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Licensing continues to be a huge undertaking at New York’s Office of Cannabis Management, but Director of Policy John Kagia says the agency is also keeping an eye on trends, and adjusting accordingly.
Kagia, who oversees policy development and implementation for the Empire State’s medical, adult use, and cannabinoid hemp programs, sat down with NY Cannabis Insider for a wide-ranging interview about the current state of legal cannabis, and where the industry is heading.
Before joining the OCM, Kagia had worked in the legal cannabis industry since 2014. As a cannabis industry analyst, he’s contributed research about topics including emerging global markets, investment and capital flows, supply chain trends, product innovation, and evolving consumer behavior.
In Part 1, which we published yesterday, Kagia spoke about issues like oversupply risks, marketing rules and tax revenue.
Here in Part 2, he addresses the normalization of cannabis, setting up the state’s seed-to-sale tracking and more.
This Q&A has been edited for length and clarity.
What was the biggest surprise for you in moving to government service, after spending years in the private sector?
There have been a lot of surprises moving into the civil service. I’ll say first, having spent a decade looking at the cannabis industry prior to coming into the OCM, I had understood the industry very intimately from the operator side, but you get a very different perspective once you start seeing the sorts of issues regulators have to work through and think through and deal with.
The excellence of and the caliber of personnel at the Office of Cannabis Management has just constantly blown me away. This would be a world class team in any startup or any major, high performing organization anywhere. For all of the kind of caricatures people have of civil servants and the civil service, I’ve been truly blown away by the caliber of talent here, how hard people work here, and how committed they have been to the mission of building New York’s legal cannabis market.
Another surprise has been the creativity, agility in thinking around how to build this agency, and how to build this market with limited resources and on very aggressive timelines. I’ve just been really heartened by the way the team has risen to the challenge of working with constrained resources and needing to move with speed to try and get this market up and running. That continues to impress me: the commitment and the creativity people bring to the work every single day.
I’ve heard a lot over the past few years about the business potential for cannabis beverages. Are you seeing any data suggesting that this is a market segment that’s growing in popularity in New York?
This is actually one of the segments that we think is playing a really important role – and an increasingly impactful role – in the normalization of cannabis in our society. There’s several reasons why we’ve been quite bullish on beverages, specifically, as a category that will both help accelerate the normalization of cannabis, and be a potential point of adoption – particularly amongst consumers who are coming of age in this new legal environment.
Beverages fit very neatly in our existing social structures and social norms in the way we consume intoxicants at social gatherings. Whether it’s the coffee shop model – where people sit down and share a cup of coffee and enjoy a bit of caffeine together – or the alcoholic beverage model – sitting around the dinner table at home or outside of the home, going out to bars during moments of celebration.
Alcohol is deeply infused into our social norms. With alcohol, you have these standards of proportion: a shot of liquor is equivalent to a glass of wine, which is equivalent to a can of beer, etc. We have these frameworks by which people understand how much they’ve been drinking, and calibrate their use in that regard. I think for a lot of consumers, there’s a natural leap toward the idea that, say, a shot of alcohol, or a can of beer. or a glass of wine is equivalent to X dose of a cannabis beverage.
Eating a gummy or smoking a joint may not necessarily be quite as social as standing around with the can in your hand. We have a long historical context and a deeply ingrained cultural context of drinking, whether it’s caffeine or alcohol in social settings. The idea that alcohol does kind of lend itself in that social setting for almost going one-to-one with the alcohol drinker, does really lend itself, I think, for natural adoption.
If you look at where we were five or seven years ago as an industry, the first generation of beverages were fairly rudimentary. The flavor profiles weren’t quite dialed in, there was a lot of sugar or other sweeteners used to mask the flavor of the cannabis in them. Over time, we’ve seen incredible innovation in the beverage formulations. The drinks have become really good. I think the quality of the beverage experience, the sophistication of the flavor profiles — now you’ve got beverage flavors like pomegranate, mango with the hit of acai berry. Those sorts of very sophisticated flavor profiles, coupled with a broader kind of adoption and distribution, have really made this a fast growing and, I think, very impactful category.
Minnesota recently allowed cannabis beverages to be sold at bars, including on tap. Is this something that the OCM is considering, and why or why not?
We are watching very closely the rapidly evolving conversation around cannabinoid products in differently regulated environments — so regulated within the cannabis ecosystem, as well as through alcohol, or other channels.
We are not there yet as a state. I think it’s going to be critically important for us to just get our current set of regulations in place and build the market as it currently stands. We are monitoring the conversations that are happening at the federal level related to the Farm Bill and the cannabinoid hemp ecosystem, and we certainly kind of recognize the impact that cannabinoid hemp products are having on the broader emergence of legal, regulated cannabis in our society.
But at this point, at this moment, we are not yet discussing adult use cannabis products being sold in channels outside of our regulated campus ecosystem.
New York is standing up a seed-to-sale tracking system, but its illegal market is flooded with weed from the legal market in states like California, which also have these tracking systems. If these systems aren’t preventing diversion, is it worth the effort to do this in New York?
I think there’s several ways in which I would think about the seed-to-sale system beyond it purely being an unregulated activity deterrent.
At a minimum, the seed-to-sale system enables us to track products from the time they are seeds in the ground to the time they leave a dispensary in a consumer’s bag. This gives us — as the regulator — visibility into the flow of these products through our ecosystem. I think this is critically important.
We are trying to take lessons from other jurisdictions in terms of the challenges that they might have faced in the deployment of their seed-to-sale systems to try and build as many safeguards to prevent both diversion and inversion as a regulatory matter.
These are really complex systems, and we certainly understand that other jurisdictions have seen people try to game the system, to find gaps in the administration of those systems, to behave in an unregulated way. We will certainly be keeping a very close eye on that and taking appropriate measures if we find instances where people are diverting or inverting product out of our regulated market. I think we have been explicitly clear that that is something that we will not tolerate and to which we would hold licensees who may be engaged in those activities to account.
But that’s not the only reason why we think a seed-to-sale system is valuable. If we take a step back and really appreciate the fact that in New York, this is the first instance in which legal, regulated cannabis is being made widely available in our society. We have signals, but we don’t have any idea yet how this market is going to grow and evolve. Our ability to understand, for example, how biomass is transitioning into processed products, and how those processed products are selling through our ecosystem — I think that’s invaluable insight.
We have the opportunity to gain insight into the biochemistry of the plant, so that we’re matching the product formulations with the public health outcomes that we’re seeing. This data gives us deep visibility into that, because it enables us to track individual products with their certificates of analysis through their life cycle. We have the ability to monitor product quality issues in terms of what’s passing, what’s failing, and how our quality standards — and the achievement of our quality requirements by both cultivators and processors — is evolving over time. This is all data that would be profoundly challenging to collect in a rough and ad hoc way, if everybody was just submitting things like randomized forms and tables.
The seed-to-sale system gives us a really coherent way to monitor this market, because cannabis is a regulated substance. Cannabis is an intoxicant, and I think we have a duty and an obligation as regulators and as government that is deeply concerned about the public health implications to try and collect as much data to help us understand and refine our policy making, and indeed to steer the market toward behaviors that both optimize market outcomes, and ensure that the public safety and public health risks are well managed.
Is there any demographic data regarding New York’s legal cannabis customers that suggest anything about whether cannabis is becoming more socially acceptable?
Absolutely. One of the things we’ve seen very robustly over the last five to seven years is a very significant increase in the use of cannabis In New York.
What does that mean? One of the larger studies conducted by the federal government is called the National Survey on Drug Use and Health; it’s a national study that tracks how use of drugs — including cannabis — evolves over time, and breaks it up by age and demographic.
They have a few questions in there that are of particular interest to us: one, around past-month use of cannabis, the other around past-year use of cannabis. Between 2014 and 2022, we saw past-month use increase from roughly 9% of New Yorkers to 12% of New Yorkers. But more notably, we saw past-year use increase from 14% of New Yorkers to nearly 19% of New Yorkers. I believe one in five New Yorkers now report consuming cannabis at least once a year, and that number continues to tick up.
There’s a couple of things in there that are contributing to that growth trend, including people just being more willing to admit to the government that they consume drugs. But we think it is truly reflective of a seismic and generational shift that is happening.
Are we seeing greater normalization of cannabis and cannabis use? Absolutely, and that’s been happening over the last 10 to 15 years. It’s been a steady rise: as you have seen medical cannabis becomes legal, people see the benefits of that; adult use becomes legal in places, and people who travel to those states see the sky hasn’t fallen. More generally, there’s just been a generational shift as people become aware of the social cost of prohibition enforcement relative to the harms caused by cannabis.
There are some interesting demographic trends. Cannabis use among women has risen much faster than use amongst men — although men continue to use cannabis more frequently than women. Cannabis use amongst older adults is interesting: at the 55+ age group, you tend to see lower rates of cannabis use, but their usage is increasing faster than other groups. You’re seeing older adults almost coming back to cannabis, or seeing cannabis through new eyes, and adoption is increasing at a faster rate than we see amongst younger groups.
Does the OCM have any data regarding crime (including DUIs) and cannabis? I’m curious if there’s anything to suggest legalization has been correlated with rises or drops in crime?
Regarding DUIs, we don’t yet have good, or definitive data showing any patterns — whether the increases or decreases — of driving under the influence of cannabis post-legalization. Part of the reason why we’re going to be looking at this data very carefully is because we want to make sure that we are not recording increases of DUI(D)s by virtue of the fact that we are intervening.
Are we seeing more of these cases because we’re testing people more often? Or are we seeing more of these cases because genuinely, people are more likely to consume and drive post-legalization?
We’ve been working with partners across the state government to think through and understand traffic safety in the context of legal cannabis. We’ve had numbers of our staff participate in the governor’s road safety task force, and there’s a lot of work being done around ensuring road safety. We just don’t have sufficient data to definitively make the statement that post-legalization cases of DUI(D) have increased.
Based on your experience, can you tell me something that people who were against legalization were correct about, and something they were dead wrong about?
I think an easy one that people who were strongly opposed to cannabis were correct about was that you would see a lot more public consumption if it were legalized. I think that’s been absolutely borne out by what we see in our urban centers in particular, but also statewide.
I would say in response to that, it just goes to show you how much cannabis use was in the shadows. It’s critical to understand this consumption that we’re seeing on streets and sidewalks — places where people are allowed to consume — isn’t among new consumers. These aren’t people who decided to stop consuming just because cannabis was legalized in New York. These were generally people who were consuming in secretive, confined spaces, but now feel kind of truly liberated to consume outside of their homes because they don’t face sanction.
Another thing I would say people who were opposed to cannabis legalization cautioned against (and were correct about) is promoting tax revenue from legal cannabis solely as the reason why you should legalize. Tax revenues alone should never be, in my opinion, the reason why you legalize, even though they are part of the broader considerations for legalization.
Regarding the things that the prohibitionists got wrong: we’re now a decade since Colorado first legalized adult-use, and there were some quarters that were warning that within two or three years the sky would have fallen, and the streets would be filled with zombies. I certainly don’t think that that’s been the case. We have seen growing normalization and growing socialization. I certainly don’t think we have seen some of the worst public health and public safety outcomes that people warned against.
How does New York compare to other legal states when it comes to tax revenue? Where do you think the tax revenue will be in five years based on the information you have now?
It’s a bit of comparing apples and oranges, because tax revenue is really based on the number of retailers you have open — which is generally where the bulk of the tax revenue tends to be collected — and we’re currently at roughly 150 stores open, and so our tax revenues are reflective of us having that that many stores. I don’t think it’s necessarily fair to compare our tax revenue totals collected to date against, you know, a place like Colorado, where you’ve got over 1,000 dispensaries.
I do think, though, as we look out over the next few years and New York goes from being 150 stores to a couple of thousand retail dispensaries, that we will have one of the most robust tax collection portfolios in the country. I have no doubt New York’s is going to be a very robust cannabis consumer market. We already know that New Yorkers currently are spending five to $7 billion on cannabis as is — that is the market that we are looking to serve with the regulated market.
Legalization’s intent in New York was not to create new consumers. It was to transition the very robust, very sophisticated consumer market in New York into a legal, regulated framework. While our tax revenue numbers may currently be modest — simply because our retail base is still growing — I think as we look down at the next two to three years where we’ll have hundreds of stores open. We will see retail opportunities, we’ll be talking about cannabis events, and will hopefully soon be talking about the social consumption ecosystem.
We’ll also be looking at all of the ancillary sectors that support legal, regulated cannabis, and the innovation that will be happening out of our hemp ecosystem. We’re very, very bullish about the growth and health of the cannabis ecosystem in New York.
We are seeing very, very green shoots, but I wouldn’t want people to think where we are is the end of the story. This is just the beginning of what I think is going to be a very vibrant economy in the state of New York.