New York’s legal cannabis market is approaching the $1 billion sales mark, signifying that the rollout has course-corrected significantly from a year ago. But the same ongoing market maturity now has some insiders raising questions about whether regulators will take steps to avoid oversaturation.

The state Cannabis Control Board at its monthly meeting Tuesday approved 70 more adult-use cannabis business permits, bringing the total number of licensed companies to 1,394, said Patrick McKeage, licensing director at the state Office of Cannabis Management.

CCB Chairwoman Tremaine Wright noted that the state now has 261 operational recreational marijuana shops, a vast improvement from December 2023, when only 40 shops were open. Wright said that’s evidence the market is “thriving.”

Path to oversaturation?

But questions are being raised about when regulators might dial back their permitting, especially given that there are still more than 5,000 license applications left to be evaluated from the so-called “December queue” of entrepreneurs who are hoping to win permits. Several of those applicants spoke angrily at the Tuesday meeting about how they have no idea after a year of waiting whether they’ll win licenses, even though many have burnt through tens of thousands of dollars on rent for facilities.

McKeage said the OCM still has about 300 applications left to review from last year’s “November queue” – businesses that applied with real estate already locked down – before they can start on the December list.

But, he said, it’s not really clear how many more permits the CCB may want to award before the agency decides New York has enough marijuana companies and cuts licensing altogether.

“We know there’s a lot of anxiety out there from the stakeholder community about a number of licenses to be issued from the December queue,” McKeage said, adding that his office is working with the CCB on analyzing market demand. “We’ve essentially reached our preliminary licensing targets that were disseminated when the licensing window first opened. That’ll be one of the areas to get further direction from the board on, in terms of how far down the December queue to go.”

CCB Member Dr. Jennifer Gilbert Jenkins even rebuked McKeage in the middle of the meeting, saying, “Stop. I’m not even going to let us go down that road. The board did not give you any licensing targets. No such thing exists.”

McKeage didn’t specify what those internal “preliminary licensing targets” were, but the OCM previously stated the agency aimed to award permits for 500-1,000 dispensaries, 220 microbusinesses, 155 processors, 40 growers and 30 distributors.

As of Tuesday, the OCM had awarded 827 retail permits (including 533 justice-involved “Conditional Adult Use Retail Dispensary,” or CAURD, permits and another 294 non-equity retail permits), 225 microbusinesses, 198 cultivators, 282 processors and 170 distributors.

Most of those licensed, however, are not yet operational.

Curaleaf causes consternation

Tied into concerns about market saturation for existing dispensary owners is a new “public convenience and advantage” zoning exemption process for new hopeful shop applicants, which licensees can use to ask for waivers to a state rule prohibiting cannabis shops from opening within 1,000 feet of each other in major metro areas like New York City.

State Assembly Member Grace Lee, who represents lower Manhattan, made a special appearance at the Tuesday CCB hearing to plead with regulators to prevent Curaleaf (CSE: CURA) (OTCQX: CURLF) from opening a dispensary at a proposed location that would need such a zoning variance, because it’s under 1,000 feet from at least two already-operational recreational marijuana shops.

“We are at a point right now where we really need to be protecting our local business owners. We need to make sure they have an opportunity to thrive before we start flooding the market,” Lee said. She asked CCB members to put a moratorium on zoning exemptions.

Vanessa Yee Chan, the owner of newly opened Alta Dispensary in Chinatown, said her shop would be put at risk if Curaleaf were to be granted a zoning exemption.

“My heart dropped last month when Curaleaf, a $2 billion multistate cannabis conglomerate, provided notice to community board 2 in Manhattan of its intent to open a dispensary at 210 Lafayette St.,” Yee Chan told the CCB. “This proposed location violates OCM proximity rules and would destroy the fragile legal market created this past year by small business dispensaries like Alta.”

Also during the meeting, OCM Policy Director John Kagia noted that MSOs such as Curaleaf – which also hold medical marijuana licenses in New York and are referred to as “registered organizations” or ROs – have already garnered a whopping quarter share of the entire marijuana wholesale market in New York. They’ve done so, he said, primarily through selling full ounces and half-ounces of branded flower.

“They’ve been able to crack quite a bit of share over the last 12 months,” Kagia said.

Other updates

Kagia also noted that the state track-and-trace system, powered by BioTrack, is coming online within a few more months, and said the OCM will be hosting six orientation sessions for licensees, beginning Dec. 17 and wrapping up on Jan. 23.

On a related note, Gilbert Jenkins on Tuesday also said the state needs to do a better job of monitoring what dispensaries are selling, because she alleged that a “dirty secret” of the industry is that retailers are stocking up on cannabis from outside of New York, which is illegal.

“The rate of inversion in this market is the dirty secret that everybody is talking about, that we’re not bringing up in these slides here, that the amount of product that’s coming into our legal, authorized dispensaries from out of state is displacing New York product,” Gilbert Jenkins said. “We need to actually look at, are we truly selling New York products? I think that’s something we need to gather data on.”

Kagia also warned that the average revenue per store was slowly going down as the market competition increased, and plenty of retailers are not yet on sound financial footing, he said.

“As it currently stands, something like 60% of our stores are on, based on their revenues to date, less than a $1 million run rate,” Kagia said.

Since the legal cannabis market launched at the end of 2022, the average monthly revenue per dispensary has shrunken from a high of about $900,000 per month to about $450,000 per month. Also, Kagia said, those figures aren’t spread evenly across the 261 open shops, but are somewhat skewed by the higher-performing retailers.

“This is a natural function of market expansion. It does not mean that these businesses are not doing well. It just means this market is going to get increasingly competitive as we open more doors,” Kagia said.

Still, he noted, total legal marijuana sales thus far in New York have passed $918 million all-time, and will easily crack the $1 billion mark before the end of the year, a sign that things are heading in the right direction.

“This is just the beginning. But what a start,” Kagia said.