. There are going to be some super exciting new products coming out under the High 5 brand in the coming months. We see it as this really great alternative to folks who are so used to consuming alcohol, we're really bullish about where that brand can go and where that market can go, and most importantly, the gap it fills for consumers to have something that is doesn't feel like you're consuming cannabis. You're not carrying a pipe or a spliff or a vape pen.

And looking into the future, we're heads down on really mapping out where do we go next, and how do we scale? We're trying to be as deliberate as possible as we take some of these next steps because our teams have worked so, so damn hard to get us to where we are. What we want to do is we want to make sure that we're being very, very disciplined about our approach to growth, and that means everything from the product side in Massachusetts to emerging markets and where you see the Theory retail stores show up next. There will be a next, but the timeline is yet to be determined when that really comes forward, so lots of excitement in the works.

Brian K. Mahoney

Brian is the editorial director for the Chronogram Media family of publications. He lives in Kingston with his partner Lee Anne and the rapscallion mutt Clancy.
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