NY licensed growers still struggling years after pot legalized

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By Kelsey Brown | Times Union, Albany

Albany, N.Y. — When New York legalized recreational marijuana four years ago, Kate Miller was among the many veteran cultivators interested in getting a foothold in the nascent industry.

For her and other longtime hemp farmers, the pitch included the promise of salvaging losses they endured in that industry after the federal government legalized the production of hemp in the 2018 Farm Bill, triggering an oversaturated market that for many cultivators became unsustainable.

“The state realized that the hemp market had gone sideways,” said Miller, who has grown culinary and medicinal herbs at her Weathertop Farm in Otsego County since 2010. “They wanted to do something for all those hemp farmers that had put lots of time and energy and finances into a market that then rapidly failed.”

Thankfully, Miller said, she didn’t fully invest in hemp. She grew it on about two-and-a-half acres, and when Gov. Kathy Hochul announced hemp farmers would be the first to get their adult-use conditional cultivator licenses in April 2022, Miller was among the first 52 to be granted a license.

But nearly three years later, Miller and many other cultivators say they are struggling to stay afloat in a retail cannabis industry that has been hobbled by illicit sales, unlicensed out-of-state products, imbalanced competition and myriad regulations that have impeded their chances of success. The promise, Miller said, that farmers would be thriving roughly two years after the retail marijuana industry was launched has simply fallen flat.

Miller estimated that she’s invested $300,000 in the past three years growing her cannabis business, Peregrine Toke.

“Much of that is lost revenue,” she said.

She’s not alone.

In November, the Cannabis Farmers Alliance, which represents a group of small cannabis farms, filed a lawsuit against the state Office of Cannabis Management and the Cannabis Control Board alleging the “rollout of legalized cannabis in New York has been disastrous.” The complaint alleges regulators have ignored public concerns about its rules and handicapped the industry’s early stakeholders, many of whom leveraged nearly all of their assets to get a foothold.

The lawsuit also asserts that “small cannabis farmers in New York are facing severe financial distress, with 97% operating at a loss, nearly two-thirds under a 1% profit margin, and over 90% in need of operating funds to maintain solvency. … Without relief, the industry is at risk of collapse.”

‘The guinea pigs’

In the early stages of the rollout of the retail marijuana market, Miller said, growers were told they’d have to secure their crops with 8-foot-high fences. Many of those eager to get a jump in the business invested the funds to build them, only to later be informed they would only be required on a case-to-case basis.

Regulations, including those governing heavy metal content on products, have also been a moving target. California and Colorado test cannabis for arsenic, cadmium, lead and mercury. New York is one of the only states to test cannabis for nickel and initially had a low threshold for detecting it. However, the state Office of Cannabis Management changed the regulations in October 2023 once they realized it was too low, but Miller said by then many farms had failed the lab tests and farmers dumped their entire crop.

“There’s so many incidents like that where we lost money,” Miller said. “That’s part of being the first in line — you get to be the guinea pigs. There’s an understanding of that, but at a certain point, it just becomes unrecoverable.”

Miller has built and operated a successful farm business for over a decade, but has suddenly found herself “in a really precarious financial position.” She said it’s painful to think about the losses she’s suffered: maxed-out credit cards, borrowed money, downsized staff, and the closure of her retail store.

“My farm is my life,” Miller said through tears. “If I lose my farm, I not only lose my income (and) business — I lose my home.”

Licenses: Late and Stacked

The first adult-use cannabis retail store, Housing Works Cannabis Co., didn’t open until Dec. 29, 2022, despite the first group of growers receiving their licenses in April 2022. By the end of 2023, there were 41 adult-use cannabis retail dispensaries across New York, far short of the goal that regulators and lawmakers had projected.

Cannabis farmers who were part of the first licensees grew cannabis but had nowhere to sell it. Thousands of pounds of product ended up sitting in stockpiles, only to be dumped into biomass and distillate and sold for far lower prices.

Tess Interlicchia, owner of Grateful Valley Farm near the edge of the Finger Lakes in Steuben County, is a nurse practitioner who has recommended cannabis to patients since 2019. After the crash of the hemp industry, she turned to cannabis hoping for a solution, but instead, she said was “harmed beyond belief.”

Interlicchia lost income when she pulled back from her medical career and invested about $100,000 to grow cannabis. The investment included money borrowed from friends and family members. Last year, she was forced to sell a tractor to help pay her bills but is “still in a hole.”

“I had no place for my crop to go,” Interlicchia said. “We’re just losing money. It’s been hell.”

Nearly four years after New York legalized recreational marijuana use, there are more than 300 marijuana retail shops in New York. While it is less difficult to get products into licensed stores, other challenges have emerged and illicit cannabis is still cutting deeply into the legal market.

Steve Halton, owner of Real Life Botanicals, a cannabis farm in Madison County, said operators who are “stacking” licenses have been detrimental to farmers. The practice allows a grower to obtain multiple licenses by filing applications under different names. And many farmers said that regulators know it’s happening but are not stopping it.

Halton explained that when growing hemp, he was required to report the GPS coordinates of his field. The same is required with adult-use cannabis, but overlapping grow licenses are common.

“If there was someone else that had the same coordinates or (was operating) within the same farm, I wouldn’t be able to grow there,” Halton said. “But somehow, there’s 10 to 12 licenses on the same location. It just doesn’t make sense.”

Licenses have strict limitations on the amount of cannabis one cultivator can produce and the size of the parcels where they can grow. A recreational cannabis cultivator license allows for a maximum of 50,000 square feet — less than two acres — while a microbusiness license limits growers to a maximum outdoor canopy of 10,000 square feet.

“We have weird rules,” acknowledged Patrick McKeage, director of regulatory operations for the Office of Cannabis Management.

Multiple growers can be located at the same location, and be partners and share resources with one another, he said, but one grower is not permitted to have sole control of multiple licenses. From the outside, McKeage said, stacking is an issue, but there are also cases that may appear to be license stacking that are not.

The cannabis office announced a new agency, the Trade Practices Bureau, at its Feb. 14 board meeting. The bureau, which McKeage said will be comprised of about 20 individuals, will “sit between enforcement and compliance,” investigating issues like stacked licenses and inverted products.

“It was just all about getting licenses,” McKeage said. “Now, we’ve got to make sure people are following the rules who have a license.”

‘ROs’ and out-of-state growers dominating

Cannabis growers were promised time to build their brand and stabilize their businesses in the market before “registered organizations,” or medical cannabis manufacturers and dispensaries, entered the market, Miller and Halton said.

When the state allowed the organizations to enter the retail market in January 2024, it was earlier than many growers had expected. Miller said she noticed a price shift in product, with those organizations and their established grow operations able to offer cannabis at lower prices. Some cultivators refer to it as the “Walmart effect.”

The registered organizations have control of their entire supply chain and have different regulations than retail license-holders, with the ability to grow huge canopies, operate multiple dispensing facilities, while being backed by a level of financial security that allows them to dominate over small growers.

Growers also say they are being impacted by the inversion of cannabis products, alleging that out-of-state brands have flooded most dispensaries — and are being sold illegally.

Michael Yager of Yager Farms said he didn’t expect New York to create an effective cannabis industry immediately. But what has disappointed Yager, he said, is the amount of inverted cannabis products coming into the state and the Office of Cannabis Management’s muted response.

Yager said “it’s difficult to compete economically” with cannabis operations based in California which are able to grow on 100 acres. It makes sense, he added, that dispensaries are buying the cheapest products. Halton added, “the lack of enforcement is killing us.”

“The ROs and inversion are making such price compression that it’s not making an equitable market,” Halton said. “OCM doesn’t care as long as they collect their tax money.”

There also was supposed to be “seed-to-sale” software used by growers that would help combat the problem. Dean DiPilato, an attorney whose Onondaga County firm, Centolella Law, represents the not-for-profit farmers alliance, said that while farmers have invested in the required software, including Miller and Halton, the state has been slow to implement it.

“Small farms have already invested in the critical track-and-trace technology the state required, yet its delayed rollout has not only hurt the farmers, but also undercut one of the most effective tools for preventing illegal product from entering the supply chain,” DiPilato said.

When properly used, track-and-trace ensures transparency from “seed to sale,” preventing the inversion of illegal product into the marketplace and safeguarding consumers by confirming that every product sold is grown, tested, and sold in compliance with the law. DiPilato said it is essential, not only for leveling the playing field for small farmers, but also for protecting the overall health and integrity of New York’s cannabis industry. If cannabis is found to have fungus or unsafe THC levels, it could easily be tracked to the source.

McKeage said the Office of Cannabis Management is finally getting its seed-to-sale program running, which he said “could really help trigger some of these investigations” by its new Trade Practices Bureau.

‘A price beater, not a price setter’

When New York growers finally got their product in retail stores, they were concerned about the pricing due to the high quantities of indoor cannabis that registered organizations and out-of-state growers have been able to provide.

It took Halton over a year of being in business to make his first sale in November 2023. He tried selling an ounce of cannabis to a retail shop for $100, but the business was already getting an ounce of indoor cannabis for $80. Halton was told to bring his price down to $50.

“I had to come in as a price beater and not a price setter,” Halton said.

Halton has since been able to get his cannabis brand Real Life Botanicals in 19 dispensaries. He is one of the few cannabis growers profiting in the industry, where 97% of cannabis farms are operating at a loss, according to a survey conducted by the 185 members of the Cannabis Farmers Alliance.

Halton said that “a lot of farmers thought the streets were going to be paved in gold in cannabis,” but it’s an industry that is embedded with expenses in every step of the process. While seeds and labor are costly, Miller said the post-harvest costs — trimming, lab testing, packaging — are even more expensive.

Initially, there were limited options where growers could get their crops processed and tested, which allowed for the few in operation to set steep prices. A year ago, Miller said, it cost $1,200 to $1,400 to test a batch of cannabis. Now it’s around $700.

In 2022, Tom Szulist of Singer Farm Naturals and Innocence Cannabis grew 2,800 pounds of cannabis on an acre of his own land and an acre on another cultivator’s land.

“There were no outlets for it,” Szulist said. “We were forced to have it all concentrated.”

He explained that 40 pounds of cannabis is converted to one kilogram of distillate, which is worth about $10,000. Szulist said he received around $300 a pound for his cannabis, which is low. The U.S. Cannabis Spot Index nationwide average for a pound of cannabis is around $937.

In June 2023, Szulist’s manufacturer advised him to get into the edibles market. Szulist put down a $50,000 cash deposit to make cannabis-infused gummies, but because he only has a cultivator license, he was not able to distribute them. He also wasn’t able to take possession of the 35 kilos of distillate he had processed, because he hasn’t been granted a microbusiness license.

He became reliant on a manufacturer to distribute his product but that wasn’t an ideal situation. “They got their own product line, so they really don’t care about me,” he said.

Szulist explained that manufacturers make split deals: he would retain ownership of 70% of the final product with 30% going to the manufacturer. The manufacturer, he said, had other deals that were 60/40 or 50/50, so they stopped processing his product.

“That’s the kind of abuse that the farmers are under,” Szulist said. “We are the lowest on the totem pole and we have not been given any rights as cultivators.”

Microbusiness as the last hope

The microbusiness license, which allows licensees to cultivate, process, distribute, and sell their own cannabis product, is what many growers say they are looking to as their final hope to salvage their businesses.

Rather than have to sell their products to dispensaries at reduced prices, growers would be able to sell to consumers directly. McKeage, with the Office of Cannabis Management, said he is happy to see people applying for the license as regulators want to ensure “small farmers are able to succeed.” There are approximately 10 microbusiness retailers open, and he estimates that number will double or even triple this year.

“It’s a way of not necessarily having to deal with or rely on a bigger company to essentially get your product to market,” McKeage said. “We definitely want to offer that opportunity to folks.”

Miller, the struggling Otsego County cultivator, said the microbusiness license is “going to be the hill that I die on. Either it will work or I’ll go out of business.”

Justin Merkel, founder of Starlit 420, said that it’s been “practically impossible” to find a good location to open his dispensary. Ideally, Merkel said, he’d open a dispensary in a populated area with good foot traffic and successful neighboring businesses.

To open a dispensary requires the cultivator’s retail premises to be within 25 miles of the cultivation location for cities with a population under one million; cities with a population exceeding a million must have the retail location located in the same county. Dispensaries cannot open within a 1,000-foot radius of a registered organization, 200 feet from places of worship and 500 feet from schools.

For Merkel, whose operation is in Genesee County, it’s been a struggle to find a location within 25 miles of his grow operation. In looking for spaces to rent, Merkel said he’s noticed leases go for five to 10 times the normal price, adding, “Everyone out there is sharks.” Because of that, Merkel is looking to purchase a building.

“The ambition, the drive, the heart — all that gets sucked right out of you by corporations and greed,” Merkel said.

Now Merkel is considering selling his home and moving to New York City or Long Island to have a better chance at opening a dispensary. Merkel has owned and operated a heating and cooling business for eight years. Moving would mean the dissolution of the contracts and connections he’s built for both of his businesses. “I have to uproot my entire life,” he said.

Szulist applied for a microbusiness license to sell his cannabis to consumers in November 2023. The Office of Cannabis Management opened his account in March 2024 and then his application went for a background check.

For nine months, Szulist said he had no communication from the state about his application.

“After spending time on a suicide hotline, I realized that I don’t need this stress in my life,” Szulist said.

The dispensary Szulist built has been ready since February 2024. He asked the state cannabis office to either accept or reject his application so he could get on with his life in October. It took months before he heard back, though now he’s been told by regulators that his license is in its final stage of review.

Cannabis Farmers Alliance

A small win for cannabis farmers is legislation signed into law in December that expands the definition of crops to include cannabis, allowing farmers to receive an agricultural assessment and other additional protections.

There isn’t a quick fix to the crisis that cannabis growers in New York are facing, but there is a consistent complaint from the farmers who feel their interests are being brushed aside by cannabis regulators.

The farmers, almost all of whom are founding board members for the Cannabis Farmers Alliance, an organization dedicated to advocating for the rights of small businesses and cannabis growers, said they need to be heard and understood by the Office of Cannabis Management.

Many feel that a major issue with the office is that the people creating the regulations do not understand farming.

“There needs to be some people in management at OCM who actually understand what it’s like to be a farmer, a producer, a processor, a retailer,” Miller said.

Oftentimes, farmer participation and representation comes from “the people who are really successful, who have the time or energy to be involved,” Miller added, so it’s necessary for farmers of all income levels to have a seat at the table.

Halton said he doesn’t expect a big return, but does hope that farmers are given the opportunity to succeed. Halton said that “the playing field is not level” and that cannabis growers just need the opportunity to do what they’re good at: grow.

That starts, Halton said, with stopping inversion — the influx of out-of-state product — and allowing local cultivators to expand their canopy to grow higher quantities of cannabis; which will be even more necessary to prevent market shock if there is a crackdown on inversion and illicit product is eradicated.

The issue is not the farmers, Miller said, because farmers are resilient — often adapting and pivoting to success amidst challenging weather, crop shortages and invasive pests.

“This failed market is not because of crappy decisions that the farmers made,” Interlicchia said. “It’s across the board. It’s because of the regulations imposed on us. When 97% of farmers were operating at a loss, that’s not because we’re making terrible decisions.”

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