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The legal cannabis market in New York is trying to avoid a bad crash

The legal cannabis market in New York is trying to avoid a bad crash

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Like other ambitious college graduates, Alex Norman tried his luck on Wall Street. Then he became a drug dealer. Now Norman hopes to bring his experience and acumen to New York’s newly legalized cannabis market.

He is one of hundreds who have applied for a license to operate a retail cannabis dispensary. As part of a special program, New York has reserved 150 of the coveted licenses for people like Norman who have already been convicted in court in connection with cannabis. To be eligible, they must also demonstrate experience running a profitable, legitimate business.

The idea is to share the bounty of a legal cannabis industry with those who have borne the brunt of the government’s drug war. “We want to go to those who are being persecuted and now say: In a legal market you can trip up,” said Trivette Knowles, spokeswoman for the state office for cannabis management.

It is, as Norman put it, a “curious” development for someone like him, who has operated in the shadows of crime for years, and is now trying to cooperate with the government. “At this point I have nothing to hide. It’s almost a badge of honor to be arrested for cannabis.”

New York was only the 15th state to legalize the possession of recreational cannabis. After a slow start, this is shaping up to be a pivotal year for the emerging market. The first legal sale of recreational cannabis took place on December 29 at a newly licensed Manhattan dispensary. Elected officials, community leaders and hundreds of cheering onlookers turned out to witness what is perhaps the city’s most famous drug trade.

Alex Norman in Bedford-Stuyvesant, Brooklyn, New York Alex Norman: “It’s almost a badge of honor to be arrested for cannabis” © Pascal Perich/FT

More dispensaries will open throughout the year, selling cannabis vape pens, edibles, vintage blunts and more. The state’s existing illicit market is estimated to be worth US$5 billion annually. Through legalization, New York hopes to generate more than $677 million in tax revenue a year while reducing the cost of cannabis-related incarceration.

But New York is opening up for business while cannabis markets elsewhere are collapsing. In California and Michigan, for example, a production glut has caused wholesale prices to fall by 50 percent or more compared to a few years ago, devastating farmers. Also, the high taxes imposed by some states have led many consumers to shop in the illegal market.

“Cannabis is currently in a recession, if not a depression,” said Jeffrey Hoffman, a cannabis advocate, activist, and avid user, who expressed concern about the outlook in New York. “If you want your regulated market to thrive, you need to make your legacy market a partner — not a competitor,” he advised.

Axel Bernabe, chief of staff and senior policy director for the New York City Bureau of Cannabis Management, believes the state has learned from the experiences of others and remains hopeful its legal market will thrive.

“Once you give people enough outlets, quality-assured products and convenience at a comparable price, you will make the transition,” predicted Bernabe, a former antitrust attorney.

People line up to buy cannabis products during the opening of the first legal recreational marijuana dispensary in New York City's East Village on December 29People line up to buy cannabis products during the opening of the first legal recreational marijuana dispensary in New York City’s East Village December 29 © Eduardo Munoz/Reuters

New York is trying to foster a robust cannabis market that supports small and local businesses while avoiding a repeat of what happened when it instituted a state lottery in 1980, creating jobs from its longtime Harlem base. “It’s really created a vacuum there,” Bernabe said.

To support prices, the state will slow the pace at which licenses — for growing, processing, and selling cannabis — are rolled out. New York has also limited ownership to a single license in hopes of thwarting the consolidation that has been developing elsewhere.

However, success may also depend on the complicated task of getting old traders like Norman into the legal market.

As Bernabe acknowledged, drug dealers generally do not trust the government. “They’re all afraid that if they admit they did business, they’ll be held liable for back taxes,” he said, citing US tax law provisions.

As Hoffman noted, hiring traders isn’t easy either. “How do you reach the legacy market and say send us your reps?”

Still, New York has tried to open discussions through defense attorneys and community groups. It has also launched a mentoring program to empower traders to conduct legitimate business.

Given his experience, Norman seems like a promising candidate. The son of Cuban immigrants – a law enforcement officer and hairdresser – grew up in working-class Queens and graduated from Rutgers University in 1995 with degrees in Political Science and Latin American Studies.

“I thought I would become a lawyer,” he recalls. Instead, a friend who worked on Wall Street got him a job at an over-the-counter brokerage firm — essentially a “boiler room” — that did hundreds of cold calls a day in hopes of persuading people to buy penny stocks. He passed his Series 7 broker exam and after around 18 months he made it to Merrill Lynch where he worked in the private banking group.

“Even the day after Thanksgiving, we wore suits and ties,” Norman recalls of the formality of his old job. “I appreciate Wall Street a lot more than other industries. They produce. you go ahead That’s it.”

He left Merrill in 2003 after the first Internet bust, planning to use his severance pay to pay for business school. But while biding his time, the avid weed smoker put together his own marijuana delivery service. Soon it was too lucrative to give up. (“Always be on time,” Norman said, revealing the secret of his success).

He began growing his own plants in his Brooklyn basement. He suspects the smell prompted a neighbor to give him up after his second harvest. Norman pleaded guilty to possession of 10 pounds of marijuana in 2005 and received three years probation with some attorneys. (Others who applied for New York’s special licenses have served decades in prison for participating in much larger drug operations).

Since then, Norman, now 50, has developed his own cannabis lifestyle brand, Budegawhile the legal markets in states like California and Colorado are being closely watched.

How does he think New York will fare? Many consumers will remain in the black market, Norman predicted. Still, legal pharmacies should attract a clientele and enjoy a window of prosperity before the market saturates.

“They will have a term of around three to four years. The tourists take advantage [the dispensaries] – and gentrifiers who don’t have a local connection. . . These stores will make money.”

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