New York’s failed adult-use cannabis rollout should not be Minnesota’s blueprint

Minnesota lawmakers are poised to make a monumental misstep that will set the state’s adult-use cannabis rollout on a similar path as New York’s.

Characterized as a “disaster” by Gov. Kathy Hochul, New York’s implementation of adult-use cannabis has left medical-use patients and consumers behind, propped up an unsafe illicit market and cost the state over half a billion dollars in tax revenue.

As the 23rd state in the nation to legalize cannabis for adults 21 and over, Minnesota policymakers should learn from the states that have gone before them, allowing Minnesota to reap the benefits of successful markets and avoid repeating the mistakes of those that stumbled — particularly New York.

New York made a conscious decision not to launch its adult-use cannabis program by utilizing the existing infrastructure of its medical cannabis operators. In doing so, it took nearly two years before consumers had a single legal dispensary in the state, and well over 2,000 illicit cannabis stores were open by that time. Three years into legalization, there are now just over 100 operating legal dispensaries in New York, but the illicit cannabis problem has only grown (despite dedicating multiple agencies and millions of dollars to enforcement measures).

The size and scope of unlicensed sales make it very challenging for the New York licensees to break even, let alone achieve profitability. Further, the state has lost an enormous amount of tax revenue due to the booming illicit sales, which are, of course, untaxed. And most importantly, products sold in the illicit market are unregulated and untested, leading to consumer safety risks.

This is a hard contrast to the regulated market that is held to stringent testing standards to ensure all products sold to patients and consumers are safe, reliable and high-quality. The proliferation of the illicit market in New York is now too big to ignore, and is undeniably detrimental to patients, consumers and cannabis licensees.

The good news is that it does not have to be this way for Minnesota. Most states that have legalized adult-use cannabis have created a safe, well-regulated and viable market that is in the best interests of patients, consumers and licensees.

These states have focused on two critical factors: 1) prioritizing speed to market; and 2) ensuring there are regulated channels for patients and consumers alike.

Consumers are overwhelmingly convenience-driven, and as we learned from New York, if the gap between legalization and implementation — i.e. availability of regulated sales — is too long, an illicit market will entrench itself. This unsafe, unregulated market then becomes impossible for the regulated market to compete with from a pricing standpoint, driving more patients and consumers to unregulated and untested products.

It is well established that many patients will eventually migrate to adult-use dispensaries because they, too, strive for convenience. This migration can jeopardize the viability of medical cannabis programs. To mitigate that loss, policymakers should allow medical operators to add adult-use sales. Every state other than New York that has implemented an adult-use market with an existing medical market chose to utilize the existing medical operators’ infrastructure in order to protect patient access and ensure adult-use consumers have access to regulated channels and a sufficient supply of products. Minnesota has the infrastructure and ability to follow suit.

In addition to allowing medical operators to be in both marketplaces, most states that successfully maintain medical programs also eliminate taxes on medical cannabis, mandate patient-priority lines, permit patient discounts and loyalty programs, provide product forms and potencies that are unavailable in adult-use programs, all while allowing dual-operators to have one supply chain until the point of sale. This path provides swift legal options for new adult-use consumers to shop while also protecting patients, which in turn maximizes a state’s revenue. 

Adult-use cannabis rollouts do not have to be a zero-sum game, and utilizing existing infrastructure to protect patients, deter an illicit market and maximize state tax revenue does not have to mean that the marketplace is not equitable, competitive or conducive to diversely owned businesses of all shapes and sizes.

There are a number of ways to prevent any one, or a handful, of licensees from dominating a market, such as establishing a simple and straightforward application process and adopting regulations (i.e. marketing, advertising, packaging, labeling, testing, etc.) that reasonably address public health and safety concerns while also allowing for the business opportunity to be attractive, and affordable, for licensees and sources of capital. 

Ultimately, Minnesota policymakers should avoid the mistakes made by New York and instead look to every other state that has legalized adult-use cannabis by utilizing the existing medical cannabis infrastructure. Doing so can create a marketplace that meets patient and consumer expectations, prevents a flourishing illicit cannabis market and maximizes tax revenues.

The state can also adopt business-friendly regulations that promote dynamic operations, access to capital and protect public health and safety. Through this, Minnesota can accomplish its stated policy priorities to combat an illicit market and protect public health and safety; immediately realize tax revenue; support social equity licensing; and prioritize patients.