Business

New York could be a $6 billion market in just two years

Published

2 months ago

November 1, 2024

Whitney Economics’ new report, focused exclusively on the New York market, strongly suggests that the state’s cannabis market will hit $6 billion in two years. Despite a difficult launch, New York now has more than 200 licensed stores open and is poised to deliver just under a billion in sales for 2024. That’s a 236% increase over 2023.

And the state is just getting warmed up.

If the number of retail operators continues to grow and legal participation increases, Beau Whitney, the firm’s founder, expects sales to exceed $1.3 billion annually by 2025 and $3.3 billion by 2027.

Based on national metrics, Whitney estimated that New York has a total addressable market (TAM) of $5.95 billion. However, that estimate may be low, because New Yorkers have higher consumption patterns than other states. In addition, the TAM does not include additional demand of $500 million- $750 million that could be derived from the 62.2 million tourists that visit New York each year.

“New York state has the potential to be not only the nation’s leader in cannabis production and sales revenue, but more importantly, can be the epicenter of the global cannabis industry the same way Wall Street is with finance,” Whitney said. “Our research gives the governor and OCM guidance in how to insure that happens and the state doesn’t make the same mistakes other legal markets have in spreading too quickly.”

Store potentials

The report found that average revenue per store in the state is increasing as more consumers make the switch from the illicit market to the licensed market. The state is reporting roughly $20 million per week in sales and with 205 stores open, which puts the average sales per store at $5.1 million. At that level, New York stores ranked 16th out of the 38 states with some form of legal access.

“Generally, New York retailers require between $2.6 million and $7.6 million per year in revenue to remain viable ($2.6 million in rural areas, $5.4 million in suburban areas, and $7.6 million in high-density urban areas),” Whitney wrote.

Of course, everything is more expensive in New York and that includes the operation of cannabis stores. That means that New York retailers really need to bring in revenue of $3.4 million on average to be viable; if the store is in the city, it will need to be even higher.

The report stresses that New York stores with revenue below these levels won’t necessarily fail, but profitability becomes more challenging. That brings the temptation to divert products or adopt other illicit methods to keep the business alive.

License needs

The report also tackled the difficult question of how many licenses are the sweet spot for cannabis in a state. Too many and prices crash and stores fail. Too few and prices remain elevated, driving consumers to the illicit market.

Whitney determined that to satisfy 75% of the total market, New York would need 1,230 retail licenses. He wrote that the theoretical maximum of retail licenses in New York is 1,600-1,700, depending on the number of full-time employees a retailer has on staff and the location of the operation.

However, issuing licenses hasn’t translated into operating stores in the state just yet. The New York Office of Cannabis Management reported that, as of Oct. 2, there are 823 active or in-process retail dispensary licenses, of which only 205 have opened.

Further compounding the store openings, many licensees lack the money to make stores operational. Hundreds of CAURD applicants could see their licenses expire before they can get the funding necessary to build out their operations.

Unlicensed Operators

The biggest ongoing threat to the growth of the state’s market is the proliferation of unlicensed stores , which can sell products at lower price points and don’t have to remit various taxes and fees.

The state and New York City both undertook crackdown efforts earlier this year, which appeared to result in consumers shifting to licensed stores as sales quickly went up. However, a judge recently ruled that the city’s effort did not follow the law, which means some of the stores could reopen.

The effect of unlicensed operators has been dramatic. Whitney wrote that the legal participation by consumers in mid-2024 was 15%, whereas other states on average would be at a minimum of 40%-45% by this time in their ramp-up.

Keys to success

Whitney shared some thoughts about how New York can become the market leader in the industry. He stressed that the illicit market has to be addressed aggressively, and policies for operators need to be designed to compete with the illicit market.

In addition, license issuance needs to increase sooner rather than later, and the effort needs to have sensitivity to where they are issued.

Another suggestion is to establish publicly available data on dashboards to assess pricing in the market for raw materials and retail products and to monitor the inputs going into processors in addition to the output.

“This will help both regulators to assess potential diversion and help operators make informed data-driven decisions,” Whitney wrote.

He also suggested developing dashboards to provide additional clarity on supply and demand at different levels of licensure as well as to summarize the total monthly revenues in the retail channel.

Finally, Whitney added that the state should develop a campaign to educate and articulate the opportunities in the processing and product manufacturing sectors.

“The Whitney Economics study confirms what we’re seeing in New York’s cannabis market – controlled growth is essential for sustainability. States like Oregon and California have shown that over-licensing leads to market collapse,” said Kimberly Tanami, CEO of HPI Canna Inc. and vice president of the Empire Cannabis Manufacturer’s Alliance. “We can’t afford to make the same mistake if we want our social equity programs and small businesses to thrive.”

She added: “Without a healthy retail sector, the entire industry is at risk, and ultimately, the success of New York’s cannabis market, along with the well-being of all stakeholders, rests on regulators carefully maintaining this balance between growth and sustainability.”

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Author: mscannabiz.com

MScannaBIZ for all you Mississippi Cannabis News and Information.

Business

Cannabis companies, big and small, collapsed in 2024

Published

24 hours ago

December 23, 2024

mscannabiz.com

As 2024 winds to a close, the year may well be remembered as one in which the U.S. marijuana industry got a serious wakeup call, with several big-name companies flaming out in spectacular fashion, while plenty of smaller operators also quietly closed up shop.

Even as more state marijuana markets continued their new rollouts – from New York to Ohio to Missouri – the sun set for the last time on several big marijuana names, including MedMen Enterprises, High Times, StateHouse Holdings and Slang Worldwide, all of which just a few years ago seemed poised to become national cannabis brands with impressive portfolios.

Instead, this year the bill came due for a lot of the industry. A few big-name cannabis failures kicked off the reckoning in 2023, such as the major distributor Herbl in California, which had such a web of connections and so much outstanding debt that its ripple effects went on for months. And when those bills arrived, a number of cannabis companies found they were unable to pay.

However, the big players were far from the only casualties this past year; there were also plenty of smaller businesses that went bankrupt or into court-appointed receiverships for various reasons, including Unrivaled Brands, Irwin Naturals, Delta 9 Cannabis and Revolutionary Clinics.

But it wasn’t all bad news for the industry. It’s also worth highlighting the high-profile turnaround of California-based cannabis delivery operator Eaze, which took a wealthy patron to save the business from its troubles.

Eaze even told shareholders in the fall that it was prepping to lay off all employees and close down by the end of the year, before its new owner, billionaire James Henry Clark, resuscitated the company with $10 million of his own money in November after buying the business at auction in August.

Here’s a rundown of some of the high-profile cannabis collapses of 2024 and how they went bust.

MedMen Enterprises

MedMen was by far the highest-profile washout of the year. Originally a darling of the California medical marijuana boom prior to going public in 2018 (CSE: MMEN), the former unicorn formally filed for bankruptcy in Canada and a court-appointed receiver in the U.S. in April, after the company ran up nearly $600 million in debts during a multiyear expansion push that ultimately proved fatal.

Warning signs existed for years before MedMen’s collapse. Founding CEO Adam Bierman suddenly relinquished control of the struggling business in 2020, amid mass layoffs at the multistate operator and ongoing sale of assets in a desperate attempt to right the financial ship. Co-founder Andrew Modlin also resigned at the time.

Even so, four years of a revolving C-suite and new corporate strategies came to naught, and MedMen’s former national empire – which spanned seven states and more than two dozen retail dispensaries – has been resigned to the auction block.

High Times

High Times’ foray into the actual marijuana plant-touching business came to a ruinous conclusion this year when its assets went up for auction after it couldn’t repay a $29 million loan.

The original stoner magazine, which dates back to 1974, pivoted from cannabis media directly into selling marijuana in 2020 with the purchase of 10 California dispensaries from Harvest Health and Recreation for $80 million in a combination cash-and-stock deal.

The parent company, Hightimes Holding Corp., never truly found its footing in the tough California market and endured critical press for years as it struggled. Hightimes Holding Corp. tried to go public in 2023 via a complex intellectual property deal with Lucy Scientific (Nasdaq: LSDI), but that fell apart after a lawsuit from U.S. securities regulators alleged fraud and illegal stock promotion by CEO Adam Levin, which resulted in a settlement of more than $500,000.

High Times was ultimately forced to begin selling off dispensaries and assets this year to settle a $29 million debt to ExWorks, under the management of a court-appointed receiver.

StateHouse Holdings

Originally known as Harborside – a major part of cannabis activism in Northern California during the height of dispensary raids in the Bush and Obama years – StateHouse earlier this year was relegated to bankruptcy in Canada and a court-appointed receiver in the U.S., driven by a lawsuit over $116 million in debt owed to one of its creditors.

Harborside was rebranded as StateHouse in 2022, three years after it was taken public in 2019 by brothers Steve and Andrew DeAngelo, who said later they were forced out by what they described as a hostile takeover. After the DeAngelos were removed, new company leadership went on an acquisition spree, purchasing three companies in the span of a year and rebranding in a bid to become a more powerful overall California brand.

But the move backfired, and it proved too much too quick. StateHouse found itself unable to repay loans from creditor Pelorus Fund, and Pelorus filed suit in September to force StateHouse’s hand.

StateHouse has since been put up for sale, and the receiver in charge is taking bids for assets until Jan. 15, 2025.

Slang Worldwide

At its height, Toronto-based Slang Worldwide distributed cannabis goods to 2,600 dispensaries in 15 states. But in November, the company declared bankruptcy in Canada and entered a receivership in the U.S., after seven years in the marijuana trade, and reported pared-down operations in only Colorado and Vermont.

Slang drew far less media attention than MedMen and High Times, and its quiet path to insolvency arguably more reflects the broader troubles of the U.S. and Canadian cannabis industries in general. After ambitious expansion for several years, Slang was forced to pull out of several key markets, including California, Oklahoma and Oregon, in 2023 as conditions worsened for it and other operators.

More trouble appeared on the horizon as recently as fall 2023, when Slang essentially put itself up for sale when it retained PGP Capital Advisors to evaluate its options.

The bottom line was the company didn’t have $17 million with which to repay creditors when at least one loan comes due in 2025. Slang formally entered bankruptcy in Canada on Nov. 26, according to receiver B. Riley Farber’s website, and a meeting of creditors was scheduled for Monday this week.

In a trustee report, Farber wrote that Slang had just $107,325 in total assets, including $52,529 in cash, against $27.2 million in debts to various creditors.

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