On Monday, New York’s Cannabis Control Board (CCB) awarded 28 conditional cultivator licenses. More importantly, the Board announced the winners of the first retail licenses, social equity applicants and non-profit entities involved in social justice efforts.

While social equity applicants welcomed the new permits, analyst Pablo Zuanic from Cantor Fitzgerald believes NY state cannabis regulations “may not represent a significant upside for MSOs once recreational cannabis sales begin.”

Although the potential consequences of the NY cannabis regulation model is still unpredictable, Zuanic assumes an MSO could still potentially scale up its own brands if using third-party processors and cultivators.

However, the resulting economics would be different for MSOs if full, unrestricted, vertical integration had been allowed.

“The rules make it difficult for medical incumbents (mostly owned by the MSOs) to build sizeable market share: the cultivation cap for medical incumbents was set at only 100K sq ft; they will not be allowed to expand production at present; they cannot process more than 55,000 lbs of biomass; [and] medical incumbents can only begin retailing recreational three years after actual recreational sales begin,” Zuanic said in an industry update on Monday. “The 282 pages of rules do not mention the 'right to play' fee of $20Mn that the MSOs could have paid to be allowed a higher cultivation cap and more recreational stores.”

He noted that in this context, supply, quality and accessibility issues may hamper the start-up phase of the state’s recreational program. In short, when and how many …

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