Start Low and Go Slow (to Avoid a Bloodbath)
Download MP3Welcome to joint session, Diverse Voices in New York State Cannabis, where you hear from policy makers, legislators, thought leaders, licensees, advocates, and others interested in the state of the New York cannabis market. This is the final episode of the first season of joint session, Diverse Voices in New York State Cannabis. I've just come back from the New York City Revelry Cannabis Festival, where I saw an exhibit hall filled with New York State retailers and ancillary businesses. I cannot believe the tremendous growth in New York State cannabis over the last six to seven months. Let's remember, at this time, three years ago, the Office of Cannabis Management and Legal Adult Use Cannabis was just a piece of legislation.
Speaker 1:In this episode, OCM's former Chief of Staff and Senior Policy Director, Axel Bernabe, reveals that his first reaction to the start of the upheaval at OCM was a sense of survivor's guilt. In retrospect, I think a bit of survivor's guilt coupled with the desire to shield my former staff, friends, and colleagues at OCM motivated me to start this podcast. I've discovered that while the pen might be mightier than the sword, the spoken word is mightiest of all. Looking back at the joint session season, I wanna again thank each and every one of my guests. They were absolutely the best part of each episode.
Speaker 1:Some I knew personally or had met previously, like the licensee highlighted in this segment, Paul Yau, cofounder of the travel agency, one of New York's very first dispensaries to open. Some incredibly responded to a cold call or rather a random email like Daniel Okrent, author of Last Call, The Rise and Fall of Prohibition. I didn't know the first thing about this podcast process, so I must thank Matt Patterson, sound engineer extraordinaire, for not only making these episodes sound highly produced, but for helping me organize and think through each episode. I wanna thank Rebecca Mapeka for her work on promoting the show on social media. I look forward to seeing how her consulting business develops.
Speaker 1:Finally, I also wish to thank Allison Martin for her generosity in allowing me to use the reporting in Cannabis Wire to share some news with you. Speaking of news, the news that might affect New York State cannabis most significantly in the near future is the federal indictment of New York City mayor Eric Adams and the investigation into New York City Sheriff Anthony Miranda's implementation of the mayor's operation padlock to protect, which has shut down about 1,100 unlicensed shops. Now the city's Department of Investigation has seized cash from Miranda's office that itself was seized from those unlicensed shops. The problem appears to be that at least some of the cash was un vouchered and improperly stored. The Office of Cannabis Management has a new board member.
Speaker 1:Christoum Rodriguez Dabney, an attorney and former Buffalo deputy mayor, has replaced an original board member, Adam Perry, also from Western New York. No reason has been given for mister Perry's departure. Thanks to Cannabis Wire for the news. Subscribe to Cannabis Wire at cannabiswire.com. In our first segment, I speak with Axel Burnaby, partner at Manette Health, a full services law firm.
Speaker 1:Axel was a former health counsel to governor Andrew Cuomo and represented the administration in drafting and negotiating the Marijuana Regulation and Taxation Act. Welcome, Axel.
Speaker 2:Hi, Herb. Great to be on with you.
Speaker 1:You know, I realized, Axel, in preparing for this discussion that today is almost exactly three years since you first interviewed me for the director of operations position at OCM. And I guess I I should thank you.
Speaker 2:I was just thinking back to those early days when, there were, you know, a handful of us trying to stand up an agency couch surfing in the DASNY offices downtown because we didn't have an office of our own. This was, you know, late twenty twenty one when the board had finally been set up. Chris and I, you were, you know, one of the first hires and, you know, we didn't move into our office until early January. And and that's when we really got started, January of twenty twenty two. So feels like a lifetime ago, but it was only two and a half years ago.
Speaker 1:Absolutely. So can you please just first share with us your background in cannabis and how you came to be the very first chief of staff and senior policy director at the Office of Cannabis Management?
Speaker 2:Sure. You know, happy to do that, Herb. Everybody's got their cannabis story. Nobody, I think, thinks that they were gonna end up being in cannabis and, you take a weird turn and then there you are. I started I was a partner in law firm, was, asked by the governor to be his chief health counsel.
Speaker 2:So that that's when I came in. I was working for governor Cuomo, and one of my files was the medical cannabis file among all the other health duties I had. And so I worked on that, started growing that that program, and then hemp came became legal, so we had to deal with hemp cannabinoids. And then by the time adult use came by, the governor asked me to draft the law, negotiate it with the legislature, and get it over the finish line. So, I was very invested in that.
Speaker 2:My background when I was in private practice was antitrust and health care law. That's what I'm doing now at Manatt professional services firm where I've been back for about a year. I left about a year ago. So I have an antitrust background, which is really a lot of what influenced the way we drafted the law, but here we are today.
Speaker 1:In the one year since you've left OCM, we've seen tremendous changes at the agency, but also tremendous growth in the industry. At the start of the year, we had in the mid twenties, I think it was about 27 dispensaries open across the state. And today the agency announced that they're at two zero two retail dispensaries. So when do you think that the work of establishing the agency with all final regulations or license types, when will that be done? When do you think that we will achieve a steady state in the cannabis market in New York state?
Speaker 2:Well, so so that's a great question, and it's an interesting one because when you're judging the launch of a program, you're supposed
Speaker 3:to have KPIs or metrics,
Speaker 2:and you're supposed to assess, you know, how successful the launch has been. And, of course, we've heard repeatedly that the launch in New York has suffered setbacks. It's in the words of some people, it was a disaster. So you're right. You're right to ask the question, well, what what are we judging, and when are you supposed to have done what you have done?
Speaker 2:But I'd say steady state, which is a great metric, is now. I think when you have, you know, according to the OCM, about a billion dollars a year in sales when you have annualized sales, as of the month of August, you have over 200 stores in a $7,000,000,000 market. You know? And in over nine month period, you have that kind of growth from a couple hundred million dollars to a billion. You are in a market, in a stable, successful market.
Speaker 2:Now you have to scale that market. Now you have to issue licenses. So so, you know, what is what is a stable market? How do you value the success of the launch of a program? It's funny because some people say we're not moving fast enough yet.
Speaker 2:I remember distinctly when you and I, in January of twenty twenty two, moved to allow hemp farmers to get a license, our first two hundred and eighty cultivators that were New York based farmers. And we did that in a bill that we passed with the legislature in nine days, record speed. And then we issued the card regulations shortly thereafter, and those were passed within six months of us opening the office. And people said we were moving too fast. So, you know, we all know why people say that now we're moving slow or the office is moving slow is because we're understaffed in our licensing department.
Speaker 2:Danielle Holmes was running a department that was woefully understaffed. It still is. We have a 80 people. I think that's the same number that when I left.
Speaker 1:Well, a 80 is for the entire agency.
Speaker 2:Yeah. Exactly. We need 400 for the agencies. We need a 80 for the licensing department. I mean, we've we've said that.
Speaker 2:We made that very clear. So so, again, metrics. Right? A year ago, I left because we had issued our regulations. That was my responsibility to make sure that the regulations that were implementing the Mhmm.
Speaker 2:You know, the the the law we had written and were true to that law were passed. We issued those regulations a year ago in September, and that's when I decided to sort of leave. But now the job of compliance and now the job of continuing to issue licenses continues, and that'll continue for three to five years as we go from 1 to 7,000,000,000. Look. Even headset data right now just came out and said that New York in 2025 should be at about $2,500,000,000 market.
Speaker 2:So we're going from a billion to 2,500,000,000.0. So, you know, is that a successful launch? You know, I'd love to, later in the podcast, compare ourselves to what's happening in Michigan or talk about that we have over 200 stores in New Jersey still at $1.20 or $1.30.
Speaker 1:Mhmm.
Speaker 2:So, you know, what is success, and, you know, what is a disaster? We I'm happy to talk about that.
Speaker 1:Well, I know it just even in my own experience at another state agency, entering into a commercial lease routinely would take three years, and that was, you know, accepted. Right? Three years for one commercial space, and here we are with, 202 retail licensed stores.
Speaker 2:I mean, that's a great point, Herb, because you think of think of the complexity of the program we set up. We had to create an entirely new administrative process for enforcement. Right? We had to we had to have new administrative offenses Mhmm. New appeals, new reviews.
Speaker 2:We the legal department had to do that while they did licensing, while they did compliance and reviewed compliance, you know, while they drafted the regs. So that was our responsibility. You know, you and I split that. You're doing the operational side. We had so many things to do.
Speaker 2:It's a start up, but that's actually doing, you know, a thousand different jobs. So that lease example really drives home the complexity of what we had to do. And and I think that's overlooked often because people step into an agency that's fully functional and, you know, try to move it in a different direction. In this case, we have to create everything from scratch.
Speaker 1:As one of the architects, of the MRTA, I wanted to talk to you about structure and that in two ways. One is the structure of the agency and how that came about, but also the structure of the market more importantly. So can you go back and talk about what, you know, the philosophy and the economic thinking that were the underpinnings of the structure for the MRTA?
Speaker 2:That's really where the journey began, at least for me. We inherited a bill that came in from the legislature, the original MRTA that had put cannabis right into the ABCD Alcohol Beverage Control Law. I took it out and created a whole new framework
Speaker 3:Mhmm.
Speaker 2:In conjunction or working with, well, Chris, who was at the senate at the time because we figured that we really needed to have a separate law. We we created a new a new section of consolidated law, an entirely new
Speaker 1:And you're talking about Chris Alexander who became the executive director at OC.
Speaker 2:Correct. So this goes back to 02/2018. So we've been working on this for a long time, not as long as Crystal P. Paul Stokes, but we were piggybacking on that. And the framework was clear.
Speaker 2:You know, we had we had a couple of very specific mandates from both the governor at the time and the legislature, which were recognizing that New York had some of the harshest Rockefeller laws that really pursued and and penalized under prohibition. We wanted to make sure that we had an opportunity for people to participate that would traditionally not have participated, that were from areas that were disproportionately impacted, and that was important to the general, legislative intent. But, also, there was a market architecture that was very intentional, And that was and you've heard me talk about this a lot. That was based on a a two tier system, which I can explain in a second, and small businesses. Right?
Speaker 2:Allowing as many people to participate in a brand new market as possible within a sustainable system and not have just incumbents or just large well financed companies be able to, benefit from it. So you're launching a new industry. As the government, you have a responsibility to just see how many people you can get to participate and make it as fair as possible. That was the the real drive under the MRTA.
Speaker 1:And just going back to two tier system, what is that?
Speaker 2:So, essentially, we we created the same system as an alcohol where you have the supply tier, which is the manufacturing, the cultivation tier separate from the retail tier. Tier. So the same way as an alcohol, a beer manufacturer or a liquor manufacturer cannot own a dispensary, cannot own a liquor store, cannot own a bar, we created a two tier system. We predicated on that because, you know, if you look at the alcohol market, if you look at the bar scene, if you look at the restaurants and liquor stores and and wine shops, there's a lot of competition. It's highly competitive.
Speaker 2:There's a lot of diversity in products. There's a lot of employment, a lot of mom and pop shops. And so, you know, the legislative intent, we all sat down, we all agreed that it'd be nice to see if we could replicate a market that was like that, that wasn't like, it was more like alcohol and less like tobacco, which is a couple of dominant companies that control the entire market and sell it everywhere. So that was the the drive. And so you'll see a lot of and kind of antitrust provisions because that was my background.
Speaker 2:A lot of economic thinking around anti competitive conduct, keeping licenses somewhat small, allowing a limited number of ownership in licenses. You can only have one cultivator and three dispensaries. That kind of thing was very, very important. The economic architecture, we modeled it a lot on Washington state, some Canadian states, or provinces, and it was a little unique relative to other states.
Speaker 1:So why start a new agency and not just expand an existing one? I'm thinking, like, you know, like, the the the last agency that I know that was created was the Department of Financial Services, which was not new. It was actually the combination of Department of Banking and Department of Insurance was merged. You end up with Department of Financial Services. Even this week, I've talked to people who were in state government for over forty years, and they did not recall a new agency, a brand new agency starting from scratch.
Speaker 2:That is a great question, Herb. Right? Because we hear that criticism now. Nobody's done it, but you didn't do it right, and it should have been created differently or, maybe you shouldn't have been created at all. But not everybody has the sort of, hindsight and the history that that I had and that Chris had and the majority leader had and and and so forth.
Speaker 2:When we were discussing how to structure this, we went and we were asked by both the legislature and the governor at the time to go to as many states as possible and learn from their mistakes. Unequivocally, the most common recommendation we got was to create a brand new agency.
Speaker 1:Oh, that's great.
Speaker 2:Yeah. Yeah. You remember this yourself because what they were telling us is, like in Illinois, they were they were they were dividing responsibility from the between the Department of Agriculture, the Department of Health, the Department of Financial Services or Licensing, and the Department of Government Affairs. And what would happen is no one would take responsibility for the program. You try to have a coordinating committee that was pushing everybody, and it went even slower.
Speaker 2:There was no subject matter expertise, and there was no ability of coordinating programs. And it was an unmitigated disaster. If you look at California, proof in the pudding. They started with a decentralized, you know, not single agency. And after we created our agency, not because we created our agency, but just in terms of timing, they moved to a centralized agency.
Speaker 2:They have over 500 staff. They're doing it right in the sense that they've committed the resources, and they actually had to pivot to a single agency. So we went, we're told to listen, came back, made that clear, and told everybody we needed the right budget and the right employees. Unfortunately, when we got when we got to open in January, if you recall, January 2022, that was just after the election, or not the election, but the change in in government. So we had a new administration, and it took a little while to get the resources we need to be, to be generous.
Speaker 1:Going a little deeper, why have this and and I looked up the word just to make sure it's a word. Trifurcated. Right? Because it is trifurcated. You have the the the the agency part.
Speaker 1:Right? That's sort of the executive part with the executive director, almost, all the staff. Then you have the cannabis control board, which has the cannabis control board members, very few staff, and then you have the cannabis advisory board. Why set it up that way?
Speaker 2:Yeah. So that's also, very common in in the other states we visited. Other you know, when we were in Colorado, for example, they highly recommended an advisory board that was made up of industry players and, public health players because they had the kind of expertise that was needed to inform a new agency on how to roll out a very complicated and technical program. We had to create rules around cultivation, rules around good manufacturing practices around limited dispensing, transport manifests, storage. You know, these were highly technical requirements, and so you often wanna have experts informing you.
Speaker 2:So that's the cannabis advisory role. Mhmm. And and that was supposed to be a source and is still supposed to be a source of expertise. And we, frankly, should be tapping into them more than we do because there is a lot of expertise there now.
Speaker 1:No. And, actually, I I understand that that is starting to happen more and more.
Speaker 2:That's right. I think so. But I think it has to be intentional, and I think I think there should be some structure built around that. But then the the the cannabis control board right? Remember what this agency was.
Speaker 2:It's partly legislative. Each body has one appointment to the cannabis control board.
Speaker 1:Mhmm.
Speaker 2:And they also have to confirm the executive director and the chair. So there's a level of legislative involvement, which is also uncharacteristic in many, if if any, state agency. And the reason for that is uncharacteristic in many, if if any state agency. And the reason for that is that we succeeded in in requiring under the law that 40% of the tax revenue and again, if we're talking about a $7,000,000,000 industry with an effective tax rate of just under 20%, you can do the math and see that we're talking about potentially tens of millions, if not hundreds of millions of dollars being distributed to communities under this law. So the legislature didn't wanna give the executive and the governor's office full control over that money.
Speaker 2:So there is a shared responsibility that's also under the CAB, under the cannabis advisory board. But the control structure meant that the board, you know, had a certain amount of autonomy and had a certain amount of representation by the legislature. So we had to manage that process too. In the office, we had to manage government, you know, governor relationships and so forth, but that's the checks and balances that we came up with when we were creating the structure.
Speaker 1:Now I wanted to talk a little bit about the OCM regulations, and you mentioned, you know, the the regulations at the start. And there are a couple of items there that have caused, I would say, I guess, the the most pushback, right, the most resistance from, the cannabis community. So one is proximity protection. The board is attempting to to deal with that by creating this public convenience and advantage sort of exception. What are your thoughts on, first, the proximity protection, and then second, the effort to, to deal with some of that criticism?
Speaker 2:Yeah. I'm more than happy to address this. And, again, I'd like to provide some historical context when it comes to the nature of this policy debate. So we had hundreds of these issues that we had to deal with. You know, what do we do about ownership requirements?
Speaker 2:What do we do about prohibitions on advertising and marketing? And what do you know, all these things were decisions we had to make, and then we then published in regulation and got feedback from. So this issue comes into the question of local control versus state control over licensing. Fundamentally, that that's what this is about, and I'll explain how that is.
Speaker 1:Mhmm.
Speaker 2:So when we traveled to other states, the first thing they said was do not leave licensing in the hands of locals. It becomes too parochial. It becomes nimbyistic. They all make decisions that favor their local, you know, who they know. There's there's an, you know, Massachusetts sold us.
Speaker 2:There was risk for corruption. California told us nobody opts in, and then they no jurisdictions are selling in the state. Mhmm. And so they were they they said keep that power, at the state level. So we did.
Speaker 2:So in other words, we created a centralized licensing program, and we then decided how many licenses we're gonna issue. But by doing that, by not giving the locals control, we had to make sure that we weren't going to overcrowd certain localities. We didn't want there to be green zones where everybody would open up in the same spot, one next to each other, which we saw happen in the illicit market. Remember the time where the illicit market came out? They were all clustering.
Speaker 2:They were everywhere. We did not want that to happen. And so what is the mechanism that you can use in order to make sure that the rollout is done smoothly and is done sort of equitably for these stores to give them a chance to get a foothold and grow? And that's the thousand foot, 2,000 foot rule. You essentially say, you know, you have a thousand feet distance between stores so they don't cluster.
Speaker 2:And so until you get a critical mass where everybody's established, everybody has an ability to start, competing and getting a client base, and then you allow more to come in and you allow the waiver process to kick in. It's really not rocket science. It's not a crazy idea. Now what people take issue, they like the concept, but they say, but I'm nine hundred and ninety seven feet away. Why are you really denying me three three three feet?
Speaker 2:It's absurd. Right.
Speaker 3:The the reason is, again, you have
Speaker 2:to put yourself in the shoes of a regulator. The reason is because the it has to be a bright line. Because if you say 90 nine ninety seven, how do you justify September and not September and not September and not so on and so forth? So it it's not supposed to be an eternal ban or or limitation. In fact, we wrote in the regulations that there would be a public convenience and advantage waiver, the PCA waiver that's being discussed.
Speaker 3:Mhmm.
Speaker 2:But our intention was to have that waiver kick in when there was a critical number of stores. So what you have to remember is that we have a billion in sales and over 200 stores, but that every store has to be able to sort of make a living and a start. So you just need to give people an opportunity, especially since we gave licenses to folks that had been disproportionately impacted and that, you know, we don't want excessive competition with people having fire sales on prices because they're located next to each other and they're each competing against each other and driving each other out of business. So I think you have to be really judicious in how you use that and how you apply it and wait until you have a thousand stores. Right?
Speaker 2:And then you start to allow when people can make a proper judgment and when people, you know, have a bit of an established business.
Speaker 1:So so do you think it's too soon to start, with the PCA, with the public convenience and advantage?
Speaker 2:I think the board and the office is doing it right in that it's not too soon to talk about the criteria. They published regulations that say, here's where we're thinking we should go. I think some of the criteria they're using are good. Other ones are, I think, risky. They're they're too subjective.
Speaker 2:I think it should be tight. And I believe they should get those in place, but, yes, it is definitely too early. We still don't know exactly where people are drawing their customers from. We still don't know how many illegal stores there are. You know, you don't need to have a free for all and clustering of stores right now at this minute.
Speaker 2:I believe we've reached steady state in the sense that we have the basic infrastructure and we need to scale. What we want to avoid at all costs now is making a mistake. You know, what you what the only thing we have to do is not screw it up because right now we've gotten to where we need to be.
Speaker 1:And by steady state at this stage, I think you're really referring more to to there being a balance. Right? A balance between on the supplier side, on the retail side, and that's, I think, the concern in growing the industry is that it continue to grow in balance.
Speaker 2:That's a % right. And so we should talk about that a little bit because if you talk to cultivators right now, you know, they're finally getting their footing because remember, right, the delay in a retail, and we can talk about DASNY, and we can talk about the lack of licensing examiners. And we could talk about the lawsuit, let's be honest, about a lawsuit that was brought to purposefully grind to a halt the issuance of new retail licenses and to hold the whole program hostage in order to negotiate for, you know, a couple of, specific benefits for certain specific entities. We could talk about those delays, but the cultivators are the ones that got left holding the bag. So now they're finally getting a foothold, but, you know, they need to be able to grow their operations.
Speaker 2:So your your point is exactly right. As we grow the supply side, we have to have a balanced amount of dispensaries. And this process of balancing supply and demand has to be done and has to be driven by data. So where is the data? Where is the analysis?
Speaker 2:John, you know, Kaguya is doing this inside the OCM. I'm hoping he has a better team that he had, more staff, although the numbers, you know, don't seem to suggest it. There's needs to be more analytics, more discussion about numbers of licenses as we ease into this. There's a lot of uncertainty surrounding how many new new dispensary licenses are gonna be issued and how the cultivators are gonna be allowed to grow. So in my view, right now, what we should be doing, we issued we started with everybody having their acre, which was a small amount of land, right, relative to everything else.
Speaker 2:They need to be able to be growing a larger footprint. They need to be given the next tier of canopy, and then new entrants need to be allowed to come in in the smaller tiers. Right? So we need to move people up and then move people in in a measured way. And we need to have a transparent discussion about how many people we're thinking of licensing.
Speaker 2:Right now we have a balance. Right now we just have to scale, but let's do it based on data, and let's do it on based on letting our current cultivators grow their footprint and compete more effectively. Those that are selling through, we have that in the regs. We put it in there. Those that are selling through, you know, 8085% of their product are showing that they're effective.
Speaker 2:They're showing that they're marketing and selling their brands. Let them increase their canopy. But we need to be thinking about those things right now. Those are important policy decisions that need to be made.
Speaker 1:There have been calls to just license all, retail applicants, you know, who qualify. I'm guessing that you oppose that idea. What is wrong with that approach?
Speaker 2:Well, there's a couple of things that'll backfire if you just try to, you know, flood the market with retail licenses. One is just the quality in terms of the economic success of the various licensees, the dispensaries, let's say, or the farmers. And the other is, what does that mean in practice for the OCM? You know? Mhmm.
Speaker 2:The office is already having a hard time processing the November licenses because the original plan was to issue 250 licenses in November. And then there was a fight, which actually resulted in Chris Alexander being pushed out of the office, to expand that to the whole 2200 that had applied. That was never the intent. And so now you have a huge pipeline that's jamming up the office where they can
Speaker 1:That's just a November queue. Correct?
Speaker 2:That's just a November queue. Exactly. So so you have an administrative burden. You just have an agency that is chronically understaffed again that just can't handle what what does it mean to issue all the licenses? You still have to look at the TPI.
Speaker 2:You still have to do proximity location. You still have to review that they're properly set up, that they're GMP, that they're you know, all that stuff still has to happen. So you could license 5,000 people, but they're not gonna get into the market. Right? So what's the point of doing it?
Speaker 2:Is it just a feel good measure? That's first. Second, if you don't have a measured rollout, you're gonna crash the market. Let's talk about Michigan. Let's talk about some other jurisdictions where there was unlimited number of licenses.
Speaker 2:All that resulted in was a bloodbath, a bloodbath on the supply tier and on the on the on the retail tier. People overproduced, the market price crashed, everybody went out of business. That's not my idea of smart government policy. That's not what our mandate was. You know, you have to roll out licenses in a way that's sustainable.
Speaker 2:Give people time to open and grow. We started with small licenses so that they were the most available. We didn't give everybody their second or third dispensary out of the gate so everybody would have an opportunity to have their first. And I think you keep doing it the way it's going, and you keep the balance of dispensaries and grows in harmony as best you can until you have a fully functional $5,000,000,000 market. And then you don't need restrictions on licenses because people can assess the market conditions and say, is it worth me opening a dispensary here?
Speaker 2:Right? Am I gonna make it? How much are these dispensaries making? What are the what is the, you know, the pricing information that I have? So so for me, it's both an administrative nightmare and, a system wide market failure if you flood the market.
Speaker 1:And how do you attract investors if if that's a scenario where everyone is just getting licensed?
Speaker 2:I'm pretty sure that's a rhetorical question, and I think that's a very good point. Right? That's and I'm seeing that now. You know, my business now is to work with start up and small businesses to launch, you know, the cannabis market. I've been doing a lot of cannabis work internationally.
Speaker 2:I've been doing some national and and and and some in New York as well as my health care practice. And it's been really interesting to hear investors from out of state coming in. I mean, they want to buy these licenses, and they do it on the basis that they understand that this is being thoughtfully rolled out. You know, the the first question I get is, you know, how many licenses do you think are gonna be issued or how quickly or is there any thought that goes behind? And I tell them when I was there, we'd spent a lot of time thinking about that.
Speaker 2:Because in Michigan, they got burned. Everybody gets a license. They're still issuing. You know, they put a moratorium on the cultivation licenses in Oregon for a reason. There's just a lot to be said about being intentional and maintaining the value.
Speaker 2:The private sector requires strong signals about rules being consistent and predictable for them to be able to build their businesses around. And that's that's the number one, I think, goal of the office right now. They have to move towards being just a lot more transparent, a lot more predictable in their actions so that the business sector and the industry can actually grow, you know, effectively.
Speaker 1:Now this is not a rhetorical question. You know, Chris used to always say, you know, that we were building the plane as we flew it. Right? And I used to always say, well, that's incorrect. We were building the pieces that went into building the plane as we were flying it.
Speaker 1:Now should we have waited, you know, for the agency to be, you know, fully staffed for all the draft regulations to be written and issued, for all the systems to be in place? I mean, how long would that have taken, and and would that have been a viable approach?
Speaker 2:That's a good question. You know, I don't know the should should we haves in the Right. So it is always really difficult, and Monday morning quarterbacking is is is notoriously unproductive. But I'll share with you my personal experience when I cofounded this with Chris in in January when we brought you on. I learned from Cuomo that in order to make change in government, you need to move quickly.
Speaker 2:And that, right, momentum is key to bringing new ideas and to implementing new programs. We also knew the industry was gonna want, you know, to start, and we needed to issue licenses. So we made the decision to move fast, to pass that law, to pass those regulations on card and AUCPs to go conditional while we were drafting the regs. So we were drawing the blueprint while we were building the pieces to build the plane. But, you know, but it was a bit of an IKEA experience because we did have other states that had done it.
Speaker 2:So we were borrowing heavily from other states. States. You know, we weren't, you know, we weren't making it up. We were listening to what other people had told us. We were implementing other people's strategies, but moving fast was was super important.
Speaker 2:And in fact, the main criticism we have is that we didn't move fast enough. And I would say I would say that's just not true. I think the the six month delay from the lawsuit was very intentional. I think the judge misunderstood what they were doing because it's a highly complex Mhmm. Piece of legislation and and and new program.
Speaker 2:And I think, you know, we were held at ransom and slowed down, but other than that, the program moved very, very quickly. So so I I I don't regret that in any way, and I think we would be significantly worse off if we'd try to move more slowly. I don't think anybody would have the patience for it, and I think even more people would have gotten hurt.
Speaker 1:I know. I agree. And it would not have been half as fun if we would have just done that work and,
Speaker 2:It was it was wild.
Speaker 1:It was. It was it was wild. Now you you weren't there when the, when governor Hochul decided to have a sister agency, the Office of General Services conduct a review of OCM. What was your reaction from the outside when you heard that this review was taking place? And if you can, just a little bit of, your impression of the work product, the what ended up being the Moy Report.
Speaker 2:Well, I can tell you my first impression, and that was survivor guilt. You know, being on the outside and having all my friends, really, because everybody in that agency, as you know, you were were friends. You you don't go through something like that without becoming friends with everybody, and we were a really tight team. Having everybody in there going through that when you're on the outside is is is a terrible feeling. Hey.
Speaker 2:Look. You know this, Herb, because, you know, I brought you on board. My job, my first job at OCM, was to recruit everybody. I hired, you know, a quarter of the staff in that place, and I convinced them to come on.
Speaker 1:That's right.
Speaker 2:I I I sold them the dream of what OCM could do. All the good we were gonna do, the the market we were gonna build, the chance to sort of make a difference, and everybody believed it. And so when you then get dragged through the mud and you have the people that you sold this to and brought them on and and and worked with for two and a half years kinda get dragged through that, it does not feel good in any way, shape, or form. I think if you wanna understand the OGS report, if you wanna understand DASNY, if you wanna understand some of the setbacks we had and some of the political dynamics, all you have to do is listen to the Herb Barbot podcast because you had people on the podcast explain it in greater detail. I don't I don't feel like getting into, you know, the politics of it.
Speaker 2:I think one thing that maybe has been underreported is is what happened in the end, you know, what happened to Chris Alexander. Not the way it happened. I'm not gonna speak to that. I think people can draw their own conclusions on that. But, you know, what happened is there was a divergence in policy.
Speaker 2:It was about the November licenses. We fundamentally believed that when I left at least that that there should be a limited number of folks with licenses because people were gonna stuff the system. We should only give 250. The governor's office believed there should be all 2,200, and there was just a disagreement. Chris would just not give up on the plan that we had and the need for the December queue, which was much more social equity driven, to also have an opportunity.
Speaker 2:And so so there was a parting of ways.
Speaker 1:And it wasn't just being absent. It was it was a a a sincere belief that that was the wrong decision.
Speaker 2:It it was it was one of the cornerstones of the program. Right? So now you now everybody's complaining because we're still not moving those licenses through because it's an insane program because we were understaffed, and we were trying to do it in the best way we could. But look, again, the way it went down, I think everybody can have their own opinion. I think it's fairly clear once you listen to your podcast and look at the news.
Speaker 2:But that's, you know, the reason it went down the way it went down. And and I think the findings are what we've been talking about, chronically understaffed agency that needs more help, and I'm hoping that that's gonna turn it around. I think there's a a sincere desire by the governor's office to really hire. I think they've they've realized how difficult it is, and they're they're putting a lot of effort into try to grow those numbers. I think we should expect them to do that, and I think it'll make a huge difference for the for the for the office once they really get the staff.
Speaker 1:Alright. So Chris left in May. Alright. So now it's gonna be about five months soon, that the agency has had an interim executive director. If you were doing the hiring, we talked about all the hiring that you did previously.
Speaker 1:If you were doing the hiring for the agency now, what qualities do you think are critical for the next executive director?
Speaker 2:Oof. I mean, I'm not, I'm gonna speak sort of generally because I don't know, Felicia Reid, so I I can't speak to her qualities or abilities. But, you know, you just need good management, obviously. You you really need to be able to work effectively with a team and bring people together around a common cause. Unfortunately, because of the way things went down, you really need to rebuild morale, I suspect.
Speaker 2:And then you need to have a solid policy at mind and probably some cannabis experience because, you know, we can address some of these, but there are issues. The system and the market architecture is strong. So the foundation of the building is solid. The first couple floors have been built, and I think will withstand any you know, will withstand most storm. But you can still take some wrong turns.
Speaker 2:I think you need to understand the industry. You need to understand what, what enforcement and compliance looks like of the rules. I think
Speaker 1:Mhmm.
Speaker 3:You
Speaker 2:really need more, enforcement. I've heard that, and I've seen that now in the private sector for a year. So we need and I don't mean shutting down illegal stores. I mean enforcing the two tier rules, enforcing the ownership limitations, enforcing the ban, you know, the restrictions on certain types of advertising and incentives across the tier. You know, there there's a lot of of real rules that the good actors wanna follow, but the the folks that are pushing the envelope are bending, and the office sorta needs to staff up to do that.
Speaker 2:So you need to understand how the industry works to do that. There's the discounts, of course. Right? The discount language, I think we need to rein that back in a little bit. The regs are out on that.
Speaker 2:There's, the number of licenses, the size of the cultivation. There's, you know, the hemp products. We we need somebody that can speak to the governor's office as well and explain what cannabinoid hemp products are and and how that federal loophole risks undermining the New York program. So that that takes a certain amount of expertise and a certain amount of skills, that are both policy and management. So it's it's a it's a very difficult job.
Speaker 2:It it really was one of the most challenging things I've done in my professional career. So so I don't know that there's, you know, a silver bullet, but those would be some of the attributes I'd I'd I'd recommend, you know, in in that position.
Speaker 1:Well, you know, as we come to a close, Axel, what are your thoughts on, you know, the next two, three, five years for the New York State cannabis industry?
Speaker 2:Well, I you know, I'm I'm fundamentally really bullish. I think what I've heard since I've been out is optimism. The biggest criticism we had was the delay. I mean, think about it. You know, there was some criticism on the TPIs, the true party of interest, and the ownership, limitations, although that's been somewhat muted now.
Speaker 2:The the the folks are seeing the benefits of that, the competitive market we have for products on the supply tier, how many brands we have Mhmm. How many independently owned dispensaries we have. Just if you if you will, just for a minute, do a thought experiment with me. Right? So so we we we are the, you know, third largest state, fourth largest state in the country, and Florida's also, got a ballot initiative.
Speaker 1:Right. This this November.
Speaker 2:Right. In November. And and and look at what they're doing in Florida. Right? What they're proposing is that at the very least, the current incumbent players in the medical market would be would be entitled to their to enter the market.
Speaker 2:And then they could have other licensees come in too, but but the current ones get to come in. The top five large players in Florida control over 65% of the dispensaries in that state. Right? So so Puralief and Trulieve and, Air Wellness, some of them have over a 50 licenses, retail licenses. So it's a very, very different market.
Speaker 2:Right? Five large players with a 50, hundred and 10, 70, 60, retail licenses accounting for over 65% of the market in a 20,000,000 person market.
Speaker 1:And that's only on the medical side.
Speaker 2:But the referendum would give them immediate access and then would allow Right. Right. Would allow the office to sort of issue new licenses. Mhmm. So just like in Ohio, once you open the market and it's fine.
Speaker 2:I'm not saying that that those players shouldn't have an opportunity. I'm saying from the government's perspective, if you wanna have as many people potentially compete as possible and make it a truly competitive market, you have to start everybody on an equal playing field. And then that's not an equal playing field. You come in in a vertical system with five people, five incumbents control, and 65% of the retail outlets. And so here, we have the exact opposite.
Speaker 2:We have over 350 brands. We have 200 independent retail stores, each one on you know, one one one store per per person. We have a qualitatively different market with a lot more products, highly competitive. I think that's what we set out to do. That was the mandate.
Speaker 2:I'm proud that that's what we have now. I'm proud that we have a billion in sales, all from small businesses, all going to small businesses. You know, we have non for profits. We have Housing Works. We have the dough fund.
Speaker 2:We have we have these organizations that nobody else has done. So I think and that's the foundation in the first couple of floors like I was saying. So the next three to five years, well, headset says 2025, '2 point '5 billion. So I expect another billion or 2 in 2026. So all we're gonna do is see more of the same kind of steady growth if we if we handle it properly, if we manage it the way we've we've launched it.
Speaker 2:And that means no sudden decisions, clear transparency, predictability, and rule changes, and slow and steady growth in the number of licenses. Because if not, you can quickly veer to a Michigan, and you can tank the whole program, and that would just be a real tragedy. So I think the future is bright. I think the state of the union is strong, but I think you can still screw it up if you don't be if you're not careful.
Speaker 1:Alright. Well, thank you for your time today, Axel.
Speaker 2:It's been an absolute pleasure, Herb, to go down memory lane with you.
Speaker 1:Absolutely. And thank you for the work you've done on medical cannabis and, and adult use.
Speaker 2:Well, I you know, and thank you for joining the team and, you know, still thanking me at the beginning rather than, than blaming me and and refusing to have me on your podcast.
Speaker 1:In our licensee highlight segment, I speak with Paul Yao, cofounder of the travel agency, a dispensary that is setting the standard for aesthetics, product availability, and delivery services. It is also pioneering a retail branding concept in New York State cannabis. Welcome, Paul.
Speaker 3:Thanks, Herb. Lovely to be here joining you.
Speaker 1:Well, thank you, and thank you for your time today. Now, Paul, I'm not sure if you remember, but just about this time last year was when we first met, and you actually gave me a tour of the Union Square travel agency. And this was actually the pop up shop. You you were working on the permanent location. So we were in the pop up shop, which actually looked great, but now that's closed and you have the Thirteenth Street location.
Speaker 3:That's correct. What's super interesting, I think, about the pop up is we were able to open that pop up in forty days. We were able to scale it, and it I think it's just a really good indication of what's possible on a limited budget, and we're super proud of that now. Obviously, we love our main stores. They're, you know, architecture, design, and they're beautiful, but I think there's a place in the market for both types of, designs.
Speaker 1:Alright. No. And and we'll come back to actually discuss the the response that your architectural designs have, have at least of it. But first, I wanted to talk about the DOE Fund. Right?
Speaker 1:And and I think most people we've talked a lot on the show about the conditional adult use retail dispensary program. And what most people don't realize is that part of that program was the opportunity for nonprofits that serve formerly incarcerated individuals to participate in the card program. And the Doe Fund was one of those successful applicants, and you you actually partner with them.
Speaker 3:Yeah. We we partner with them. They're the, majority owner of, the the travel agency at Union Square. They're amazing organization to be partnered with, and we're so proud to be partnered with them and helping to, you know, contribute through the store to their overall mission.
Speaker 1:Right. And and, so what's your background? How did you come to, to work in cannabis, to work and partner with the dough fund?
Speaker 3:So I, have a background in private equity venture capital through a venture fund I was working at. We got involved in cannabis through making investments, and one of those investments led me to become the CFO of a vertically integrated business in Massachusetts. Once New York legalized, we kinda thought, why don't we have a go at this? And, you know, some friends, and I got together and formed kind of a coalition of the willing and started trying to, meet people, and the rest is history. But along the way, we were introduced to the DoF Fund.
Speaker 3:This is well before card, which is quite unique. And when the card program came out, we'd established a partnership with DoFunder Ready, and we've pivoted that relationship into a more meaningful role for them because they were eligible for the license.
Speaker 1:Oh, so that's interesting. So so your partnership with them, your work with them began prior to the card program?
Speaker 3:That's correct. We thought that pre card, if you look at how licensing had gone in other states, which were highly competitive, not that New York isn't, but in very limited license states, having partners with kind of real social equity missions was very powerful. And so we had forged a number of these partnerships, not just with the dough fund where we would contribute portions of, our profits back to them just to have them with us. And so we had done that with the dough fund. And then when card came out, and they were eligible, we just pivoted that relationship and, they were super excited.
Speaker 1:So when you began, it was the Union Square Travel Agency, and now that's changed. Now it's just simply the travel agency.
Speaker 2:Yes.
Speaker 1:And how did that come about?
Speaker 3:So after we opened, Union Square, we went back at some point to the OCM because, technically, the licensees are eligible to open up to three stores.
Speaker 1:Mhmm.
Speaker 3:And we asked, the office, especially because there was 25 licenses set aside for not for profits, and not all of them have been granted. And we asked, are we eligible to get a second license? And they told us at the time, look, it's really hard to grant you a second license while people are still waiting to get there first. Mhmm. But it'd be great if you could help us and help the industry and help them open and scale.
Speaker 3:And so then listening to the advice of, the OCM, we started giving tours, quite like yourself, when when you came, but we started giving tours to other card licensees. Mhmm. And then the conversations just organically went to the step point where people like, well, can you help us open? And we're like, well, we hadn't really thought about that. But, you know, for the right people where, you know, we we kind of had a connection, we were interested in that, and that's how we met our card partners, for, you know, the Fifth Avenue store and and and the Brooklyn location.
Speaker 3:And then what we wanted to do was try to leverage, you know, the travel agency brand to help those stores ramp up. And that's how we came about changing the name.
Speaker 1:In business is the old sort of mantra. Right? Location, location, location. And you actually have some incredible locations. In Brooklyn, you you opened on Flatbush Avenue, across the street from an Apple store, down the block from the Barclays Center.
Speaker 1:It's a great location. And then the third store is the Fifth Avenue store in the Rockefeller Center area. So how did you come to find those locations and and really sort of, come to become part of those local communities?
Speaker 3:We had a hypothesis going into Union Square around proximity to mass transit. And so with the DoFun store, we had the opportunity because they were one of the first participants to try to find a location which we thought was gonna be the most optimal for for the dough fund, and we we settled on the Union Square and but I kinda say settle. It's a bit tongue in cheek because
Speaker 2:Mhmm.
Speaker 3:As as everyone knows in this industry, there's not a lot of options. There's not a lot of options because, you know, landlords, they've got a lot more open to cannabis, but, you know, two years ago, cannabis was scary. They were worried about what it'll do to tenants and, neighbors, but we're able to convince a landlord in in Union Square to give us a chance, and that's how we opened the first one. And, after the success of Union Square, it helped give us validation on the thesis around proximity to mass transit, which is why we went to opposite Atlantic Terminal and then, subsequently, Rockefeller.
Speaker 1:The model that you have settled on in this sort of expansion of the brands, right, what does that look like? And and how is because I know I sort of described it as franchising, but, that that wasn't looked on favorably. So the branding. So what what's the difference between those two?
Speaker 3:It's just a brand licensed deal. It's not it's not a franchise. There's
Speaker 1:Mhmm.
Speaker 3:No kind of prescribed marketing or or anything like that. And so the brand is actually owned by a nonlicensed entity with a different ownership structure than, you know, Union Square. So this entity is a nonlicensed entity, and it basically licenses the brand, to all the to the three stores.
Speaker 1:But how involved is the travel agency in the operations of the store as opposed to the license holder, which are, in both cases, card licensees?
Speaker 3:So the card licensees, naturally, they control all the stores. Mhmm. And so they've got a CEO who runs the store, all the employees in the store from the general manager to assistant general managers and sales associates are all full time employees of the store. And then the stores also get some consulting help from, you know, professionals in the industry.
Speaker 1:All three locations have been, again, highly regarded as far as their architectural uniqueness. Why was that important to you to have that sort of aspect of the store for the public?
Speaker 3:Originally, when we designed the store, we were trying to target a certain demographic. We're trying to target women because what we'd seen in other states was that a significant demographic, purchasing cannabis were like 40 and 50 year old women. And we wanted to design a store, which would make it very warm and welcoming, for women to come into the store. And so that's kind of how the aesthetic of the store came about, and we still thoroughly believe in that thesis. We ran that demographic as well.
Speaker 3:But we had an unintended benefit of with the proliferation of all the illicit stores. When people came to the travel agency, they could obviously tell as soon as you walk in that this was an illicit store just by the look and design and of the store. And we also think that assisted us because there was a clear delineation between this is a legal store, it's and it's definitely not an illicit store.
Speaker 1:You also have, had tremendous success in the delivery service aspect of the business. How does that work with the travel agency?
Speaker 3:So delivery is just another channel, outside the store, and we felt that, you know, similar to a lot of participants in the industry that is a channel that we wanted to get into. We were a little scared to get into delivery, just because it's a different business to install. And so we kind of tentatively got in there, have been slowly ramping up. We partnered with a, consulting group called Doobie who do it in other states to try to help us, with, you know, some of the intellectual property around efficiency and the software as to how to kinda gain efficiency around delivery, and that that's how we approach the market. You know?
Speaker 3:We wanted to be in there, but kinda very tentatively, we kinda tiptoed in with JOBY.
Speaker 1:Can you talk a little bit about, what portion of your, business is coming from delivery versus the in store?
Speaker 3:It's a kind of a small minority. I mean, we never talk about numbers, but it's it's a small part.
Speaker 1:Now one of the things that you also talk about as far as the, the travel agency is about the, the damage that was caused to communities by the war on drugs and that legal cannabis has the power to repair that damage. So how how is it that you view that?
Speaker 3:So I think at the simplest, allowing not for profits that, service communities which have been disproportionately impacted and also allowing people who themselves have had, you know, negative experiences from, you know, the racist over policing of cannabis to to get licenses and to benefit benefit economically at its simplest is the greatest benefit of the the card rollout program. At a more nuanced level, when you look at the dough funding, you look at what they've done for over thirty years, they serviced thousands and thousands of clients. And to be able to direct, you know, majority of all the profits from the union square store back to the dough fund, you know, they they they use that, in their programming in support of all their clients. So we're extremely proud of that relationship.
Speaker 1:Alright. So a year ago, you had the one pop up. Now you have the main store plus this new branding effort. What's next for the travel agency?
Speaker 3:I think that, we're still in the first inning of legal cannabis in New York. So we're really excited, obviously, with more licenses coming even yesterday with kind of these updated PLAM.
Speaker 1:Right. The marketing Yeah. Labeling, etcetera.
Speaker 3:Which will allow us to kind of market more effectively, we believe. And of of course, like, the big, enforcement on the illicit stores, it's just gonna promote the legal market, which we think is extremely important. And then, obviously, there's this the big question mark around rescheduling, which obviously we're a % supportive of, but we just have to see how that shakes out. It looks really favorable for the industry.
Speaker 1:Alright. So where can people find out more about the travel agency, the locations, and, and the products and the services that you offer?
Speaker 3:You know, we are located, in really approximate locations, Union Square, Downtown Brooklyn, and Fifth Avenue At Rockefeller. And everyone can go to the travelagency.co, which is our website, and they can learn more about us, our products, and locations.
Speaker 1:Alright, Paul. Well, thank you very much. I look forward to seeing where the travel agency is in the next, in the next year. Thank you.
Speaker 3:Thanks. Much appreciated.
Speaker 1:Thanks for listening. Well, we won't be back in two weeks. I expect that we'll begin season two of joint session, Diverse Voices in New York State Cannabis, sometime around February or March of twenty twenty five. If you're enjoying the show, please leave us a rating and review on your favorite podcast platform. It helps new listeners find the show.
Speaker 1:Better yet, share the show with those you know who are interested in what's going on in New York State cannabis. Joint Session is produced by me, Herb Barbot, with additional production and engineering by Matt Patterson with Rebecca Mapika on digital marketing and social media. In addition, as always, thank you to Canvas Wire. You can find us on Instagram at jointsession.pod. That's one word, jointsession.pod, and on LinkedIn at joint session podcast.
Speaker 1:You can also email me at herb.jointsession@gmail.com. Until next time, this is Herb Balbo. Thank you.
