Key takeaways:
While cannabis sales in New York continue to rise, the market is becoming increasingly competitive and sophisticated.
Cannabis businesses face unique challenges managing cash, inventory, security costs and limited access to traditional banking services.
Section 280E limits the ability of cannabis businesses to deduct ordinary operating expenses under federal tax law.
Greater access to financing could provide additional capital for an industry that remains constrained by banking limitations.
Britni Tantalo is bullish on New York’s cannabis market — and the numbers give her plenty of reason to be.
Cannabis sales in the state reached $162 million in July, a 10.4% increase from a year earlier and a 5.8% gain from June, according to Headset, a business intelligence and data analytics platform that tracks the legal cannabis industry.
Britni Tantalo
“The evolution and innovation happening in the New York market now is pretty amazing,” said Tantalo, president and co-founder of Flower City Dispensary in Victor.
Tantalo made the comments during the Business of Cannabis virtual panel presented by the Rochester Business Journal and Daily Record and sponsored by Harris Beach Murtha. The discussion brought together local cannabis, legal and financial experts to examine the industry’s growth and the hurdles that come with it.
Tantalo said New York now has more than 600 legal cannabis brands, a figure that puts the state ahead of many more mature cannabis markets.
For operators, however, opportunity comes with a warning. The market is moving quickly and staying ahead of regulatory and financial changes is becoming increasingly important.
Jason Klimek
Jason Klimek, partner and co-leader of the Cannabis Industry Team at Harris Beach Murtha, discussed the legal landscape, including disputes between municipalities and cannabis businesses over local zoning requirements.
One example involves rules governing how far a dispensary must be from a school. Klimek noted that an appellate court ruling affirmed that the state’s Marihuana Regulation and Tax Act preempts local zoning laws concerning school setback distances.
That does not necessarily mean operators can avoid legal battles.
“While dispensary owners may have to litigate such matters, the town may not have the final say, especially if there is state law,” Klimek said.
He also pointed to the need for greater collaboration between dispensary operators and the state Office of Cannabis Management, saying a lack of communication can create additional challenges for businesses navigating an evolving regulatory environment.
The financial side of the industry presents its own obstacles.
Rich Farley
Rich Farley, tax partner at Bowers, discussed Section 280E, the federal tax provision that prevents businesses selling Schedule I or II controlled substances from deducting many ordinary operating expenses.
“It’s a huge hurdle,” Farley said.
He also stressed that cannabis businesses should consider their long-term goals when choosing an entity structure, rather than treating the decision as simply a tax-planning exercise.
“The answer to this question drives the decision-making process,” he said.
Judy Hulpiau
Judy Hulpiau, outsourced controller at Bowers, focused on cash flow and financial management.
Cannabis businesses can have substantial cash and inventory on hand, creating added security expenses while banking limitations can make managing finances more difficult.
For operators, she said, strong cash-flow management is essential.
Hulpiau also said rescheduling marijuana at the federal level could open the door to greater funding opportunities for the industry.
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