Exclusive Interview: Behind New York’s Crackdown on Out-of-State Brands

The proliferation of marijuana brands from out of state has become a bone of contention among some in the New York cannabis industry.

Until now, brands have been allowed to enter the New York market legally via simple licensing and white label deals with permitted processors, but soon they will have to obtain a formal license from the Office of Cannabis Management, according to John Kagia, the OCM’s policy director.

John Kagia

There are multiple types of licenses for this purpose, but the easiest option is the third level of processor permit, which Kagia said is basically designed for out-of-state companies that want to have a New York presence. The application window for such licenses is currently open until Dec. 18.

Kagia recently sat down with Green Market Report to explain how the brand creation and distribution process will work going forward.

This interview has been edited for length and clarity.

What will cannabis brands have to do to stay in compliance with the legal New York market moving forward?

Kagia: One of the licenses that we do want to call special attention to is what we’re calling our brand license. It’s a license that enables companies who may not necessarily want to either do the processing or the manufacturing, but want to create brands for the New York marketplace to be able to operate in our market.

So if you are a an out-of-state brand, or you’ve identified the partner that you want to work with in New York, you set up the agreements and send them the specs for the product that you want them to manufacture. All of that remains the same.

The one distinction is that in addition to setting up those agreements, the brand that wishes to operate in New York, whether it’s an in-state brand or one from out of state, would need to also register with the state so that we’re ensuring that that all of the brands operating in New York are under the purview of Office of Cannabis Management.

Part of the value of having this brand license has is that it enables us to more effectively ensure that the stakeholders in this market are complying with our two-tier market rules, so that you don’t have stakeholders who are playing both on the supply side and on the retail side.

This gives us visibility into the businesses, who their stakeholders are, and gives us more robust ability to protect the two-tier market.

How many different processor licenses are available?

Kagia: Our type one processor license allows the licensee to engage in all of the processing activities, so you can buy biomass from our growers, you can do the processing, or you can do the extraction. And we’re agnostic about what extraction technologies or approaches you use.

The type two license does not include the authorization to engage in extraction activities. So you can’t run the biomass through the CO2 processor, but you can buy the extracted oils from other processors. So in the scenario where, for example, somebody has deep experience manufacturing chocolates and that’s all they want to do. You can get a type two processing license, it will allow you to buy extracted cannabinoids and extracts, make your infused chocolates, package, market, and sell them on the market.

The type three license is the white labeling license. It doesn’t allow you to process or to manufacture, but it does allow you to essentially put your label on a product that has been produced and sell it onto the market. It provides a very easy path into the market for somebody who may not necessarily want to engage in some of these more resource-intensive or technical expertise intensive activities.

This we think is a particularly attractive license, for example, to the legacy operators in New York, people who may have had experience building highly popular, highly visible, successful brands in the market, but may not necessarily yet be ready to or want to go through the kind of cultivation and manufacturing process.

Then out-of-state companies and brands that just want to have a brand presence in New York, would they have to go and then get a type three processor license?

Exactly right. Every brand that is sold in New York, regardless of who is the manufacturer, will need to be licensed. So in the case Cookies or STIIIZY or any other large out of state brand, those brands would also need to get a type three license even if somebody was doing the manufacturing for them in the state.

Is that a change in the regulations? 

The requirement for type three white label license was included in our regulations package. And it had always been there, we had always had this as something that the market was going to lead into.

However, when we initially launched the market with our conditional cultivators and processors, just for market efficiency’s sake, we allowed for this alternative approach, which is the way the market has worked to this point, where the out-of-state brands were just able to enter these agreements directly with a licensee, but not have to apply for license directly to the office.

The reason for that was because we’re building the broader regulatory structure. So we wanted the market to be moving, but we fully expected that we’re going to have a much more robust regulatory structure included in the regulatory package that was passed in September.

We’ve been telegraphing that this was coming for a while. And yes, it is a departure from the way brands have operated to this point. But that is because we are sunsetting this conditional program under which our cultivators and processors have been have been operating.

Is it a lighter load for businesses to get a type three processor license (compared to type one or two)?

It really is. This is arguably the easiest license for which to apply, in part, because this is one which we have tried to kind of really make accessible to the market.

So it’s a $1,000 application fee, but $1,000 is what we charge for all of our applications. So that’s standard. The license fee itself is $2,000 for a two-year license. And if you are a social equity brand, under any one of our five social and economic equity categories, you can get that reduced by 50% to $1,000 for a two-year license.

In terms of having a business location, you really just need to submit the location where your business is registered. You don’t need a manufacturing location, like you would need for type-one or type-two license.

New York Cannabis Insider reported recently that there’s a number of out-of-state brands already operating in New York, and that many of them are apparently breaking various rules, trying to bribe retailers for shelf space and that sort of thing. Has there been serious confusion to date over how  brands are allowed to operate in New York?

Adherence to our rules is critically important. And we take any allegations, any charges of folks being out of compliance or violating the letter and spirit of our rules very, very seriously.

While we hope that there is no confusion in the market about what our expectations are – we have very clear regulations and a lot of guidance out there – we will continue to work very intentionally to make sure that the market is fully clear on the expectations of the OCM and how to be good actors and remain in good standing in this market.

Finally, this brand license is one of the critical tools we have that enables us to ensure we have both oversight and insight into the activities in which our businesses who are operating in New York’s legal cannabis industry are engaged in.

Do you have any estimate on how many brands are available or doing business so far in New York?

We don’t have a good estimate of that. We’ve certainly very rapid growth in the number of brands that are in New York’s market. When I last looked, we had over 200 brands now already in our stores, kind of distributed across our 200 stores.

And we expect that number is going to be going into overdrive as we open more stores and issue more production and retail licenses. The fact that we will have this as a license will ensure that we know exactly how many out-of-state brands we have operational in New York and what those brands are.

We very much welcome brands to come into New York, and we welcome local operators to build brands that reflect the richness and diversity of New York. We would just encourage those who intend to have a light footprint to at a minimum get this type-three processor license to ensure that the operating in compliance with our rules.

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