June 9, 2015

Marijuana Companies Are Passing On New York Due To High Startup Costs

June 9, 2015
New York marijuana

New York marijuanaWhen it comes to starting a marijuana business, not all states are created equal. In many medical marijuana states with older programs, the barrier to entry into the market is not that large. In Oregon it’s literally as easy as applying for a dispensary license for a fee, and finding a place that is a proper distance away from a school or another dispensary. I know people that have opened dispensaries in Oregon for $10,000, and that includes all the startup costs to start making sales. Most dispensaries in Oregon cost more than that, but for a basic dispensary, that amount is doable.

In medical marijuana states with newer programs, the barrier to entry is much higher, and the amount of licenses are very limited. For instance in Illinois I know of a company that spent 1 million dollars trying to get one or more cultivation licenses, and they didn’t even get one. For those that did get approved for a license, they are learning the hard way that it’s going to be a very long time before they turn a profit. That’s fine if you are just invested a handful of thousands of dollars. It’s quite a different thing when you are in the hole over 1 million dollars.

Marijuana companies are learning from the Illinois situation, and as a result, are avoiding New York due to the likely record setting startup costs. Per Marijuana Business Daily:

More companies apparently are taking a pass on New York in favor of other medical cannabis markets due to the high financial requirements – and potentially lower returns on investment – in the Empire State.

Startup costs for each of the five businesses selected to receive MMJ licenses could hit $25 million, and profits likely won’t materialize for at least a few years, according to a report in Crain’s New York Business.

It’s simple math for companies such as Terra Tech, a publicly traded firm that has cannabis business interests in California and Nevada.

Up until last week, a division of Terra Tech was considering submitting an application in New York. But the company decided not to take a shot and will instead focus more on Nevada, which has a much broader MMJ law, according to Crain’s.

A representative from the Illinois company told me during a discussion that his company was looking for an advantage. He said that they would never expand to Oregon because there are so many growers out there. ‘Competing with 25,000 growers, that’s not an advantage. Being one of just 21 growers, especially in a state as big as Illinois, that’s an advantage.’ I tried to offer up some advice that yes, Oregon has more growers, but we also have 28 times the amount of patients in Illinois because Oregon’s medical marijuana law is so much better than Illinois. Plus, in Oregon no one has ever spent 1 million dollars just to fail at getting a cultivation license. If your company is new to the marijuana world, make sure to do your research to see what the true potential is of your state’s medical marijuana program.

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