Connecticut is about to launch the recreational marijuana market ahead of New York

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The expected $ 750 million Connecticut recreational marijuana market is unlikely to match the size of neighboring New York, but it is poised to launch first and may turn out to be equipped with an equally strong, if not stronger social equity program, they agree. industry experts.

State regulators recently said they are aiming for a relatively full rollout by the end of the year 2022, while New York’s forecasted market of more than $ 2 billion is likely slipping into. spring of 2023.

The MJBizFactbook projects that Connecticut’s adult sales could amount up to $ 250 million in the first full year and up to $ 750 million by the fourth year.

The size of the market and its proximity to New York have spurred a steady stream of acquisition activity over the past three years.

Chicago-based multi-state marijuana operator Verano Holdings is the latest company set to enter Connecticut, announcing last week agreed to acquire an existing medical cannabis growing and processing facility in a $ 131.8 million deal.

The MSO also agreed to buy a dispensary and closed the purchase of a second store.

New benchmark of social equity?

New York was advertised as one potential gold standard of social equity, but Connecticut’s program looks just as robust.

“Surely a priority is to consider the damage caused by the war on drugs and to think about the affected communities disproportionately and how to reinvest in them,” said Kaitlyn Krasselt, director of communications for the Connecticut Department of Consumer Protection.

New York and Connecticut were part of a regional effort to coordinate an overall framework for adult use, but each program has its own flavor.

The Connecticut program has these aspects:

  • Half of the recreational marijuana stores will be allocated to social equity applicants.
  • Existing medical marijuana manufacturers and dispensaries can convert to adult use if they meet certain requirements and pay a fee. The fee is $ 3 million for producers and $ 1 million for dispensaries. This fee can be halved if the MMJ participates in a social equity business.
  • The first round of cultivation licenses will be awarded to social equity applicants who locate their facilities in areas disproportionately affected by the war on drugs.

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Otherwise, licensed operators will be chosen by lottery, but state regulators have yet to determine the number of permits in each of the nine categories.

“We haven’t fixed those numbers yet,” Krasselt said. “We are working on a market analysis and this will determine how many licenses we will issue.”

So, nothing happens until the Connecticut Social Equity Council takes action.

“What kicks it all off in licensing is that the Social Equity Council provides the details (for that program),” said Michelle Bodian, a senior associate attorney in Vicente Sederberg’s Boston and New York offices and head of licensing. Connecticut.

The Social Equity Council has discussed income and residency requirements, but has not yet defined the criteria that will determine where the equity licenses will go.

Once done, then within 30 days, the first application for a social equity cultivation license will open.

Existing operators give themselves an edge

Connecticut Adult Use Marijuana Act allows current medical marijuana dispensaries to apply for a hybrid MMJ / adult use license and then begin selling recreational cannabis products within 30 days, provided growers have at least 250,000 square feet of growing and processing space.

Analysts had expected sales to launch by mid-2022 with existing medical cannabis operators.

But state regulators recently said they are looking into a more comprehensive roll-out with others, including social equity firms, towards the end of 2022.

The advice to companies interested in Connecticut’s adult marijuana market is similar to that for other states: check with local governments to see if they will allow adult sales, and don’t freeze properties too early unless you have financial resources pockets deep enough to do so.

“A lot of municipalities are making decisions now whether they want to allow (adult use),” Krasselt said. “So, before buying a building, I’d check in with local officials.”

In New York, nine of the 10 licensed MMJ businesses are multi-state operators.

Five multi-state operators are present in Connecticut and, once Verano concludes a pending agreement, they will operate 12 of the 18 MMJ dispensaries.

Massachusetts-based Curaleaf and Illinois-based Green Thumb Industries both have vertical operations with four and three dispensaries respectively, while Florida-based Trulieve Cannabis has an MMJ store.

New York-based Acreage Holdings, which has shrunk in recent years, owns three dispensaries.

The rest of the dispensaries in Connecticut are owned by private companies.

MSOs dominate cultivation

The big players dominate the state’s cultivation sector.

Only four medical marijuana grow licenses have been issued, one to Curaleaf and three to private operators who have since been acquired from larger interests:

As a result, analyst Pablo Zuanic of New York-based investment banking firm Cantor Fitzgerald wrote in an investor note: “We believe the four existing drug growers will initially grab the lion’s share of the wholesale market. rec, at least for the first two days. years. “

Vicente Sederberg’s Bodian said there is a keen interest in the adult market within Connecticut and neighboring states.

One of the big questions is the upfront cost of entering a market. In general, he said, Connecticut has a low barrier to entry in terms of tuition fees.

He said the two-step licensing structure, which allows a company to obtain a provisional license while applying for final licenses, will also help provide flexibility and defer real estate costs.

“I think the state is trying to help companies not get stuck in real estate,” Bodian said.

But, he added, “if a company is interested in a particular municipality, then it’s important to start these conversations right away.”

Some companies, he said, are particularly passionate about certain cities and there’s no reason not to block real estate “if they can afford it.”

He said some favorite spots are the rail lines north to New York City, Fairfield County, and cities like Hartford and New Haven; the latter is the home of Yale University.

“I think Connecticut is taking a one-size-fits-all approach,” Bodian said of social equity provisions, low tuition fees, and variety of licensing types.

“It appears to be strategic and thoughtful about the practical implications of what it takes to afford to apply.”

However, he said, like other markets that have bragged about having a strong social equity program, “we’ll have to wait and see how it turns out.”

Jeff Smith can be reached at [email protected].

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