Nearly a year after Canadian investment firm RIV Capital acquired New York-based medical marijuana provider Etain for $247 million, new regulations will allow the company to enter the state’s budding adult-use market sooner than anticipated.
New York’s Cannabis Control Board and Office of Cannabis Management released new adult-use cannabis draft regulations on Thursday including a significantly shortened waiting period for medical cannabis providers, dubbed “registered organizations” in the state’s lingo, to enter the recreational market. The revision scraps an initial three-year waiting period and allows for registered organizations to open one co-located medical and adult-use dispensary by the end of the year followed by second and third stores after June 29, 2024.
“Obviously a three-year ban was significant and getting down to one year for our first store is great,” said Mike Totzke, chief operating officer and interim CEO of RIV Capital. “We’re confident in our ability to open up our first adult-use store at the end of this year in December and then we’re working on plans for our next two at the end of June of next year.”
RIV Capital closed on its purchase of Etain in December, giving it one of 10 vertically integrated cannabis licenses in New York that allow the company to grow, manufacture and sell its own adult-use marijuana products. Prior to the acquisition, the Westchester County brand was the only woman-owned private cannabis company in the state.
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Registered organizations are allowed to operate up to eight medical dispensaries. For registered organizations participating in the adult-use market, three of these locations can be co-located for both medical and adult-use cannabis sales.
Etain said one of its co-located dispensaries will be its flagship store in Manhattan. The brand also operates dispensaries in Kingston, Syracuse and Yonkers. It closed its Albany dispensary in 2017 and is in the process of searching for new retail locations to open in 2024.
In the meantime, the cannabis provider is focused on completing an expansion of its cultivation and processing operations. The brand is currently in the final phase of construction on its production facility in Chestertown. The 60,000-square-foot Warren County location has eight bays of greenhouses and is expected to triple Etain’s original cultivation capacity as well as support research and development activities to drive innovation, Totzke said.
Cultivators will begin populating the facility’s first greenhouse in the next two weeks and will continue production throughout the summer so their first harvest will be ready by fall.
“We definitely haven’t stopped there,” Totzke said, adding that the company recently signed a lease for a 68,000-square-foot indoor growing facility in Buffalo that will include 13 different grow rooms.
While the passage of the new market regulations is largely seen by the company as a step toward accelerating access to legal dispensaries, certain revisions could still serve as a barrier to growth. For example, registered organizations must dedicate a minimum of 50 percent of shelf space available for adult-use products cultivated and processed by licensees that are not registered organizations until 2025 (and 40 percent thereafter).
“The shelf space is a little tough for us just because it’s hard, logistically, to track all of that and it’s a bit odd to be compelled to carry competitor products in a certain way with a certain percentage,” said Frank Tice, a lawyer for RIV Capital. He also pointed to sustainability provisions that he said would make it harder to get rebates from utility companies.
Additional revisions include the timing of market entry fees, which now include $5 million at the time of licensure, $5 million due within 180 days of opening a second store, $5 million due when $100 million in revenue is achieved and the last $5 million due when the company reaches $200 million in revenue. The fees will be paid to support social equity applicants.
While Etain expressed excitement for advancing its retail strategy, the slow rollout of licensing for entrepreneurs beyond those with a documented marijuana conviction in their family has caused growing frustration for businesses statewide looking to enter the market. In March, a coalition of medical marijuana license holders and recreational market hopefuls filed a lawsuit in the state Supreme Court seeking to force the Office of Cannabis Management to open the retail licensing process “for all applicants immediately.”
But Etain opted out of participating in the legal battle. “We thought there’d be a better way to be able to partner here than go into the courtroom,” Totzke said.
Regardless of the delays, he says the Canadian firm sees New York as a future leading hub for the cannabis market and pointed to the state’s cultural diversity and tourism as being a prime influence of the firm’s investment.
“What we invested in was not a short-term play, but a long-term one,” he said. “If you think about New York with how cannabis has been in the past, how big it has been from an industry standpoint and where it’s going, we still think it’s going to be a top two market in the long run.”
Despite its current focus on retail, the company also plans to continue supporting the medical market and hopes medical marijuana will receive more attention from the Office of Cannabis Management to drive support for waning interest.
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